Snap, crackle and … ? The future of Snapchat

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Snapchat

Last week the company formerly known as Snapchat – Snap Inc. – made its debut on the NYSE, raising $3.4B in an oversubscribed IPO, the largest U.S. tech IPO since 2014.

Snap may be best known for its ephemeral social messaging app – complete with puking rainbows – but its website and SEC filings boldly state that “Snap Inc. is a camera company.” A few weeks ago, it made its Spectacles – sunglasses with a built-in video camera – available for purchase online in the U.S. So whilst this is technically true, Snap currently generates all of its revenue from advertising – most of which it sells itself.

So what does it mean to be a camera company – and what’s next for Snap? Here are three possible paths we see Snap embarking upon:

Redefining communication

As Farhad Manjoo writes, “Snap wants to enable the cultural supremacy of the camera, to make it at least as important to our daily lives as the keyboard.” The prevalence of cameras in everyone’s pockets is “changing the kind of art and entertainment we produce.” Snap’s software, with augmented-reality features such as lenses, face filters and geo filters, goes further, adding emotional cues to interactions, bringing digital communications much closer to the realm of face-to-face interactions.

CEO and founder Evan Spiegel explained to the LA Times, “Five years ago, we came to the realization that the camera can be used for more than capturing memories.” He added, “We showed it can be used for talking. The dream for us is expanding the camera and what it can do for your life. It has capabilities beyond making memories.”

As Ben Thompson writes in Stratechery, “instead of keyboard first, Snap is camera first.” Ben argues that producing hardware – closely integrated with software – enables Snap to be somewhat like Apple, adding that “Spectacles are a perfect example of what is possible: they are differentiated not by their hardware features but by their integration with Snapchat.”

Turning TV vertical

Snap has recently announced a number of exclusive content deals with Discovery, A&E Networks, BBC Worldwide, the New York Times and Time Inc. NBCUniversal invested $500M in Snap as part of the IPO and plans to continue partnerships for content such as the Olympics, The Voice and SNL. Snapchat’s Discover channels, serving premium publisher content, enable advertisers to buy ads in context, much like traditional TV buying. Snap’s S-1 filing demonstrates a desire to monetise its user base by capturing TV ad revenue:

Worldwide advertising spend is expected to grow from $652 billion in 2016 to $767 billion in 2020. The fastest growing segment is mobile advertising, which is expected to grow nearly 3x from $66 billion in 2016 to $196 billion in 2020. We believe that one of the major factors driving this growth is the shift of people’s attention from their televisions to their mobile phones. This trend is particularly pronounced among the younger demographic, where our Daily Active Users tend to be concentrated.”

To this point, Snap has argued that its ads are better than TV’s.

 Escaping from Facebook’s shadow

Last year, Facebook launched Instagram Stories, its own version of Snapchat’s feature with the same name – the likely cause of a significant slowdown in user growth  for Snapchat. Instagram CEO Kevin Weil was forthcoming with the admission that the feature was “built on a format that Snapchat invented.” Both WhatsApp and the core Facebook app are following suit with their versions of ‘stories.’ Just this week, Instagram Stories added geostickers, copying a popular Snapchat feature. So what can Snap do?

Benedict Evans suggests that Snap differs from Facebook by focusing on creation rather than passive consumption. Rather than using metrics, optimising new features algorithmically based on its user activity data, Snap is ‘surfing its users’ – testing and iterating. Benedict reminds us that “thinking about the image sensors on a smartphone just as taking ‘photos’ is very limiting.” He writes, “Snap thinks that it’s mining imaging, touch, GPUs and experience just as Facebook mined sharing” – and that this focus on creation may lead it to new paradigms that are more difficult for Facebook to follow. But will it be possible for Snap to scale this growth and product vision significantly, from ~150M users to a billion?

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If you’d like to discuss the opportunities that exist within vertical content and video advertising, online communications or just find out about our favourite Snapchat lenses, please don’t hesitate to get in touch.

About Mike Newman

Mike Newman is a Consultant at MTM. He is interested in how technology is changing the way we interact with each other and consume media, with a particular focus in music, sports and all things bleeding edge