Snapchat is on a mission to join the online advertising elite and the newly filed Snap IPO is the hottest topic in social ads right now. CEO Evan Spiegel is confident enough Snapchat will make it that he’s swapped his $500,000 annual salary for $1 and stocks in the company – following the likes of Facebook CEO Mark Zuckerberg and Google chiefs Larry Page and Sergey Brin.
So Snapchat’s ambition is already in good company but growth on the network is stalling at a time when LinkedIn and Twitter are having to rethink their advertising strategies. So will Snapchat be the next ad giant or will it encounter the same teething problems Twitter is currently suffering?
Social IPO success is not guaranteed
When Twitter went public in 2013, there was little doubt it would follow Facebook’s epic lead. However, just three years later, Facebook reported a 53% surge in profits during the final quarter of 2016 while Twitter is reporting losses.
This is in stark contrast the the investor interest Twitter generated back in 2013, raising $1.8 billion and building a market value of almost $25 billion. Success was guaranteed – or at least that was the general consensus – but things haven’t quite gone as planned for the little blue bird.
While Twitter still has the resources to catch up with the advertising giants, it hasn’t matched expectations and this has dented investor confidence and hit the company’s stock value. Social IPOs aren’t the instant success story many investors believed them to be and Snapchat doesn’t have the same benefit of assumption Twitter had.
Snap wants to dominate the social camera scene
Snap Inc. doesn’t describe itself as a social tech or messaging firm; it actually calls itself a camera company. Yes, you read that right. CEO Evan Spiegel believes cameras are the gateway to mobile phone usage and you can see how this philosophy runs throughout Snapchat and the company’s other products.
“Our products empower people to express themselves, live in the moment, learn about the world, and have fun together” – Snap Inc. website
The firm also pioneers Spectacles: a bold range of sunglasses with cameras built into the frames. The idea is that people can take 360-degree videos of their surroundings and share them with the world. It’s an ambitious move – one that shows the kind of direction Snap Inc. sees itself going.
The question is, will investors (and, more importantly, Snapchat users) be as excited about the plans as Mr Spiegel is?
Differentiate or die?
It’s still early to put a verdict on Snap’s IPO but it already looks like success will hang on the firm’s ability to differentiate itself and carve a unique spot in the market. If Spectacles take off and Snap becomes the first tech company to crack wearable cameras, then the future could be rosy.
However, if the firm struggles to make the venture into hardware (think Google Glass), or find another niche, then things start to look very difficult for Snap Inc. It’s already leaking money – roughly $500 million in the last 12 months – and this isn’t going to change overnight. The company seems to be betting on revolutionizing the messaging industry with its hardware, which sets some pretty high stakes on the table.
All of a sudden, Twitter’s concerns seem pretty insignificant in comparison.
It looks like a case of differentiate or die for Snap Inc. and it could be a slow, painful death if it plays the wrong cards. Instagram is the big contender Snap needs to compete against and Facebook – who offered $3 billion to buy Snap in 2013 – has already copied one of Snapchat’s best features and introduced it to Instagram.
The risk for Snap Inc. is that Facebook, Instagram and its other social competitors will supress any software innovation it can come up with. Which could, in turn, stop it acquiring the kind of users it needs to establish itself as a tech giant – and any chance of becoming an advertising powerhouse.
What about the advertising on Snapchat?
One of Snap’s biggest strength is that advertisers are very excited about the platform. Promoted posts and full-screen video ads are capturing the attention of some of the world’s biggest brands, including Nissan and L’Oréal to name a couple. Innovation is at the heart of Snapchat advertising, just like everything else the tech firm touches and it boasts an even younger average userbase than Instagram.
For advertisers, the problems with Snapchat lie in the sheer amount of content you have to produce in order to maintain a presence on the network. You also don’t get anywhere near the kind of granular targeting options that come with Facebook and Instagram.
So could Snapchat become the next social advertising giant? It’s difficult to say at this point. By far its biggest strength is its platform is tailor-made for video advertising but even that won’t be enough if it can’t get its userbase and finances in order. Either way, it will be interesting to see how things pan out for Snap Inc. and we’ll certainly be hoping it can provide us with another advertising platform to work with in the near future.