The Case for Snap Inc. Optimism

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What will social media look like in 2018? Will the government regulate the dominant tech companies? Will Facebook, Google, and Twitter be required to disclose more information about who is using and advertising on their platforms? Will there be more huge media mega-mergers? All of these are interesting topics to consider as we start the new year. 

But the topic I’m most interested in is the fate of Snap Inc. Snap went public in March and after briefly hitting a high under $30, it has struggled and currently sits around $15. For a well-known and well-funded company, that’s pretty bad. 

 
  

And Snap has received plenty of bad press because of this slide and other poor decisions. There have been stories about warehouses full of unsold Spectacles, indicating a huge miscalculation about their potential sales. Its main product has been ripped off by Facebook, which has rolled out Stories on all its platforms  and begun to aggressively pursue opportunities in augmented reality and augmented reality advertising.

And yet, I think there is a great deal of hope for Snap.

First, there is a strong trend  moving to separate the “social” and “media” pieces of our digital experience and one that Snap is committed to. I cannot put this any more succinctly than Taylor Lorenz, technology reporter at The Daily Beast and expert in all things Gen Z, does in a short piece she wrote for Nieman Lab. For this reason, I must quote her at length:

But in 2017, the novelty of racking up a million followers on Instagram or seeing what your third-grade crush is up to on Facebook has washed away. Tweeting out your opinions only to be shouted down by Nazis has caused many users to abandon posting on open social networks and instead spend more time in closed networks and group chats.

This means less time scrolling through your Facebook or Instagram feed and more time posting in Facebook Groups or connecting with friends via Messenger. It means abandoning the quest to respond to every confused man on Twitter and instead DMing with groups of people who matter. It means maintaining several small, interest-based Instagram accounts or Finstas, rather than a single, public-facing persona.

As users migrate to these closed systems, they’re also shifting away from the type of broad-based algorithmic feeds packed with news and media content that were the hallmark of first-generation social media. This isn’t to say that people are consuming less media; they aren’t. However, I predict that media consumption will become a more separate, intentional behavior.

Lorenz was not just predicting things in a vacuum, but reflecting back something that had been building for some time. In fact, Evan Spiegel, co-founder of Snap, wrote an op-ed for Axios in late November in which he showed his belief in the same principles that Lorenz is pointing out.

In his piece, he argues, self-servingly but not inaccurately, that Snapchat is an escape from social media and that Snapchat’s lack of curated newsfeed based on friends’ interests is an advantage. Instead of a noisy feed, the Discover page is full of good content created by hand-picked partners.

The Snapchat solution is to rely on algorithms based on your interests — not on the interests of “friends” — and to make sure media companies also profit off the content they produce for our Discover platform. We think this helps guard against fake news and mindless scrambles for friends or unworthy distractions.

While many people view Snapchat as a social media service, it is primarily used to talk with friends — like visual texting. Snapchat began as an escape from social media, where people could send photos and videos to their friends without the pressure of likes, comments, and permanence.

Some of this, of course, is the sunny viewpoint of a CEO in a bit of a rough patch. Spiegel also announced Snapchat would be undergoing a redesign in an effort to further separate the social aspect of his platform from the media available. Part of this is taking advantage of a trend he sees, reflected by the media covering the industry, and part of it is pushing a narrative that favors the company because he needs to show some kind of positive progress to shareholders. Still, both of these things can be true, and in this situation I believe they are. Snapchat is well positioned in the current climate, and Spiegel is working to make sure they don’t miss what could potentially be a crucial moment.

But that’s not my main reason for optimism when it comes to Snap Inc. No, that comes from the kids.

It’s well known Snapchat is a favorite for teens, bur recent survey data paints a picture of just how much of a favorite it actually is. According to an RBC Capital social media survey, 79% of respondents age 13 to 18 have a Snapchat account, against just 73% who have an Instagram (the second closest) and 57% who have a Facebook.

Perhaps more importantly, 44% of that age group selected Snapchat as the one account they would keep if they were “trapped on a deserted island.” Instagram finished far behind with 24%, and Facebook finished with just 14%. Snapchat won this category last year, but with only 28%, which shows that it has drastically improved its performance among teens in just one year. Any way you slice it, it’s trending up.

This survey reflects what has been found in many recent surveys. Snapchat is not only popular among teens, it is increasingly popular. This chart, created by Axios’ Andrew Witherspoon with data from Piper Jaffray, shows the trend over the past 18 months. 

snap_image3So what does it all mean?

Well, if history repeats itself, these teens are likely to age. In two, or three, or five years they aren’t going to be teens anymore, they’re going to be in their twenties. People in the early twenties, unsurprisingly the second most likely group to use Snapchat, are going to be in their late twenties and early thirties. And these folks don’t just use Snapchat, they love it. They aren’t there just because they need to be, they list it as their favorite social media platform.

As long as Snap can stay relevant with teenagers, something it has continued to do over the past few years, its user base is going to grow, get older, presumably get wealthier, and be easier to monetize. More traditional advertisers won’t be able to ignore Snapchat as a potential channel, and their revenues will grow.

And that’s the case for Snap Inc. When considering its youthful, committed user base together with Snap’s preparedness for the coming changes in media one comes away with an optimistic view of the platform’s future. Perhaps 2018 isn’t the year that Snap Inc. breaks through completely. Perhaps it will suffer another setback at the hands of Facebook. Maybe its redesign will fall flat. Even if these things do happen, though, it has the committed, interested user base necessary to grow and continue to succeed.

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