2017 has largely been a good year for social media sites and apps with Facebook, Instagram, YouTube and Pinterest all seeing advertising revenue grow as they leverage social commerce trends. ‘Buy now’ buttons, the development of native social commerce functionality allowing brands to sell directly within social media platforms and social apps for Android and iOS and ‘shoppable video’ have all contributed positively to the bottom line.
Snapchat, on the other hand, is struggling and in danger of losing momentum. It’s not so long ago that Snapchat was the hot thing among social apps for Android and iOS. The app’s disappearing photos and videos, ‘Stories’ with a 24-hour shelf life and digital selfie-masks proved a hit. When the app first launched in 2011 it became associated with the seedier side of social media. Its core disappearing pictures feature, with images or video self-deleting from the recipient’s smartphone after 10 seconds seemed the perfect fit for those who wanted to send less than wholesome content.
However, as Snapchat developed it largely managed to distance its image from this earlier reputation. It became the favoured social media of youngsters as Facebook became too ‘mainstream’ and everyone’s parents and even grandparents started to have accounts. A news section named Discover was added to the app, as were Stories, lasting 24 hours, Memories a messenging service and Snap Map, which helped friends to find each other through location sharing.
While still trendy and with a young demographic of users, Snapchat became a mainstream social media and parent company Snap started to be considered the latest technology ‘unicorn’ – a company with huge growth forecasts. An IPO duly followed and when Snap debuted on the New York Stock Exchange early this year it was the biggest technology listing in 3 years. Concerns around the company’s losses were largely ignored and Snap’s share price initially leapt, valuing Snap at over $30 billion.
Yesterday, following Snap’s announcement of disappointing third quarter results on Tuesday, the company’s share price opened 21% down. The company is now valued at slightly over $18 billion, having lost not far off half its value immediately post-IPO. A third-quarter loss of $443 million to revenue of $208 million was announced and user growth was also behind forecasts at 178 million daily users, compared to the expected 181 million.
One big mistake this year has been Snap’s ill-advised attempt to move into eyewear, having bet on camera-enabled sunglasses called Spectacles. A $40 million charge for unwanted stock was written into Q3’s losses. Investors are rightly asking the question why no-one involved in the Spectacles debacle appears to have taken heed of Google’s binning of Google Glass eyewear, because no-one wanted to wear them.
However, young companies make those kinds of mistakes. What is of greater concern is Snap’s failure so far to make any real progress developing its digital advertising revenues. Snap has switched its advertising platform into an auction-style model, like that of Google and Facebook. So far this has hit revenues rather than boost them. Social commerce on Snapchat hasn’t seen any real development.
Snap’s founder and CEO Evan Spiegel is currently in the process of redesigning the app to ‘make it easier to use’. Presumably the new design will also be better suited to helping Snap monetise social commerce trends. Snapchat’s best features have already been cloned by bigger competitors like Facebook and Instagram, also owned by Facebook. Spiegel says he is comfortable with this and that it is part of being a creative company. However, the problem lies in Snapchat not similarly succeeding in cloning the social commerce driving revenues on other social apps.
If Spiegel isn’t able to turn Snap around relatively quickly it will be a surprise if the company survives another two years as an independent entity. A regulatory filing this week showed that Tencent, the Chinese tech company behind WeChat, a popular messaging app, has built a 12% holding through Snap’s class A non-voting shares.