Things haven’t looked too bright for Snap Inc. in 2017. Since IPO’ing in early March, the company has seen its share price drop 27% from its initial offering of $17, a loss of nearly $4 billion in market value. Recently, Snap reported underwhelming Q3 earnings, stating that it missed Wall Street’s revenue expectations by 12%So what’s happening to a company that, not too long ago, was considered the hottest digital property around?

Pre-IPO, Snap’s flagship product Snapchat was the darling of every young being and brand advertiser. 81% of social media users between the ages of 12–24 in the US used Snapchat, making the app one of the most desirable channels for brands to target the valuable, yet fickle, Gen-Z demographic (there’s just something about those filters). Since launching in 2012, Snapchat’s user base has grown to 178 million daily active users, with 54% being younger than 34 year oldThis represented an important shift in brand perception, as Facebook became “old”, especially once your parents’ generation joined the network. With an increasingly shorter attention spans and desires to keep content away from their guardians, kids spent more time on Snapchat versus Facebook. Plus, with more and more brands, influencers, and celebrities jumping on the bandwagon to maintain relevance, including DJ Khaled who reinvigorated his career through the app, Snapchat was quickly positioning itself as the preferred social channel for the next generation. Advertisers recognized this and threw cash at Snap hoping to get featured on its selective Discover Feed, while at the same time building their own strategy for content that existed for 10 seconds or less. Things were looking pretty sweet for an app that was once considered a clandestine means share crude content to your friends. But then the giant became angry.

It’s been said that Mark Zuckerberg has been on a lock and loaded mission to destroy Snap after its CEO, Evan Spiegel, turned down Facebook’s $3 billion acquisition offer. If Zuck couldn’t add Snapchat to its burgeoning empire, he’s going to create his own version. Luckily, he already had a visual content platform with an enormous user base: Instagram.

Instagram had 500 million monthly users and 300 million daily users prior launching Stories, practically a clone of Snapchat, in August 2016. At first there was some negative feedback on IG’s “lazy” attempt to compete, but eventually people started adopting Stories. Now, Instagram has over 800 million active monthly users with 500 million checking the app daily, with Stories accumulating over 300 million daily active usersthat’s 69% more than Snapchat. Obviously, this hit Snap extremely hard, as it saw its usage dip.

Launching a new product or brand extension is a little easier if you have an existing user base of consumers (see Amazon). People are familiar with the parent brand, so the hurdle of adoption is lower. It’s extremely hard to launch an app from scratch, so having hundreds of millions of existing users at your disposal saves on marketing efforts and spend. Instagram Stories might not have the same cool features that Snapchat has, but with a flick of a switch, Stories was shoved in the faces of 500 million people. If the product is adequate, people will use it. Earlier this year, Stories daily active users surpassed Snapchats’, and looking at the below chart, you can see the effects of having an existing users base.

Snap Inc. hasn’t done much to compete against this wave of user theft, other than launch some more nifty filters and the Spectacle glasses, which have failed and led to a $39.9 million write down due to unsold inventory. This is major marketing snafu, as Snap shouldn’t have invest so heavily in a product with no proven customer demand. However, there are strategies that the company can pursue to slow the bleeding.

  • Snapchat, boasts more users aged between 12–24 than either Facebook or Instagram. The youth dictates trends, from a business and cultural standpoint, and by strengthening its position with this demographic, while nurturing those advancing this cohort, Snap could set itself for growth. Even if a 13 year old doesn’t control the spend in a household, they certainly have some influence.
  • Advertising is Snap’s main revenue artery and the company has tweaked its products to be programmatic to meet demands of ad partners. The new ad-buying automation platform attracted 5x as many advertisers, (a promising number) in Q3 2017, but since this method is much more efficient, it dropped ad CPM rates by 60%. With rates lower, it needs to increase ad spend/partners and by becoming that pool for Gen Z eyeballs, it should bring in even more brands.
  • On it’s website Snap claims to be a “camera” company. Stop it. It’s a digital media network. Scrap the Spectactles and focus on what it’s good at: delivering content. Kids are spending significantly more time on their mobile devices, so Snap needs to exploit those eyeballs, which it has done. The company has inked a number of deals with entertainment players, including NBC, ABC, BBC, Vice Media, and Time Warner to produce original, scripted content. This will be a differentiation point from Instagram
  • Ultimately, it relies on user base size. Consumers gravitate to products and services they find longstanding value in, so Snap needs to dive into its core audience and evaluate what its passionate users care about. Then tailor product features that increase utilization (filters aren’t the answer).

Hopefully, with the right moves, Snap doesn’t become another victim of first move fatality, like Friendster and Myspace, which ominously was killed by Facebook.

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Rex Pham

Originally from the Bay Area, who then moved to Los Angeles, then out to New York City. NYU Stern MBA c/o 2014. Inspired by the grind of NYC to create something that has value. Lover of all things digital, culture, and brand strategy.

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