This @evanspiegel memo to Snap employees is a great read. Here's a thread with some thoughts on Snap's competitive advantage, its goal to be profitable in 2019, and its content strategy.
Sometimes the features, products, or services that create a competitive advantages aren't profitable, but create other high margin products or services that couldn't exist on their own.
An airline's competitive advantage is its flight network, but the airline industry actually makes over 50% of its profits from fees. Can't charge fess without flights, and you need to burn cash to build the flight network.
Amazon's competitive advantage is complicated (retail, Prime, logistics), but most profits actually come from AWS, Fulfilled by Amazon, its 3rd party marketplace, and soon advertising. These wouldn't exist w/out the extra capacity created by Amazon's e-commerce activities.
Uber's competitive advantage is its driver network that pulls users into the app. In the app it can serve higher margin mobility and payment services, also using excess driver capacity for food delivery which it will use to build a high margin ops stack for small biz a la Square.
As Spiegel says, Snapchat's messaging network is its competitive advantage. It won't make money, but it allowed Snap to add ancillary monetizable features (Discover, AR, Bitmoji, Snap Map, 3rd party ad network, Live TV, etc) that couldn't exist on their own.
This is why "Snaps Created per Day" is Snap's key metric. It shows 1) the strength of the messaging network and 2) camera usage. It continued increasing after Instagram launched stories, but ticked down post-redesign.
(h/t @RichBTIG for chart)
(h/t @RichBTIG for chart)
The Snapchat redesign completely destroyed the app for three months and DAU's only dropped 2%. This debunks the "teens will leave Snapchat" argument. Snapchat IS their messaging platform. And it's camera-first, not text-first.
"Camera-first" is key:
- It's how Gen Z communicates (faster than text)
- AR distribution channel: Avg of 3 mins/day/user; 132M use Snap's AR features per month; half of all 13-34 year-olds in US use its AR per week
- Snap has 55% of AR adv market share
artillry.co/2018/09/05/wha…
- It's how Gen Z communicates (faster than text)
- AR distribution channel: Avg of 3 mins/day/user; 132M use Snap's AR features per month; half of all 13-34 year-olds in US use its AR per week
- Snap has 55% of AR adv market share
artillry.co/2018/09/05/wha…
Camera's are for more than AR ads; they're tools to capture data from the world (self-driving mobility, image recognition, etc). Based on an est 1.2T photos taken globally ex-Snapchat in 2017, 3B+ snaps per day makes Snapchat the world's most-used camera.
mylio.com/true-stories/t…
mylio.com/true-stories/t…
I tweet about Snap's profitability often b/cuz its important to realize how quickly the switch from fixed to auction pricing dropped prices (70% in 2017 alone) compared to u. Advertisers are slowly realizing this gave Snap Ads high relative ROI.
Avg FB ad prices are now 10x higher than Snap (and trending up), and FB has trailing 12-month North American ARPU of $126 vs Snap’s $9.
Auction pricing initially hurt Snap, but the ROI's there. Snap only needs to close that gap in half to take North Am sales from $733M to $3.7B.
Auction pricing initially hurt Snap, but the ROI's there. Snap only needs to close that gap in half to take North Am sales from $733M to $3.7B.
As advertisers realize Snap Ads are cheap, competition will increase prices. Due to the nature of Snap's self-serve platform, price increases (all-else constant) will likely fall to the bottom line.
Despite the narrative, Spiegel's goal of 2019 profitability is fairly realistic.
Despite the narrative, Spiegel's goal of 2019 profitability is fairly realistic.
Facebook used DAU’s as a weapon, training us into thinking it's the sole metric that matters. It does, but it's not all encompassing.
When looking at a company, it's important to look at each way it makes revenue, and then the margins on each of those specific revenue channels.
When looking at a company, it's important to look at each way it makes revenue, and then the margins on each of those specific revenue channels.
Spiegel doesn't touch on this in the memo, but Snapchat actually has a comparable sized user base to Instagram in the US and EU - where Facebook has historically generated over 70% of its revenue. Most FB users are ex-US/EU. A few thoughts on that here:
It's also possible Snap's US video ad inventory is greater than core-Facebook.
Snap has very high video ad inventory because adding to a story (creates video ad inventory) is tacked-on to sending a message. The usage of Stories trained users for Discover, which is now packed with a wide variety of content with full-screen video ad inventory.
Snap's monetization strategy incentivizes quality content that users actually watch.
On the contrary, FB's business model centered on feed monetization. Due to premium content being a side business, it has/had less value because it cannibalizes time spent scrolling the feed.
On the contrary, FB's business model centered on feed monetization. Due to premium content being a side business, it has/had less value because it cannibalizes time spent scrolling the feed.
FB's has touted video as the primary revenue driver on earnings calls over the past few years. The "50 million people in the US who watch over one minute of video on Facebook per month", or 25% of DAU's, are pretty important.
cnbc.com/2018/09/02/fac…
cnbc.com/2018/09/02/fac…
Things like 4.3 million people using Snap's new Live TV offering become pretty significant when compared to Facebook's video numbers.
Snap has also quietly grown the number of Snap Shows (3-5 minutes, 3 ads each) with over 10 million unique monthly viewers:
Q1: 7
Q2: 11
Q3: 18
As Snapchat reaches saturation in developed markets and growth plateaus in emerging markets, there's evidence revenue growth continues
Q1: 7
Q2: 11
Q3: 18
As Snapchat reaches saturation in developed markets and growth plateaus in emerging markets, there's evidence revenue growth continues
Fascinating to watch, as we're witnessing Snap's evolution into a combination of Apple, Google, Disney, and Viacom in the early stages of a platform switch from mobile to wearables. It's positioning itself for the day consumer computing leaves our phones.
