USA TODAY International Edition
What’s next for Snap, Inc.?
On eve of IPO, AR innovation is its next big thing
LOS ANGELES Snap Inc.’ s Snapchat app has a solid lock on Millennial users, a head start in exploring augmented reality and has dipped its toes successfully into the world of hardware.
But as it plans to go public this week in an IPO that seeks to raise $ 3 billion, there are two big questions for the young company to contend with: What’s next, and can it withstand the heat from Facebook? The social network, which tried to buy Snap for $ 3 billion in 2013, has copied many of Snap’s most popular sharing features for its Instagram, Facebook and WhatsApp units. Meanwhile, in its IPO filing, Snap said its user growth slowed at the end of 2016.
The warning may turn away some investors worried Snap could be the next Twitter — a once- hot social network hamstrung by stagnant user growth — rather than another Facebook, though demand for the IPO is expected to be strong.
Beyond the IPO, slowing growth explains the young company’s repositioning as a “camera” company that will continue to draw users and advertisers by amping up its unique content.
One key to the future? Innovate in augmented reality, analysts say.
AR, which adds a layer of video images over what we see in real life, “is what makes Snap unique,” says Gene Munster, head of research for Minneapolis- based Loop Ventures. “What Snap does with AR will define their place over the next 10 years. This is their opportunity. They need to get very aggressive on it.”
In AR, Snap broke ground with a variety of engaging and often silly features: filters that add rainbows, snow, animal ears and noses to photos and videos; stickers that added the location of the photograph; and “geo- filters” that can be created by the user and overlayed on top of a photo or video.
Last fall, Snap released Spectacles, $ 129 video glasses that capture 10- second video clips that can be shared to Snapchat. There is no AR component to the glasses — yet.
In the future, analysts expect Snap to innovate in new versions of Spectacles that bring AR to the lenses.
Potentially, the glasses could offer sneak peeks of what a product such as a couch or TV set might look like in your living room, or even bring characters to life from a TV program or movie into real life.
The company, co- founded by Evan Spiegel and Bobby Murphy in a Stanford University dorm room in 2011, is telling investors its strategy is investing in product innovation and taking risks to improve its camera platform. Higher user engagement and advertising will follow, they say.
Now based in Los Angeles, Snapchat has become the biggest name tech brand ever in Southern California. It cites 158 million daily users who watch 10 billion hours of videos.
Its current business model relies on short video ads that pop up between users’ personal snaps. It has made inroads into the social media ad budgets from big brands, jousting — like its larger competitors — for the lucrative television advertising spend.
But it’s not yet profitable. In 2016, it reported a $ 516.4 million loss on $ 404.5 million in sales, mostly from advertising.
And as a social network, it showed signs that have worried some analysts of flagging interest. In the fourth quarter of 2016, average daily active users slowed to 48% growth year over year from 62% in the prior quarter and 65% in the second quarter.
Many celebrities and “influencers” have taken to Snapchat to show off their wares, making money by selling product placements and mentions to brands within the Snaps.
Taylor Nikolai, a Snapchat “influencer” who makes a living making daily snaps, says Snapchat will “first and foremost” always be a messaging platform.
And with Facebook’s onslaught against Snap, he feels the company has been too slow to respond, as it keeps quiet during this IPO period.
“I’m nervous,” he says. “I don’t think ( Snap) is the innovator anymore.”
Fellow Snapchat influencer Sarah Peretz notes that with Facebook emulating Snapchat features, “I’ve never seen this kind of copycatting before in social media to this kind of scale. ... I don’t think Snap will give up just yet, and they’ll put up a good fight.”
“What Snap does with AR will define their place over the next 10 years. This is their opportunity.” Gene Munster, head of research for Loop Ventures