There are always a lot of complaints about change, but maybe it really is for the user experience. Right? Besides, Facebook has been changing for a while, even when 90% of people are voting against said change, and that hasn’t seemed to hurt their massive success. Well, the reason that Facebook added newsfeed and Instagram switched to algorithm-based instead of chronologically ordered posts is the same reason why Snapchat now wants to mix up your life (or at least your Snap experience). Unfortunately, I have been unable to find a thorough explanation posted online. The best answer I found was “the alterations were made in order to help the company make money.” That observation is about as profound as, “kids like pizza because they need food to survive:” kind of true, but Brussels sprouts are food and kids hate those. Is there a better explanation without asking Spiegel, himself?
It turns out there is a fairly simple answer (spoiler alert: Big Data), but this story needs to last an entire blogpost, so let’s get down into the weeds a bit.
Snapchat was created in 2011 and became known for its disappearing photo and video messages. People loved the filters, because they were a bit more exciting than something like “Valencia” on Instagram. Later Snapchat added “stories,” where you could make a post lasting 24 hours for all of your friends to see. They also made “memories,” where you could save photos and videos to your phone if you wanted to look at them later. However, despite these cool technological features, Snapchat’s competitive advantage did not last long, and Instagram’s stories feature quickly became more successful than Snap’s.
Of course, at least Snapchat didn’t put all their eggs in one basket. At $130, Spectacles are probably bringing in tons of revenue! Wait, you’ve never heard of them? They’re the glasses that take a photo and send it directly to Snapchat. Oh okay, so you have heard of them, but you don’t know anyone who ever actually bought them? Yeah, that is probably because they were a complete failure. Logistics were unorganized, and not much effort was put into marketing them. The good idea fairy took control, and Snapchat wasted money on their development.
Snap has been running purely off of investments made by people hoping the company would turn profitable. Since the beginning, they have not had a single quarter in which their revenues exceeded their costs. In order to be sustainable, they have to turn their business model on its head in order to actually start generating some money.
Whether they like it or not, it is a little late for Snapchat to sell out. At a market cap of nearly $23 Billion, there are not a whole lot of companies who would be able to pay a fair price for the company, and those who could were rejected. In 2013, Facebook offered $3B to buy Snapchat, and there were rumors that this past year Google offered $30B. It would seem none of these acquisition attempts were good enough for Spiegel. That might be fine if he had a really great company and a better offer elsewhere, but there aren’t a whole lot of other corporations with bigger wallets than Google or Facebook.
Snapchat often makes “exciting” announcements about how many users they have gained in the most recent quarter. Who cares? Their cost per user is more than their revenue per user in the affluent market space they currently occupy. If their business model isn’t working in the most profitable parts of the world, why would they think moving into the least profitable parts of the world would suddenly change that? Snapchat would need to create a low-tech, low-bandwidth version of their app, thus incurring more costs, diluting the brand image, and gaining even more debt.
Snapchat’s traditional business model is not good at gathering data for advertisers. Right now I don’t subscribe to any publishers, skip all the ads in the first second of watching them, and just use the app to exchange messages with my friends. Snapchat doesn’t get a whole lot of usable data from me. Their new model aims to change that. Facebook and Instagram can create a data web of likes for pages, groups, photos, videos, and events; Snapchat hopes to create a similar web of data as they monitor how you interact with publishers and advertisers. Their new layout makes these interactions feel more organic and feel less like a hidden feature, thus increasing the likelihood of clicks.
Snapchat can’t afford to think purely like engineers anymore. They can add all the features (filters, stories, etc.), add hardware (spectacles), and even be really fun; but if they have no way to monetize their app, they will die. They have realized this grave truth and are trying to step up their game. Only time will tell if they corrected their course too late.