You can’t possibly ignore Snapchat. It’s one of the biggest tech IPOs since Facebook. This is a notoriously difficult kind of business to judge. It relies, to a large extent, on fad and fashion – as well as more predictable factors, like product quality. As it’s your very first opportunity to get involved, I’m sure you’ll be interested to know how Snapchat’s predicted $25 billion IPO will play out.
Let’s take a quick look at the basics.
An initial public offering (IPO) is when the shares of a company are first sold to the general public. This gives a clear, publicly defined and agreed price – fixing the value of stock in a firm, for the first time.
For those who aren’t familiar with the brand, Snap is the company that owns the Snapchat social network. Despite its impressive predicted market capitalisation, this firm may have escaped your attention. Although it’s a very large social network, it’s not one that many adults in the UK make regular use of. Snapchat’s principal demographic is a younger audience. It’s predominantly concentrated in the US, and it is particularly popular with female users. I’ve fiddled with it occasionally – but hardly anyone I know is on it, which rather limits the appeal.
What’s the big deal with Snapchat?
Snapchat’s core offering is the disappearing photo (or video). Initially infamous for sexting teens, the network has now broadened its capabilities. Now, it carries a range of news and features (eg, Snapchat stories). Its ephemeral content has a high degree of engagement for users, while lacking the pesky content persistence that plagues other networks – where so many pictures of drunken nights out, and badly-chosen exes, combine to form an awkward legacy for social media users. After all, who really wants their work colleagues to see their frat-boy antics of yesteryear?
Snapchat’s appeal is based not only on its core feature set, but on its rapid ability to innovate. Its lenses and filters allow you to make dull selfies and videos engaging – in a kind of kitsch, cartoonish way. If you haven’t seen this kind of thing, its “rainbow puke” filter gives you an idea of the kind of level it’s pitching at. It’s fun, it’s silly, it’s vacuous. In fact, it’s pretty much everything teenagers like.
Advertisers are all over Snapchat’s audience because the teenage demographic is typically an appealing one. However, that’s ordinarily the case only if that demographic can be encouraged to stick around. Teenagers typically don’t have much spending power in isolation; they are largely valuable for their potential life-long stickiness with brands. If Snapchat’s audience doesn’t stay as the firm ages, it’s less clear that the platform will have much credibility with advertisers. As the brand matures, time will tell whether its audience does indeed remain with the platform – with or without rainbow puke. Some brands are good at growing up with their audiences; others are good at maintaining an appeal to a specific demographic. Presently, it’s too early to say which of these buckets Snapchat will fall into. People rarely leave social networks, but they do transfer their affections elsewhere.
What are the pros and cons of Snapchat?
From an advertiser’s point of view, engagement is very high. The average Snapchat user spends much more time on the application than the average Facebook user, in any given day. Also, advertisers’ ability to sponsor interactions on the platform through filters means that an engaging and unblockable ad experience is available to support brands. This makes the branding experience integral to the app – rather than something that users simply try and work around.
However, despite high branded-content engagement, advertisers don’t have it all their own way. As a brand, Snapchat is very anti-data; it goes out of its way to avoid appearing creepy and intrusive. This means it’s hard to target adverts effectively – according to users buying behaviour, or demographic information. In fact, most of Snapchat advertising is not even sold programmatically – in sharp contrast to Facebook and Google. Dealing with Snapchat is more like dealing with your local newspaper. That’s certainly an old way of doing business in the modern world. If Snapchat grows past its core user base, poor targeting tools may make advertising a very scattergun experience for brands.
Snapchat’s audience is oddly distributed, from a global point of view. It has very little reach, outside of its core US market. It’s not growing much, either. The audience is heavily skewed towards a younger demographic. This skew is good news, in a way, in that these are likely to be the most attractive uses for any social network. However, having a great user base is not enough – you also have to have a large user base.
If the brand is in a position where its user base is too “good”, then that potentially implies a limitation on a terminal scale. You can only have so many cool kids on your platform. If you want to grow a large brand, you eventually have to stoop to deal with the uncool kids. It’s not clear that Snapchat can broaden its appeal. I may not be cool, but I do have money to spend – indeed, far more money than most teenagers. And I spend all my time on Twitter, not Snapchat.
Despite my various reservations, I have to caution you that my judgement on social networks can be a bit off. I personally thought that Mark Zuckerberg should have sold Facebook to Microsoft when he had the opportunity to do so. In hindsight, my verdict was fist-eatingly awful. Notwithstanding this history of terrible error, I’ll attempt to answer the following question:
Is Snapchat worth $25 billion?
It’s never made a profit. Plus it’s restricted in its user base. It’s difficult to deal with as a company, with high overheads. And it’s struggling to grow from its narrow demographic – with user numbers distinctly flattening off, becoming almost static. All of those signs are deeply concerning, for a $25 billion valuation. However, I have been on the wrong side of history before.
While I won’t be rushing into the IPO, I’m very reluctant to call this one as a dog. In a world where Facebook is becoming the poster child of social media (just as Twitter is cementing its position of the Problem Child) the industry is still a tough one to call.
Snapchat’s lack of profitability and slow user growth make it look more like Twitter. Certainly no one can yet touch Facebook’s scale. As a brand, Snapchat is under significant pressure from Zuckerberg’s endless attempts to clone (some might say steal) Snapchat’s functionality. Innovating sustainably is much harder, when your competitors are pocketing all your best ideas. But nevertheless, there is something which appeals to me about this brand. I want to write it off, but I can’t. Maybe I’m just nervous about my previous mistakes with Facebook. Maybe I’m aware of how much the firm has grown in value, since rejecting Facebook’s offer – which, at the time, looked spectacularly generous.
So, while I hope you found my background information on this firm to be a useful overview, I’m afraid that, for once, I’m going to sit this one out. On this occasion I’ll hold my hands up – I just don’t have a clue.
… but fortunately, I know a man who does. Click here for the definitive opinion on the Snapchat IPO.
Do you have a clue? If you do, please write in: firstname.lastname@example.org.