TODAY, SNAP STARTS its life as a publicly traded company—the buzziest tech IPO of the year and likely the most valuable in the US since Alibaba debuted in 2014. The event carries the fascination of an impending rocket launch: Is this thing actually going to take off? Or will it crash and burn in a huge, morbid spectacle (of Spectacles)?
Snap has tried to sell investors on the idea that it has cachet other social platforms don’t. Invest in us, the company urges. We’re the cool kids on the block. Snap pitches itself as specializing in close relationships, both among users and with the platform itself. You don’t send Snaps to just anybody—you have a streak with your best friend or stalk your crush’s Story. (Yes, in this scenario, you are a teen.) In the process, Snap has created new markets, new kinds of ads, and new ways of connecting with others on mobile devices. And, oh yeah, it’s fun. When your competitors—the top smartphone apps by user count—brazenly copy you, you know you’re onto something.
But Snap also has a knotty problem that its IPO will likely exacerbate. As an investor, Snap says you can get a piece of these intimate relationships its platform fosters. But as a public company, Snap will have an obligation to grow relentlessly. That imperative could clash badly with the kind of intimacy so deeply embedded in Snap’s DNA: The platform works best when you keep your circle of friends small.
Snap has come a long way from 2012, when it launched as an app that let you send friends self-destructing photos. “There was a whole cultural thing around going back to old messages from exes and other friends,” says James Chanter, associate director of the media agency m/SIX. “Disappearing messages were totally new and different.” These messages created a new (and rather raunchy) use case back then. Building on that newness has become Snap’s core way of operating.
From geofilters to stories to Spectacles, each new Snap product and feature has brought new ways to make money off ads. A brand could sponsor a hilarious lens. (Turn your face into a taco, anyone?) Walk around Union Square in San Francisco, and you’ll notice shops galore already offergeofilters, letting you overlay a fun (branded) graphic over your Snap. Ads on Stories mimic a vertical version of a traditional TV ad—they take over your full screen, and you likely have the sound on because you’re watching your best friend’s day unfold. Spectacles? Stamp a logo on a pair of sunglasses, or maybe some day sponsor an augmented reality overlay on the world you see through the high-tech glasses.
For now, advertisers buy into the idea that Snap offers something new and different and immersive. At the moment, they seem not to be looking for scale, but watching for signs of effectiveness. “I think Snap offers an engaging ad experience to engaged users,” says Rob Norman, chief digital officer of powerhouse media buyer GroupM.
And advertisers want to reach those users who really like Snap, especially if they’re young and captivated. Big media buyer WPP reportedly spent $90 million on Snap ads in 2016. That amount sounds great, but it also constitutes almost a quarter of the revenue Snap made altogether. In other words, Snap can’t exactly boast the billions of dollars Facebook brings in every quarter. And now that the company is public, the pressure is on. “If [Snap] is being challenged to grow and grow, where’s that growth going to come from?” Chanter says.
Finding that growth while retaining its “cool” factor poses Snap’s greatest challenge. “Cool” is premised on a secret club, on exclusivity, on intimacy. “Cool” means your parents never get on Snap. And that means Snap never gets to add them to the number of users on its platform.
Staying “cool” also means continuing to add new and creative features that inevitably make Snap even more complicated. For now, that approach works great for the company. Ever see how, say, your younger cousin uses Snap? I have. (Hi, Jamie.) The swiping and opening and tapping is terrifyingly, blindingly fast. I’ll never keep up with how to maximize my use of Snap. I just dip in every once in a while. If it gets more convoluted, I may ditch it completely.
And Snap can’t lose users like me, right? Maybe, maybe not.
For advertisers, growth might not just mean more eyeballs. It may mean connecting more with existing users—measured by, say, how much time they spend in the app or the number of videos they watch. Advertisers want to see that the money they spend on Snap helps them achieve their marketing goals—tough to gauge, given that Snap’s ad formats are still so new. You also don’t shop on Snap. Advertisers might get the word out about about their brand, but for now the data still lags that would allow them to attribute that spread of awareness to Snap.
These unknowns spell out the real challenge for Snap—even how to measure success remains unclear. “Snap probably wants to lean on its innovations in formats, but it needs to be able to articulate how these can be viable advertising opportunities,” says Tom Denford, chief strategy officer for the marketing consulting firm ID Comms. Snap could mitigate the uncertainty by making sure marketers with dollars to spend truly understand the Snap audience and how to reach. They’ll likely best manage this handholding via the old-fashioned inefficiencies of person-to-person contact. The company needs client leads and salespeople; on that front, at least, it seems to already be making progress. Last year Snap poached Jeff Lucas from Viacom, where he ran sales and marketing, to take charge of global ad sales.
A handful of companies control about 90 percent of the world’s advertising dollars, dollars that still largely go to more traditional media outlets. Snap may not have the automated ease or familiarity of Facebook or Google, but it could still get a respectable chunk of the world’s ad dollars if it finds a middle path between old and new media. “Snap needs to talk money in the same language as the big media agency networks,” says Denford. If it can articulate its uniquely captivating appeal for a smaller yet intensely connected audience, Snap may succeed in convincing shareholders to hold on. Maybe Snap won’t need the wild growth of a Facebook or Google to prove its value. Just stay cool, Snap might find itself saying to investors. We’ll take care of you.