Imagine if Apple called itself a watch company based on its smartwatch, or if Microsoft called itself a videogame company based on its offering the Xbox. These descriptions might be technically true but lack credibility based on the full nature of their business. So it is with Snap, Inc., which calls itself a camera company. And while it may define “camera” coyly or have grand plans to reshape itself, for now the only “camera” it makes are the novelty Spectacles.
Video-recording sunglasses may be promising, even pioneering, but the company is seeing the world through rose-colored Spectacles if it doesn’t realize it must do more to grow revenue. According to its S-1 filed before Snap’s successful IPO, Snapchat (its real product), user growth slowed in the back half of 2016. The big question advertisers ask about Snap is whether it is headed to Facebook-like heights or a Twitter-like fade.
Snap argues that it does not need to blanket the globe like Facebook does and that it can grow both users and revenue in its popular markets such as the US and UK. But that will only get the service, which some inflate into a “social entertainment hub,” so far. While these consumers may not be as valuable to advertisers for now, they represent a long-term loyalty-building opportunity to the most forward-thinking of brands. Meanwhile, in Snapchat’s home turf, Facebook has moved aggressively to copy Snapchat features such as stories — not only in Instagram but in other apps it owns like Messenger. Some prefer the Instagram flavor while others have decried the Messenger intrusion. But in its S-1, Snap acknowledged that its popularity could plateau due to increased competition.
In any case, Facebook weaponizing Instagram, which it purchased for $1 billion five years ago, should sound like a familiar story. Twitter, after all, has had a more differentiated product than Facebook from its founding, one based on real-time exchanges among people with no acknowledged relationship. But Twitter saw first-hand how Facebook could limit its growth by using Instagram as a competitive response to ultimately kill Vine. And as the messaging network — which also has tried to sidestep competition by casting itself as a “news” app — has embraced live video via Instagram, Facebook has turned up the volume on its personal broadcast offering, Facebook Live.
So far, certain advertisers have landed right in Snapchat’s sweet spot of the teen market. The app has attracted innovative advertising from the likes of Amazon, Taco Bell and Gatorade. The candy company behind Sour Patch Kids launched a campaign with one story garnering 6.8 million story views. The campaign attracted 120,000 new Snapchat followers.
But the overall picture has not been pretty. According to a recent survey by RBC Capital Markets in association with Ad Age that surveyed 1.600 marketers, Snapchat fared poorly in terms of advertising ROI, faring worse than Twitter, Facebook, LinkedIn, Google, Yahoo and YouTube and placing only above AOL. Particularly for advertisers who want one-stop shopping to reach a broad demographic, Snapchat is a long way from threatening the Google-Facebook online ad duopoly.