At a time of uncertain public statements, caught between fake news and alternative fact, Snap can certainly be called a camera company. But days before it’s very publicized IPO- the first for a photo app – the truth about Snapchat, along with it’s previously hidden operating cogs, reveals much more. Snap is a camera company states the official public offering, which just happens to have built its success on everything else but a camera. If Snap is indeed a camera company, it is indeed a very bad one.
At least, if we respect the traditional terms of a camera. One that defines a camera as “a device for recording visual images in the form of photographs, film, or video signals.” Snap, unlike its Japanese predecessor, would like to change that definition. Starting by eliminating the camera. But let’s step back before we head into the future.
Snapchat success was built by cheaters and liars. The first spikes of organic increase usage that the app saw were, strangely enough, happening during classes hours. High schoolers, having heard that there was an app which auto-deleted their pictures seconds after being shared, used it to share cheats. If the teacher caught you, the proof was already deleted. If they could figure out how it worked. Perfectly adapted to a young teen world, classroom friendly and adult proof, it quickly became a communication tool of choice. However, it didn’t stop there.
Enters co-founder Evan Spiegel talent: Realizing he had built, by accident, a perfectly tailored app for the post-millennial generation ( mobile only, photo-centric and disposable), he continued to iterate, adding stickers, community features, and additional content to keep his users engaged. No technical advancement here. Just pure packaging. Snapchat has now 158 million active users with an average of 2.5 billion snaps exchanged each day. The majority of Snapchat users are 18-to-34 years old with those younger than 25 being the most active, spending more than 30 minutes every day, more than 20 times a day.
When users open apps like Facebook, Instagram or Twitter, they first see their feeds. Every time a user opens Snapchat, it’s the camera interface that greets them first. Snapchat is first an app that takes pictures; Sharable ephemeral pictures. Around it, it built a rapidly growing ecosystem of users, publishers, and advertisers, which in 2016, generated over $400 million in revenue. If Snap is a camera company, it is not because it builds and sells physical cameras at scale, but because the camera is at the core of its business.
In a public offering full of legal warning, one seems to stand out more than others. Snap, it says, ” .. may never achieve or maintain profitability.” While not unusual for a start-up, it is usually an absolute red flag for a publicly traded company. Last year $400 million in revenue came with over $500 million in losses. Not surprising, considering it has an unproven advertising model which seems to be built more on hype than actual returns. It is also a company with no technical advantage nor IP it can protect, which puts it at a huge risk of being out beaten by the competition. Recent copy cat updates from Instagram and WhatsApp, both Facebook-owned companies, seem to validate this risk.
To succeed, Snap needs to take pages from the Microsoft/Bill Gates playbook. Built a formidable branding/marketing operation to cover the less than stellar technical improvements. Make Snap appear so indispensable to one’s daily life that even the best-managed competitor cannot take a bite out of it. Weave a web of tightly secured partnerships across multiple verticals in order to bury deep roots and establish co-dependencies. Which is exactly what it has done up to now. But can it continue to scale at an aggressive pace in order to please its public investors? Probably not. Instead, its choices are either to rapidly generate fast growing profit or mimic the Uber-type hype as long as it can to hide its losses. The first might take time while the latter won’t last long.
There couldn’t be a worst time to launch a camera company. Ask any traditional camera manufacturers ( Nikon, Canon, Fuji) and they will confirm that the battle against mobile phones is lost. Snap should have more wisely brand itself as a media company instead. After all, at the core of its success is content and how it’s monetizing it. Like traditional media companies, it generates almost 100% of its revenue from advertising and from the latest available sales numbers, it’s Spectacles will not make a dent. It is more likely to continue to generate revenue from its core audience engagement rather than by selling them products.
Snap Inc. SNAP, +0.00% , the parent company of messaging app Snapchat, officially filed to go public and is expected to begin trading as early as March 2
Photo by Atomic Mutant Flea Circus
Author: Paul Melcher
Paul Melcher is the founder of Kaptur and Managing Director of Melcher System, a consultancy for visual technology firms. He is an entrepreneur, advisor, and consultant with a rich background in visual tech, content licensing, business strategy, and technology with more than 20 years experience in developing world-renowned photo-based companies with already two successful exits.