So now we know. Snap is a multibillion camera company that has to prove it can turn, or consistently turn, a profit.
There are some parallels in the social media industry, as Twitter announced much the same thing when it first went public. It’s a distinct contrast with Facebook, which was serving up billion dollar profits by the time of its IPO and has gone on to turn its users into one of the digital industry’s biggest cash cows.
The good news for industry fans and users of Snapchat is that the vast majority of the cash raised will surely go towards beefing up what Snap can offer—both in terms of new product features and in new offerings to advertisers.
The danger is that Snap is turning on monetization too early, which might be at the expense of what makes Snapchat special—its users and their user experience.
For the past two years, Snap has been the new kid on the block and darling of the industry—growing its users and their engagement at an incredible rate and releasing innovative new features and products that have get everyone talking. But, there are signs this growth may be slowing down.
Figures from the IPO reveal growth has slowed significantly since Instagram launched its own version of Stories—growing by just 3.2 percent in Q4 of 2016, compared with 14 percent in Q1 and 17.2 percent in Q2.
Are we looking at another Twitter, which is still struggling to expand past its core demographic, or another Myspace, which went for monetization too early and ultimately left the growth to Facebook?
Facebook says Snap
The challenge for Snap isn’t attracting new users—its convincing brands to spend their dollars with them as an alternative to the undisputed market leader: Facebook.
Facebook has adopted a simple strategy—say "snap" to everything on Snapchat that generates enormous traction with users and introduce a similar feature on Instagram.
This started with Stories, but has extended into disappearing private messages, and now Instagram appears to be ahead of Snapchat for the first time ever with the launch of blink and you’ll miss it Live Videos.
How Snap responds is going to shape the narrative of the year ahead. Right now the media still loves it—if only to have an alternative to Facebook’s and because we like to celebrate the innovators and underdogs.
But, does the average user care about who comes up with the idea first? No, they care about where they can make use of that idea with their friends.
It's Facebook—and Apple for that matter—that excels in turning existing technology into a fantastic design and user experience. Snap seems to be inspired by both, playing an advertising and a hardware play.
The innovation at Snap is incredible for users and gets us excited about having new toys to play with but long term, that won’t be enough.
Instagram Stories is well on its way to overtaking Snapchat in terms of daily active users and influencers and brands are following suite.
To excite the advertisers who will pay the bills they need figures, statistics and proof that their dollars are working well for them. They also need to show that they have the scale to deserve the advertiser’s attention
Let’s not forget that Snap’s total 2016 annual revenue (around $400 million) is less than one week of Facebook's total 2016 revenue ($28 billion). Cool is great, but it’s scale that drives advertiser dollars.
Make measurement simple
It’s not rocket science—for Snapchat to prove credibility to brands and social influencers it just needs to offer more concrete metrics around three areas:
Who are these people? Demographics are the lifeblood of advertising. Especially Snapchat claims to have a highly lucrative one that few others can reach in a similar way. Now they need to prove it to the industry—partnering with third-parties like Nielsen is a start, but as a brand I want to know one thing: Are my dollars being spent reaching the people I want to reach?
Do they like our content and what content works on the platform? Marketers need to know what works in order to better leverage the platform.
What do they do next? Do they click through to my website, do they download my app? Do they go away and never view our content again? These are all questions most other social network answers— and Snap needs to create and provide consistent data which answers these important questions—if they want to make advertisers happy long term.
One challenge comes from Snaps brand’s ethos—CEO Evan Spiegel is famously critical of profiling in adverts and struggles with the idea an individual can be targeted based on their interests and habits.
Now Snap’s a public company, this attitude might slowly be chipped away at as investors pressure the company to turn Snapchat from an experimental platform for advertisers into somewhere they can see a concrete return on their investment.
All skepticism aside, let’s not forget that Snap has managed to seriously shake up the industry and build a billion dollar company. The have already shown their incredible potential to attract and retain teenagers.
As a demographic youngsters have embraced the mystery and fickle nature of the platform and will continue to do so, provided Snap stays close to them. The IPO though, propels the company to a next level, where some reign like Facebook and others struggle, like Twitter and Line.
It will be fascinating to watch how they keep the pendulum balanced between users, investors and advertisers and prove themselves compared to Facebook.
Competition drives innovation, and Snap has established itself as the go-to company for social media innovation. The industry would be a lot less exciting without platforms like this.
—Robert Lang is the chief executive at Socialbakers.