Snap’s Rise and Fall: How a Big, Splashy IPO Prompted the Doubters to Keep Mum | Hacker News Reader

Snap’s Rise and Fall: How a Big, Splashy IPO Prompted the Doubters to Keep Mum

wsj.com

150 pointsJumpCrisscross148 comments

Snap suffers from a fundamental paradox, one that is difficult for me to imagine an easy way to solve.

They've made their bones by being a uniquely fun and social way of a certain subset of the population to share their lives without parents dipping their head in and seeing what they're doing, ala Facebook. The UI is designed to generally support this; it is confusing and messy and understandable only by someone who is innately familiar with the app, or unfamiliar with the general conventions of UX.

But what happens when that user base isn't big enough and you have to expand? What happens when you need to figure out how to sell ads in an environment when you have next to no demographic information to target against? You'd have to fundamentally change the business: algorithmic timelines, a more sensible UI, more chipping away at the anonymity - all of which will turn off their core users in droves.

Not sure it should even be given the lofty status of paradox. Would simply mark it up to a bad business model

Snapchat doesn’t feel like a company with a business model that couldn’t be very successful, but it also doesn’t feel like there was ever a fighting chance of justifying it’s IPO evaluation

> how to sell ads

Why are we so obsessed with the ads model. Why not start charging?

This is not a web app, where you have to take out your wallet and enter your CC info; all it takes is the scan of your fingerprint. I am sure people wouldn't mind paying a certain amount per year to keep using the app without creepy apps.

Sure, the revenue will be capped by the amount per year a user is willing to pay, but maybe the days of the fat cows are over?

> I am sure people wouldn't mind paying a certain amount per year to keep using the app without creepy apps.

What makes you so sure? Given that there are basically no successful social networks that charge, I'm very skeptical.

It’s a figure of speech, but my guess is based on the amount of money people pay for game apps.

1. Snaps core demo likely doesn’t have the discretionary income to pay for a social network.

2. Snaps main competitor would have a far lower barrier to entry - free

3. If all your friends can’t pay for Snap, you will likely move regardless if you are a paying customer. Why would I pay for a network with 80% of my friends when I can use a near clone with 100% of my friends.

4. Facebook nearly $7/user a month with an ad model. Ads are fare more lucrative than subscriptions

Snap's ARPU is about $1 per quarter. Surely the core demo can afford even a 100% markup on that?

My problem with any ad model is it incentivises the maximisation of views/engagement that allow for more/stickier ad impressions which means a proliferation of viral/tabloid/divisive content like youtube/snap/facebook. Once that incentive can be minimised, the incentive to provide quality product that users then feel willing to pay for can become more important.

Of course, these networks didn't attract the user numbers they have by charging up front so for any challenger to come along and try this model will be extremely difficult due to the aforementioned friction in either getting out your credit card to pay or paying up front for an app. People will gladly shell out hundreds of dollars for a new phone but won't shell out a fraction of that for a quality app on that phone.

How do you get a 12 yo to pay for anything, especially when Insta is free and does much of the same stuff?

The second they charge, 75% of users go to Instagram and don’t come back.

Lets skip the fact that a your average 17yo may not even have a credit card to begin with.

If Snap were to start charging tomorrow, what would their value ad / sales pitch be?

The original reason people used Snap was ephemeral communication with their friends. Snap can't "sell" that. If I buy the Snap App, and my friends aren't there then the app is useless to me. The smaller the network is, the less valuable it is to me - and if I do buy in, it then becomes my job to also convince my friends that Snap is worth is paying for. If one of my friends does not renew their subscription, the value of the service to me also declines. I don't think any social network can be viable by subscription - the most valuable part of a social network is the network, and the under a subscription fee, "Snap" would always have to choose between making the network for valuable and generating revenue.

Thats why the ad model works so well for social networks. The more people you have, the more attractive it is to consumers as well as advertisers. This is different from something like a news publisher - the amount of people also reading from that same publisher doesn't affect my enjoyment of their content.

> Snaps core demo likely doesn’t have the discretionary income to pay for a social network.

How valuable are a demographics with no discretionary income to advertisers?

Here’s an example,

This year I want a [blank] from Santa/father Christmas.....

I want a Snap Spectacles for Christmas!

There seems to be a social convention that has formed around social media products that the user should never have to take out their credit card and actually pay. It makes sense why it started this way, since network effects are everything in this space.

But like many things that start one way for a good reason, that reason is eventually forgotten and the state of the world is codified into a shared social norm. Most people either don't care or are unfavorable to social media sites selling their info, yet I predict the outcry towards their charging would be enormous.

I'm also unsure about the userbase. It seems like the average Snap user is very young. Paywalling the app will probably drastically increase the barrier for people to use the app.

ad buyers are also consumers.

Humans really don’t like to pay for stuff.

Snapchat is already losing people because Instagram is copying their core features. Charging money will just cause people to leave to Instagram even faster.

> Why are we so obsessed with the ads model. Why not start charging?

Short answer: Metcalfe's law. "Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2)." [1]

Social networks are valuable to the extent that the people you want to talk to are on it. Charging raises a huge barrier to entry, making it very hard to create a large network.

They could try charging by usage, as with SMS, but that's hard when key competitors are free. They could also try charging for premium features, but that could hurt user growth and it's tricky to find the right basket of features that will really get people to pay.

[1] https://en.wikipedia.org/wiki/Metcalfe's_law

To add - earlier WhatsApp and other messaging was seen by most adopters as a free SMS replacement.

> Charging raises a huge barrier to entry, making it very hard to create a large network.

Is this because digital payments are cumbersome, or are people really unwilling to drop 50 cents/mo on something they find valuable?

Imagine getting 3 months of Snap usage for free, and having the ability to make a 50 cent payment as easy as dropping two quarters in a tip jar. Would this still be a huge barrier to entry?

There is not a chance in hell I would pay to put a photo on Snapchat, and I’m of their core demographic that can actually afford to.

Would you pay $1 a month to not see ads and not have your data be sent to third party companies?

That's not really a winning value proposition. The first part won't resonate broadly; the bulk of America is perfectly comfortable seeing ads. And the second part raises a question they desperately don't want to raise: what are big companies doing with all that personal data?

Nobody is preventing them from offering either ads OR a subscription service.

Hey if they discover it too late, that’s on them!

At their size, there are few changes that will help user growth without improving content.... goood luck with that.

> I am sure people wouldn't mind paying a certain amount per year to keep using the app without creepy apps.

I really don't think this is the case. For the demographic that currently uses Snapchats (mostly 18 to 24 year-olds), paying for mobile software at all is a pretty significant behavior change.

It doesn’t have to be subscription or pay to download. You have the user looking at your App 12 hours a day. Be innovative on how to extract money from them.

Where are you getting your demographic info for SNAP from?

> This is not a web app, where you have to take out your wallet and enter your CC info; all it takes is the scan of your fingerprint.

But you need a CC to begin with. What percentage of Snap’s user base has a CC?

It's not about the size of the userbase; it's about business models. They burned cash to acquire users, but once they wanted income they too have gone the advertising route. This leads to the dilution of the core experience as you've pointed out: fudged timelines [1], denser advertising, backporting of missing social networking features, leading to networks that are largely interchangeable [2].

Snapchat can't really afford to be interchangeable with Instagram, because Facebook actually knows how to persuade advertisers to keep selling ads, while Snapchat just relies on its perceived clout among a coveted demographic, providing very few mechanisms for advertisers to gauge their ROI [3]. Sooner or later, advertisers will wisen up and pull out of Snapchat, making their business model crisis all the more acute.

Snapchat is one of the best-positioned companies to actually trial different business models for their app: they have a respectable install base, their platform is still sticky and desirable enough to maintain a sizeable userbase for some time, and their preexisting userbase is aging into being able to spend some money. Defection to Instagram isn't nearly as much of a threat as many make it seem: most Snapchat users are already on Instagram as well, so as long as they continue to engage with Snapchat, all is not lost.

Their map purchase was an effort to pivot the product's monetization back to hyperlocal factors, and solidify the idea that your Snapchat friends are part of your close-knit circle. Snapchat could be a better Foursquare, but it's not quite there yet.

[1] https://news.ycombinator.com/item?id=12191435 [2] https://news.ycombinator.com/item?id=13168804 [3] https://news.ycombinator.com/item?id=15050410

As a heavy snapchat user, I'm a big fan of the idea of snapchat as a better foursquare/find my friends because honestly neither application ever made enough sense to keep installed longer than a week at a time.

I don't know if I'd pay for it, but if they wanted to use location to sell ads to local businesses or whatever they could probably tap an otherwise relatively untapped ad market.

What kind of other models could potentially work for Snapchat other than advertising? I don't see any candidates from the list of other companies that serve young consumers.

I would create an extension to the snap ecosystem, which would be called "snap graffiti". Snap graffiti would allow you to attach a geographic location to a picture. These pictures could be anything, and anyone could see the pictures by being near the location. They would only hang on to the location for a certain amount of time. This in and of itself is not a business plan. But I would then allow these pictures to be connected to economic activity. For example, I have a bunch of iron pipes in my garden which could be taken to the waste disposal arena. Any teenager could do this for me just by carying away the metal. I would be able to "snap graffiti" the pile of metal in my garden, and tag it with $5. A bored teen could then knock on my door and carry away the metal. They would get $4.50 and snap-chat would take a small service fee.

Bored teen cuts finger on metal. Parent sues you and Snapchat.

Doing meaningful things is risky. But the riskiest thing of all is to do nothing meaningful. Death comes either way. You can be an advertiser or a passive middle man. You can lie, cheat, steal, and sell your way through life. You can watch yourself die, and civilization pass away into a spiraling clusterfuck of anxiety and broken dreams.

Or you can buy State Farm business insurance. The insurance that will set you free. Call a representative today.

For an idea what kind of income you're looking at from such a business. Imagine 4 million of their nearly 200 million users, do a $5 task every day. After credit card fees of 25.05 cents per transaction [1] that would leave 24.95 cents to snapchat for every transaction. That would be around a million dollars a day in income. Not terrible. And on valentines day, they could allow users to exchange a $5 task for a $10 coupon to Olive garden. Olive garden would, presumably give them coupons like that for free. If a million users chose that exchange, that would be an additional $4.5 million in income.

[1] https://bandcamp.com/help/selling#fee

Patronage for amateur adult NSFW content.

At a not-even-breaking-new-ground level:

1. they could meld the treasure-hunt aspect of Pokemon Go with sponsored hyperlocal recommendations. ARGs (alternate reality games) are popular with Snapchat's core demographic, and if Snap could pitch itself as a platform for ARGs, their advertising woes would disappear.

2. microtransactions familiar from Asian messaging apps: cosmetic stuff like stickers, emoji packs, backgrounds, filters, etc

3. (macro-)transactions for large-scale content inside of Snapchat. Facebook had entire video games playable within it; there is no reason Snapchat can't do this. There is a market for VIP access for 'private' Snapchats of celebrities and creators, but today this is arranged out-of-band, because Snapchat provides no support for this in-app. Patreon was able to make headway in this underserved market.

4. Snapcash could compete with Paypal, but it's vastly overemphasized.

5. Snap Map has so much potential, and it's unexploited. From mundane to exotic, opportunities include location search, sponsored recommendations, user-generated content about real-life places (cf. Yelp), user matching for transactions (cf. Uber), user-generated content anchored in virtual space (AR stuff)...

6. Subscriptions. Either to gate specific content or features, or just for the sake of. Discord has a sponsor tier that gives a few perks but is just as much for the sake of providing support. There is always a subset of users who will pay.

> 1. ...sponsored hyperlocal recommendations.

> 5. ...sponsored recommendations,...

i.e. ads and ads. One of the most depressing aspects of the current tech bubble is how most "entrepreneurs" are not making new things, but finding new ways for others to advertise existing things. If they win the lottery and become billionaires, they start building rockets.

> most "entrepreneurs" are not making new things, but finding new ways for others to advertise existing things

What a bizarrely reductionist lens through which to view Snapchat and I guess consumer apps in general — Snapchat is not it's business model (or lack thereof).

Snapchat clearly made a "new thing". It's just looking to an existing business model to monetize that new thing.

Fair enough -- my view may be too reductionist. Still, it would be refreshing to see something based on a business model other than "surveil and/or capture attention, then sell ads."

It's not reductionist, it's honest.

I don't see what Snapchat has done that's new. Disappearing messages? When I was a teenager we used to call them "gossip" or even just phone calls.

If the tech industry spent the amount of energy used to glorify petty crap on something more useful we would have been defeated poverty and all diseases a few weeks ago.

UX in the context of their target audience is simple, elegant and concise. Young people have an easy time getting used to different gestures and their respective actions. And once you get used to it (it took me a while cause I’m a bit old), it’s super convenient.

I wonder if the confusing, messy UX you talk about (I've never used the app) is a deliberate strategy, or just bad design.

There seems to be a natural arc to the process we keep reading about: Get investors & users with your cool design. Burn cash. Have an IPO. Flail as you try to monetize.

But, they're at least succeeding at something that Google couldn't do if their life depended on it, which is make a social thing people want to use.

What I don't get is why Google doesn't just swoop in either at the early stage or at flailing-and-monetization stage, buy them and stick them in their back pocket.

That means that FB was probably the last "web" or "app" big IPO. Now it's Amazon, Google or Facebook. Even Yelp is withering. Just like it has been impossible to start a new car or airliner manufacturer since the 1920s (except for Tesla), the opportunity for creating new large web companies has been shut by the entrenched trio.

I do not think it is shut, but new entrants must offer something significantly better (or new and useful) than what is available from big 3. I am not sure what exactly Snaps value was beyond some funny face transforms. If nothing, it is not surprising if it fails once the novelty wears off.

It was certainly different when it launched, though, before most of its features were copied into Instagram.

I think Nextdoor has a real opportunity here in offering something very differentiated and useful (to varying degrees, depending on neighborhood).

Sure. But it’s useful today. Are they going to continue the unicorn startup charade and ruin the product in the progress, like facebook? Or snapchat? Or even twitter! We’d be distinctly better off as humans without any of them.

I thought many times about world domination of these companies in each of these 4 areas which started their significant presence from year 2000 onwards .

Search - Google

Shopping - Amazon

Social - Facebook

Mobile - Apple ( Apple mobile journey started only after year 2000)

>The opportunity for creating "new large web companies" has been shut by the entrenched TRIO.

> Now it's Amazon, Google or Facebook.

> That means that FB was probably the last "web" or "app" big IPO.

> Even Yelp is withering.

> Just like it has been impossible to start a new car or airliner manufacturer since the 1920s (except for Tesla), the opportunity for creating new large web companies has been shut by the entrenched trio.

Apple does not dominate mobile by any stretch of the imagination, with about 15% market share. Google, on the other hand, is creeping up to monopoly status with Android and its roughly 85% market share.

15%-20% marketshare in the smartphone category and yet they capture ~90% of the profits.

To me, that's definitely a type of domination.

You're radically exaggerating.

Yelp? I don't see how that's a particularly good example. Priceline is 27 times their size in market cap.

Let's examine that withering though. Yelp sales by year:

2014: $377 million

2015: $549 million

2016: $713 million

2017: likely ~$850 million

Is that massive growth what qualifies as withering these days?

How about Zillow? Tracking to $1 billion in sales, growing very nicely still. Expedia also has a very good business, they just printed a huge quarter ($481m in operating income).

How about Uber and Airbnb? $100 billion in market cap, both fast growing businesses.

Netflix, $83 billion market cap, 100 million paying subscribers, still growing nicely.

How about Spotify? Over 60 million subscribers. Beating Apple, Amazon, Pandora and Google at streaming music.

How about Pinterest? They've just begun the process of making money with their platform. Things are looking just fine for them. Neither Facebook nor Google have been able to harm them in any meaningful way.

Since we're talking about Google and Amazon, let's switch gears into payments.

PayPal is a monster.

Stripe and Square are killing it.

How about in code, given we're talking about Google. Github? Google is a non-issue. Stackoverflow? No threats on the horizon, they have a serious, viable long-term business.

eBay and Craigslist are doing just fine. Amazon hasn't so much as dented either of them. eBay is printing $2 billion annually in net income and has an extremely healthy business. Even lowly Groupon is planning to stick around, they're doing $3b in sales and are now break-even.

Shopify is also killing it right now. $10 billion market cap, with a business that has grown by ~5 fold in four years (72% sales growth in their most recent quarter).

Then we get into dozens of other major web businesses, like LegalZoom, Coinbase, Redfin, DraftKings, GoDaddy, Shutterstock, Automattic, SoFi, Houzz, Lyft, Slack, Dropbox, Etsy, GrubHub, Credit Karma, SurveyMonkey, Reddit, Shutterfly and so on.

And that's while ignoring the vast array of major cloud businesses and enterprise companies, many of which compete with Google and Amazon (or will soon). Companies like Oracle, Microsoft, Cloudflare, Akamai, Digital Ocean and dozens more.

I don't disagree that it's possible to beat the big three, but even prior to the snap IPO, the tech market felt a bit bubbly. There will be some big losers in your list too. It's worth saving this comment for posterity.

A lot of these companies are pre-FB (or right around the same time): PayPal, Craigslist, eBay - those are much smaller than the three giants and on a slight decline curve over time. Yelp was started around FB times and growing sales are not an indicator of the actual growth.

Some of your examples are private companies so saying uber and Airbnb have a 100 billion dollar market cap is misleading. Private valuation is one thing and may be equivalent at IPO but is not a market cap and they don’t disclose revenues.

Uber?

> start a new car or airliner manufacturer since the 1920s (except for Tesla

  Porsche (1931)
  Nissan (1933)
  Volkswagen (1937)
  Toyota (1937)
  Kia (1944)
  Hyundai (1947)
  Honda (1948)
  Land Rover (1948)
  SEAT (1950)
  Lotus (1952)
  Subaru (1953)
  Lamborghini (1963)
  Dozens of Chinese companies in recent years...

On the aero side:

  Antonov (1946)
  Embraer (1969)
  Airbus (1970)
  Diamond (1981)
  ATR (1981)
  Cirrus (1984)
  Bombardier (1989)

These lists are very far from inclusive.

Bombardier bought airplane mfr that was founded in 1940s. Airbus was just pooling of several air companies and expertise in 1970. ATR was founded and backed by another plane company. Etc...

I think your list shows how difficult it is to start a company in these two sectors .

A lot of these companies are government (or at least government-backed) projects: VW, Embraer, Antonov, Airbus, SEAT, etc. And Japanese situation after WW2 was special. It's like saying that healthcare.gov is a new upcoming web giant.

Contrast that with the fact that the half-life of S&P 500 companies has shortened — I don’t think web monopolies are here to stay.

Only thing holding those trio up is a self sustaining loop of VC money and ad revenue.

I just went long on snap after saying for years it's a shitty facebook and if you like social media or online ads then you should just invest in facebook. The latest conference call was very enlightening in that it showed me how much snapchat was doing wrong and what they can do to fix it. I think there's a real opportunity here. It's one thing if snap just can't outcompete facebook, and a whole other thing if the problem is simply snap's simple and easily fixable mistakes. I believe it's the latter and I think snap will at least 2x in 2 years.

I wish you well on your speculation.

I didn't dig into the financials all that much, or even listen to call so I'm approaching this from a place of ignorance, but I do happen to have five or six family members between the ages of 13 and 18 and all of them have unanimously reported to me that Snapchat is unequivocally over.

That's as anecdotal as it gets, but I'm also hard pressed to believe that they're all simultaneously unique. And as we've seen elsewhere in tech, once the "cool" vibe is gone (Yahoo, AOL, etc.), it's a long spiral to irrelevance.

If you don't mind me asking, what social media are your family members using? Are their friends on that platform too?

Instagram is the current leader, with Kik, Snapchat, and Messenger in some messy run-off after.

I have to admit a lot of surprised how quickly Instagram got to parity and overtook Snapchat with my family, but I'm at least two decades out of that demographic so that's probably more of me being old and out of it than anything else!

I can't count the number of times I've heard from people very plugged into the industry declare that the FB exodus was underway.

If you read Hacker News and Reddit, it's obvious that Facebook is about to die. People are put off by its privacy issues, its outlandishly aggressive efforts to keep you clicking, and its culpability in tilting information and elections to shady actors.

But I'd probably make a bet than they'll reach 3bn before long.

3bn what? I still "use" it in some sense, but I mostly publish auto-syndicated stuff, and read via mbasic, which uses no JavaScript and limits their surveillance. Of course I never load their "like" buttons. My parents found it useless and stopped using it; my kids can't be bothered. How much is Myspace 2.0 worth?

~$520 billion as of Friday. Aside from international expansion, the difference between Facebook and MySpace is that Facebook has made and will in all likelihood continue to make a lot of money, actual profit measurable with GAAP. Snapchat will die before it makes GAAP $1, just as MySpace did.

3 billion monthly active users. They hit 2 billion this summer [1].

[1] https://www.theverge.com/2017/6/27/15880494/facebook-2-billi...

> 3 billion monthly active users.

I was trying to suggest that a lot of those "users" are not sources of income/data. I'll bet a lot of them are either bots, or humans smart enough to use an ad blocker. And most of the MAU humans are probably in a 10-year age range, having signed up when FB was useful.

I would disagree again here. Significant numbers of their users use their apps only/majority of the time. Can't block ads on closed platforms!

The number of people who do all of what you do with FB is a minuscule fraction of people. You're also not counting that Instgram, Whatsapp, and FBM have 800M, 1.4B, and 1.1B monthly active users each. With IG already likely profitable and likely to make billions in profits soon and FBM trying to begin to try to monetize. These three are prob worth at least $125B if spun out or separated hypothetically.

This is a diff world and company than MySpace. Calling it 2.0 is misguided at best.

Do your family have private or public Insta profiles? My understanding is that the usecase is not perfectly the same. Insta is "halfway" between snap and twitter, though I'm sure Zuck would like it to be "both".

I'm also very optimistic about Snap - it's one of the only social networks I use regularly.

That said, Snap could fix a lot of things and grow revenue and the stock could still not move - they're at about the same market cap of Twitter with a fraction of the revenue and user growth that is similarly stalling

There seems to be a hard boundary with reaching the demographic of users in developed nations and both Snap and Twitter are there

> There seems to be a hard boundary with reaching the demographic of users in developed nations and both Snap and Twitter are there

I think Twitter and snap are very different. Snap is a messenger app and has the same potential as FB messenger or wechat. Twitter will never be that. The latest news has Tencent making a strategic investment and bringing chinese style monetization to Snapchat. I'm very optimistic about this.

Interesting, what is Chinese style monetization?

Games, payment, micro-transactions.

I think it’s referring to how a lot of Chinese apps have micro transactions / are essentially payment channels with incentives built in or games built on top.

There's a third possibility that you should be cognizant of: Snap runs out of money.

If they have ~3 more quarters like the last one then they're insolvent. There may be a real opportunity here but not enough time to execute on it (especially given that every early employee can walk away now)

In that event they may recapitalize or go private equity. Too big to fail.

> Too big to fail.

I don't think you understand what that means because it doesn't apply to Snap.

It took Facebook and Google a while to nail their advertising strategies. FB shares dropped down from an IPO price of $38 to less than $20 at one point.

Its a very competitive climate and Snapchat needs to keep innovating, but I wouldn't write Snapchat off too early.

Snapchat+YouTube would be killer combo

I remember the analysts opinion on Facebook pre-IPO. Virtually no revenue. One year later Facebook presented their first gains. While I was sure Facebook would be able to do it back then, I don't see it with Snap.

They could profit from Snapcash though. How about integrating some Patreon-esque function where you can unlock private feeds by payment/subscription? For some art-forms that could really work out well.

"art-forms"

I would say Snapchat is more similar to Twitter than it is to Google or to Facebook. Question is, what is there to incentivize a user to stay on the platform for a couple extra of minutes? I personally have no clue why Snapchat the company is so large — does it really need that many engineers or marketers to maintain an app that is essentially a messenger? The failed Spectacles experiment just seems to scream that this is a company with a lot of money and no clue what to do with it.

> The failed Spectacles experiment just seems to scream that this is a company with a lot of money and no clue what to do with it.

Spectacles look exactly like Google Glass to me, though with a bit less creepy human thumb marketing... http://static2.businessinsider.com/image/5179166eeab8ead0440...

All of the current surveillance capitalism companies seem to be flailing when it comes to doing anything beyond selling ads.

Two bits which caught my attention:

"[Evan Spiegel] has dismissed ideas that rely heavily on data, according to people who have worked with him. He prefers to study the experience of users for cues on revisions and new features, some of the people said.

...

One banker involved in the IPO said he thought the lack of voting shares and other decisions could imperil the company’s standing with investors, possibly hurting its stock price. But he said he didn’t articulate that to Snap’s executives for fear of jeopardizing his spot on the prized deal."

Matt Levine had a good take on the second point (as always): an underwriter used to lend its name and authority to an IPO as a gatekeeper, back when IPOs were rarer. Now they will sign onto just about any deal, and while they still do some due diligence, it means very little to investors that Morgan Stanley or UBS is underwriting.

“Nobody bought Snap because of Morgan Stanley's imprimatur. In this world, the underwriters are mostly just service providers. Certainly they have due-diligence obligations -- they really aren't supposed to take companies public if their financials are fraudulent -- but they don't have much leverage to insist on things like voting stock or forward-looking earnings guidance. The market decides stuff like that, not the underwriters. The underwriters just shut up and execute.”

Underwriting by investment banks feels less like underwriting and more like arbitraging the fear of missing out.

The first point could be likened to the Apple vs. Google design model.

Google: "Test 36 shades of blue and choose the one that performs best"

Apple: "Create beautiful product based on user experience and then convince you that you like it."

I don't think making all product decisions based on data is necessarily good, nor is designing in a vacuum.

It sounds more like different data set that's gathered by observation. If you can keep the observer's bias to a minimum this method may tell you more about how your feature is received and used. It is also the most time consuming and costly approach and doesn't really scale.

Snapchat is a tabloid. The professionally made content is pure trash. I have Snap opened right now. Here is the top 5 pieces of Featured content it shows to me, a 25-yo male:

1) DailyMail: "Khloe [Kardashian] shocks with new FACE". 2) BROTHER: "Do You Actually Know The Right Way To Eat THIS?" (pictures of pizza) 3) FRIYAY: "Watch This to Start Your Weekend" 4) MTV: "These Rapper Names are SO Cringey" 5) NOW THIS: "CAUGHT ON TAPE: Drunk driver tries to trick police"

If Snap can corner the tabloid market, it could be a profitable business one day. But Facebook is on another level. Facebook has the low brow covered, but it also aggregates news. Indeed, Facebook's news sharing is so important that Facebook is a propaganda platform. Nothing on Snapchat matters. Spiegel seems to be a Steve Jobs devotee. The Jobs I imagine rolls in his grave every time he's compared to purveyors of digital junk-food and softcore porn.

Jobs ego was so large he’d probably love people aspiring to be like him regardless of how idiotic their business model actually is.

Maybe the tabloids are to build the infrastructure and they plan to move upmarket quickly? Maybe Facebook courted users to share news while Snap is trying to court journalists? I googled "journalism at snapchat" and it looks like a lot of results trying to court young journalists.

Anecdotally, I've heard a lot of other journalists talk about Snap hiring good journalists. Separately, I swear yesterday I heard an article introduced something like; "So and so, from the NYT, currently at Snap, wrote this article for the Atlantic" which seems to reinforce that idea.

I don't use Snapchat and don't follow tabloids, but I feel like Snap has popped up on my radar occasionally with actual journalism.

I think Snap is doing the best pure "Social Media" experience of any service right now. Whether or not that can really be monetized without becoming another Facebook is a different story.

except snapchat has been effectively locking out and leading on android users. they're making a whole new app just to get some android users back because instagram is absolutely murdering them

what's wrong with the current android app?

I've found that my experience with the android app has improved a lot since snapchat's earlier days. The app used to be quite buggy which may account for some "ptsd", but I haven't had any problems in quite a while.

Quality of the pictures. It basically takes a screenshot of the camera preview, instead of actually taking a picture. Also often bugs, laggy interface etc., which is bad when you have one attempt to view a picture or message..

Snapchat has been the number 1 social media app in US, UK, Canada and France for most of this year (above Facebook app and Instagram). Whoever says Instagram is murdering it is getting his facts wrong.

When Instagram/Facebook quotes its numbers, they are worldwide user counts. Snapchat is mainly only used in US, UK, Canada, France, Germany which have around 600 million people. This compared to India, SE Asia, Brazil, Africa where Snapchat is virtually non-existant. Users in developed countries are 10 times more valuable based on ad dollars. Hence, I find the comparison of raw user numbers to be an unfair comparison.

Most of what you said in your comment is simply not true: http://news.filehippo.com/2017/11/snapchat-drops-out-of-app-...

https://techcrunch.com/2017/11/01/instagram-whatsapp-vs-snap...

I still think Snap is a good long play because so far they are the only social network to "get" Augmented Reality. Google has already had multiple AR missteps (Glass, Tango, Pokemon Go via Niantic), Facebook is playing AR copycat, Microsoft's AR is targeting big industry.

Snap's entertainment experience puts the viewer in the center of the action, similar to VR 360° experiences and Spectacles is a direct expression of that understanding. Snap's AR advertising (sponsored filters) has been an overwhelming success. I don't think a real competitor has emerged for Snap yet, as long as they stay the course.

Apple just commoditized AR by adding it as a set of iOS APIs that anyone can use, so that's an awfully shallow moat for Snap to rely on.

Adding filters to a camera is a very different market compared to sustaining a social network on it. Look at Hipstamatic vs Instagram.

It's not just creating a feature, it's understanding why someone would want to use it. That's the difference between a product and a business.

Most of HN is too old and otherwise not the Snap demographic. How many of you actually use Snapchat with your friends and watch the videos with your headphones in? The experience is key -- the business facets being analyzed are a symptom of the experience.

Pokemon Go probably shouldn't be considered a misstep given it surpassed $1.2b in revenue and over 750 million downloads earlier this summer. Also as another poster notes below, AR is pretty wide open with both Instagram (FB) finding success with the exact same AR features/lenses as Snap, as well as apple integrating AI in to their most recent iOS release.

First, that's a feature, not a product.

Second, there's no barrier to entry there. Facebook's ~10000 engineers can recreate features with amazing swiftness, do it better than the first movers, then spread the feature quickly through its 1 billion+ user social network. If Facebook wants to beat snapchat at the AR game, they will do it when they feel like it.

https://techcrunch.com/2017/04/13/instagram-stories-bigger-t...

You mean like how Google+ replaced FB?

Thats a product, not a feature.

SNAP has already lost $40 mn on Spectacles, because they don't sell. This does not seem to be a strategy that is actually going to work. Meanwhile, Instagram Stories now has more users than Snap, and Snap's user growth has stalled, coming in below expectations for the second quarter in a row. So far they have also failed to improve their Android experience, which is not helping. At this point, SNAP seems more like TWTR than FB, except they don't have the kind of relevance, and therefore staying power, that the former has. Unless they can come up with a strategy for a turnaround, they may be dead in five years.

Looking at their most recent quarter (Q3) growth has slowed down to 80% YoY.

YTD revenue: $538MM

Q4 should be their best quarter but look at last year we see that Q3 was $128MM, followed by $165MM in Q4 and then $149MM in Q1. Using Q3 as a proxy with $208MM that would imply around $265–270MM in Q4.

Taking even the higher range at $270MM that would mean full 2017 year revenue: $808MM

With revenue growth slowing, user acquisition slowing, and monetization on a per user basis only increasing around 15–20% per quarter that would imply a difficult and challenging 2018.

Most likely full year revenue growth will be around 60% on the high end implying:

2018 full year revenue: $1,292MM

Keep in mind that losses are also growing this entire period so they are treading into Twitter territory of slowing growth and increasing costs.

Taking an 8x revenue multiple on next year’s revenue that would imply a value of: $10.3B today.

However, by Q1 2018 earnings reality will set in. Either Snap will be able to reinvigorate their growth, or with full year 2018 revenue projections it will be quite clear that people are continuing to pay a significant premium for future revenue that is quite possibly 2–4 years ahead of where the company is today.

What's important to understand is that Facebook as a platform is designed for advertising. It's an entertainment platform, people are wasting time so ads fill into that gap nicely and FB has been tweaking everything from how your news feed operates to forcing brands to pay to reach their followers all geared towards increasing revenue.

Twitter is also a good platform for advertising but again look at the frequency of ads that you see, notice that they don't charge to reach followers, and so forth.

Snap is in a worse position because primarily it's a messaging platform which doesn't lend itself well to ads and video ads always under perform because there isn't as much of a driver to interact like click through text or visual ads.

Snap will not get their growth rate next year will decrease, the only question is how much.

Basically greed was in the driver's seat.

EDIT: From the article:

Stock-underwriting activity was in the doldrums in 2016— money raised by U.S. IPOs was the lowest since 2003, according to Dealogic—and banks were hungry for fees.

And goes on to describe how they set aside all of the signs that underwriting the offering was a bad deal. (Well good for them, they would make money regardless but the retail investors would not get a clear picture of the challenges in SNAP's business model until it was too late.

This was exactly the sort of activity that defrauded retail investors in the dot com bust. "What do you mean they don't have a business model? Look here, Morgan Stanley is underwriting their offering, don't you trust these guys to know what they are doing?"

I only used SnapChat a few times. From what I saw, it is a virtual message channel to make funny/silly face style communication with others, which is what many 10-19 yo need. And I actually did a simple analysis to explore some fundamental needs for that age group based on where their activities happens. And the communication method SnapChat and similar services offer fit what they want perfectly when being used as a massager. As long as they can hold that ground tight, they still have chances.

Also, Tencent just acquired some portion of SnapChat's equities. It has very strong and long track record and experience to make a lot of money from that age group, though in a different culture settings. It might be a 50/50 bet. Unfortunately, I'm too poor to buy in their stocks now and bet on the mid term.

This just reminds me of the whole ratings agency misalignment of incentives during the financial crisis.

See also the appraisal industry's role in the real estate crash.

Or the CEO shouldn't make douchebag strategies that he only wants to expand in Rich contries and not poor countries like India.

https://www.google.com/amp/s/m.economictimes.com/small-biz/s...

After this came out, all my Indian friends around the world instantly boycotted snapchat and moved to whatsapp

In a way I'm glad snapchat is suffering. The CEO has done a number of cringeworthy things.

It's debatable that he did. Politifact rated it "mostly false."

People need to separate the product from the company. The product may be great, hot with the kids, whatever but at the end of the day Snap is a business.

Snap the company is in terrible shape and poorly run. Their last financials were, in a word, horrifying.

I think Snap is an interesting company. I'm very curious to see where it'll be in 3-5 years.

I wonder if kids not yet on Snap (because they're too young), will go directly to Instagram for its stories feature in addition to pictures, etc., or if it'll still acquire those future social media users. I think it's unlikely to grab many new adult users who are only now getting into social media.

If I were the head of Snap, I'd scrap the spectacles operation and spend time thinking about, and experimenting with, the future of media and social media.

Perhaps there's an iPhone-like opportunity.

I also think it needs to make its product way faster and more intuitive to use.

Snapchat is very confusing and poorly designed. 100% agree with you on the intuition part.

But I don't think spectacles really has much influence on future of company; that is, Snapchat will fail or succeed for other reasons entirely. It might look expensive on paper, but the glasses project is more of a marketing stunt than a mass market product. If people don't want to use Snapchat, they won't use a device that is designed for it. So problems with the platform will make people not buy them.

The app is being copied by others, and their app also is getting worse. More features, more bugs, more ads. People promote their image and show off happiness and wealth on their stories. It has all of the negative experiences of other social networks, and it's got the sexual harassment aspect, too. Many many female friends of mine receive unwanted dick pics.

It's easy to see why they're struggling to grow. My first impression was that it was a messaging solution. Then it morphed into a social network, and some people expect to add you as a friend as casually as they would on Facebook.

In my opinion, Snapchat was more intimate and not something you just add everyone.

As a result of people adding hundreds of low-intimacy relationships to an app that was intended to be a 1-to-1 messaging solution, they are becoming disenchanted with the novelty. It's no longer fun to use Snapchat like it used to be.

Looking back, if paying $5 for the app would have kept Snapchat from doing their media stuff and led to making it a secure, encrypted platform, I would've gladly bought it. Just sad that it's become Facebook.

Would $5 have been too big a barrier-to-entry for the youngest Snapchatters?

Absolutely, this new generation of kids don't want to pay for anything on the App Store. Maybe the generation of ~5 or so years ago that had a stockpile of iTunes Gift Cards from Christmas did so, but the attitude towards paid applications seems very different now, at least from what I've seen with my younger cousins.

Till they discover they can earn gift cards for app stores through Google Opinion Rewards and buy any app they want. To be fair I know a handful of adults that do this.

The more people that do surveys like Google Opinion Rewards, the less frequently each person will receive surveys and the payouts will decrease. It's nowhere close to that but the Google Play Store also isn't close to the App Store for me at least. I have like $50 from doing surveys but there were barely any apps I wanted or want on Android.

    > and it's got the sexual harassment aspect,
    > too. Many many female friends of
    > mine receive unwanted dick pics.

Same here. If I was in charge of Snapchat I'd be working on some way of automatically identifying and killing those images in-flight, and banning people who sent them repeatedly.

But many use Snapchat for legitimate non-harassment sexting. What you would need to do is combine this with a reporting feature. That way those using Snapchat for it's originally purpose don't get banned along with the unwanted dick-pic-sender crowd

I think you just killed the goose..

Snap is extremely valuable, it has the customers everyone wants - it simply doesn't know how to monetize them. Give it time, if someone like me can figure out how to monetize this user base, I am sure, snap can, in time.

So you figured out how to monetize?

Yes and its not ads.

Do you mind sharing what it is?

I think SNAP could benefit from being a content creation hub like YouTube. It's great for spontaneous content creation, even more than Instagram, and a ton of people already use it for that purpose.

Right now the app is mostly messenger focused. People with interesting, creative snap stories aren't advertised at all.

Snapchat could accomplish this with a "discovery" feature that shows snap stories a user might be interested in. It would also get users spending more time in the app and watching more ads.

Despite what other people think Snap suffers from, I see their stock as a great investment. It has the ability to gain quite well over the short term, regardless on how they turn out in the long term. Also, there is no denying they have a good grasp on the younger generation who doesn’t like fb or Instagram.

Snapchat always seemed like a one trick pony that anyone could easily replicate, which Instagram went and did. Not sure how this wasn't obvious to people.

Obvious in the way that Paypal, Square, Instacart, Dropbox and many other companies were obvious. You could have started any of those, right?

No no no. Doubters kept quiet because watching a unicorn stumble would be funny. Same with MongoDB, the Snap Spectacles of databases.

Funny you mention that. I saw a sticker that said "MongoDB: Snapchat for databases:"

https://pbs.twimg.com/media/CWhO2jIUYAAbuiK.png

The moment Snap started talking about "enterprise version" of their app, they were zombified by their investors.

non-paywall: http://archive.is/mWVgE

And a Blendle link: https://blendle.com/i/the-wall-street-journal/snaps-splashy-...

It's the dumbest app ever. The UI blows.

so whats the latest way of getting past the paywall?

Search the article's name on Facebook.

There's a Chrome extension on GitHub that'll do it.

Radical idea: become a subscriber.

I thought the sunglasses would've been a nice transition into a larger AR play, but they fumbled...and had no plan for how to compete having a product that is otherwise easy for other social networks with a larger userbase to copy.

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