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What We Think

16 Nov 2018
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Snapchat has not been far from the news over the past year, as stories of new features and attempts at increasing monetisation compete with allegations of stagnation and rocky share prices.

Within one month this year in August, two stories in the space of 20 days claimed both that Snapchat was losing 2% of its active users due to the recent redesign, but at the same time, it is more popular than Facebook for 12-17 year-olds who in many cases have never even been on Facebook.

So what is going on and what does the future likely hold for the once-darling of social media?

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Under a lot of pressure from Instagram, which launched Stories this year, Snapchat responded with a redesign that alienated a large segment of its user base. User numbers have been declining month on month for some time. This has had a knock on effect on share price, which is down 45%.

Thanks to the young demographic still using it, brands and advertisers will still want to invest in its programmatic platform, however there is a growing movement to limit the amount of marketing and advertising that young people are exposed to, so even that revenue stream is at risk and is not looking to be expanding for Snapchat.

The platform is attempting to battle back by partnering with Amazon and testing out visual e-commerce. But this is much like its rivals and not a unique feature. And with other social networks attracting older and cash-rich demographics, it doesn’t appear that Snap is in the best position to capitalise on such new technology.

 

Architecture

Much like Twitter, Instagram and Facebook, Snap has been working on integrations with other apps and services, expanding its partnerships in order to target its partners’ own userbases. With competitors in on the action, it cannot move fast enough in this area.

However, in the era of GDPR, Snap need to be very cautious in its management of user data; if a breach of a leak were to happen, there’s no guarantee their membership would be as lenient as Facebook’s have been.

Given that Generation Z is notoriously more careful with their personal data than Millenials, and flightier as well, any mismanagement on Snap’s part could cripple them given the current deterioration over the redesign.

 

CEO and Leadership

 

One does have to wonder how optimistic to be around Snap’s capabilities to turn around its user numbers which have been declining all year. This has caused a level of discomfort within the company, with a number of the executive team leaving, most recently the Chief Strategy Officer who was widely painted as Snap’s Sandberg equivalent.

With such disruption ongoing, the CEO Evan Spiegel sent a 6,000-word memo trying to address ill-feeling and shore up support among staff. Recognising problems with the redesign, he apologised for not briefing teams to spend enough time testing it and compromising what users value the most – communicating quickly.

 

Snapchat’s USPs

Spiegel recognised that Facebook’s friend feed may have become cluttered with posts, not just from friends, but from family and co-workers –  but people use Snapchat as a space reserved just for their friends. It’s all about chat.

Where Snapchat is winning over other platforms is with Discover, which has more than 18 shows with monthly audiences of 10m unique views, all optimised for mobile. It’s also a bit clickbaity but Spiegel’s memo says Snapchat is trying to fix that.

Snapchat is innovating. It’s creating campaigns with brands (as we wrote recently), and it’s innovating in AR.  But, as Philip Napoli (a public policy professor at Duke University) said, is the template for social media too established for users to accept changes?

 

What’s next?

Investors are split over Snap’s future. Piper Jaffray analyst Sam Kemp said in a note to clients: “Snap is a poorly structured company that is demonstrating a clear pattern of mismanagement. We think the negative news cycle around Snap will continue and advertisers will likely continue to approach Snap skeptically.”

Its stock is down since its IPO last year, and some experts predict that acquisition is the only possible outcome, with Snapchat being integrated into a bigger entity, like Facebook. Despite its mounting losses, Snap’s revenue (entirely from advertising) is up. But it seems likely to be a few more years before it makes a profit – and whether it will survive long enough to see that day remains to be seen.