IPO 3.0-on Snap’s unusual offering


To be honest, facebook messenger’s umpteen experiments to copy Snapchat have been my only window to Snapchat’s world. May be just like everyone else in my immediate circle, I missed the bus to adopt Snapchat. The common wisdom around Snapchat is - you won’t get it, if you aren’t one of the generation Z (a term vaguely used for folks born between mid 90s and mid 2000s). So, congratulate yourself if you are pre-generation Z and use Snapchat, for you are younger than 90% of your peers.

There are many ways in which Snapchat manifests itself as an unusual product — an unobvious and unintuitive user experience, a very loyal and well defined user base, and a CEO who is a good aspirational example for many of Snap’s users. In the last few days, apart from Trump’s hate and love relation with Australia, Snap Inc.’s IPO was one of the big headlines. Much like Snapchat, its IPO is an unusual one as well, for the first time a company has completed an initial public offering of non-voting stock on a US stock exchange. But, there are few other things to talk about Snaps' S1 -

Snap Inc. is a camera company. We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate … we believe that the camera screen will be the starting point for most products on smartphones …

A Camera Company

For most people, Snapchat is a photo-sharing mobile application, but that’s not exactly how Snapchat thinks. It touts itself as a camera company, unlike Uber which prefers the narrative of simply being a mobile application even when regulators and many users think of Uber to be a “taxi-company”. This is not the first time Snapchat has called itself a camera company-last April, at a Columbia University event, CEO Evan Spiegel used the term based on the reasoning that the app “opens to the camera.” Later in 2016, Snapchat’s chief strategy officer added "The biggest misconception that I hear about Snapchat is that Snapchat is
just another social media company. In fact, Snap Inc. is a camera company."

The reason why the narrative of being a Camera company suits Snapchat is an obvious one — that a camera on your smartphone with its image sensors is now one of the best camera that people own, and is assumed to be a good for many conditions.And then, there is another way of looking at it, one that builds its fabric around what a camera means to the world when it gets powered by all that a smartphone offers.

The smartphone era is relatively a short period, for the kind of innovation it has enabled over the last decade. At the base is the most basic building block of the mobile innovation stack - the Internet, no surprises here. Before the advent of modern smartphone, for most people "Internet" meant a computer browser connected with an Internet connection, but that's not how people look at an iPhone or an Android anymore. "Connected with Internet" is an implicit prerequisite for the device to be called a smartphone, and this very presence of high speed mobile Internet coupled with hardware and software advances has resulted in new interaction models leading to birth of multiple wave of mobile-only applications and services, and Snapchat is one of them.

The mobile innovation enablement stack can be one way of looking at the evolution - layers of interaction model sitting on the top of Internet, and at the same time getting better and better with AI/ML advances. Each interaction model has enabled its own version of "what's possible on mobile"-

  • Touch Input: The touch/multi screen input was the first big major enabler that led to the birth of new age communication services — WhatsApp, WeChat, Line etc. Powered with an Internet connection, one did not need to go through the trouble of clicking a keyboard on phone, people started tapping instead. It was intuitive, easier and faster way to type. To think of it, it wasn’t as much as about having a reliable mobile Internet connection, as much it was about painless typing on a mobile device that led to the explosion of chatting/texting/sexting apps. As more and more people preferred sending a text, number of voice calls went dry. Chatbots, powered by NLP and ML, are the next step of evolution in innovation in this case.

  • Location: Identification of location precisely led to creation of new set of apps driving value by leveraging user’s location — Google Maps, Foursquare etc. Though GPS technology existed much before the smartphone era, smartphone with an amazing array of functionality in a portable, intuitive and ever more familiar interface added a whole new dimension. There is reason why Uber was launched around the time GPS was added to both iPhone 3 and Android.

  • Voice Input: Siri and Google Now were born much before AI and ML went mainstream, but this category was dramatically lighted up by Amazon's entry, and then by Google playing the catching up game with Google home. In spite of all the talk around voice being the next layer for innovation, at least for the moment, it doesn't look like that voice input based innovation will be able to live up its hype.

  • Camera: Among all these interaction layers, Camera deserves a special mention, for it is going to be the cornerstone of the higher level of interaction - namely AR. View camera just as a means to click a photograph, and you will miss the bigger picture. Camera and it’s sensors aren’t just a mobile version of the digital camera, but it’s a whole new interaction model for how people will interact with the world. A model that apps like Snapchat and Pokemon Go have leveraged to create experiences that were not imagined before. Camera in a smartphone has become a new age input method much like touch input was when iPhone was first introduced. Here is a scenario to think about it - taking snaps of whiteboard discussion has become a norm at workplaces, it is much easier to click a picture and circulate it than write down "meeting notes". Before smartphone, no one would have imagined doing this with his/her Kodak . Now, imagine the reverse - that you don't have to touch your whiteboard to type on it - with your phone, you create gestures on real life objects and your phone clicks multiple shots to generate meeting notes.

Augmented Reality will power the next evolution of camera based interactions, and this is when Snapchat's as a Camera Company becomes an interesting argument. Snaps' spectacles is an example of the break-out products that we see today - use cases which originally originated on the smartphone, but for the convenience of usage they diverted to little products of their own. Amazon Echo, fitbit or fb' Rift are just another addition to this group of peripheral devices. These devices have taken interaction model out of the mobile's space and built a separate, neat looking, usable product. The next most logical innovation for Snapchat would be to bring the fun of personal interactions as one of these break out products. It could be spectacles or something else entirely, but viewfinder and a camera lens will have to be one of its inherent component. Thanks to AR, users will be able to add real life filters, and maybe this layer will become the default interaction for the next computing devices. It could well be the end of need for many real life products that only convey information in bits - instead of having TV at home, people might just put on their Spectacles and watch TV on the couch. For all these futuristic ambitions, Snapchat has every reason to aspire to become a camera company, a camera that will see the world for you. Though it will be a big challenge for Snapchat to cross the technology hurdle, a barrier that someone like Magic leap appears to be breaking very soon. Snapchat has users, magic leap has the technology, and perhaps Snap could use some of its war chest from IPO to truly become a Camera company.


On average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day … On average, over 25% of our Daily Active Users post Snaps to their Stories every day

Personal Wonderland

So, on an average a Snapchat active user creates 16 snaps a day! To put that massive content creation activity into perspective, it might be worthwhile to compare these numbers with few other related platform:

  • Twitter: 3.3 tweets per user per day (500m tweets per day for 150m DAUs)
  • Instagram: 0.45 photos posted per user per day (~80m daily photos posted by ~150m DAUs)

Instagram was the early Snap-app, but over the years instead of milking the snap based engagement, Instagram allowed itself to be overtaken by celebrities and the brands. User generated original content fell so much so, that Instagram had to literally copy Snapchat and launch Instagram stories. Facebook saw this happening to itself, much earlier in its lifetime, and made a deliberate call to become a place for putting up the best social identity, and sit back and consume content. Though, this has worked out really well for facebook, it is still worried about people sharing less and less stuff on the platform - problem known to facebook as "Context Collapse". There was no way Instagram could have followed facebook, for it was bought by facebook to become a very personal version of social media, a title that has been taken over by Snapchat recently. Coming back to Snapchat, it truly is the place where generation Z shares stuff without the pressure of looking good or sober, for some reasons Snapchat has been able to maintain this phenomenon, may be because it auto deletes snaps? or may be because anyone older than a certain age just finds it too hard to use. It could very well be a combination of both - as Snap goes on to confirm in S1:

Snaps are deleted by default, so there is a lot less pressure to look pretty or perfect when creating and sharing images on Snapchat

and this:

Because our products created new ways of communicating, they have often required users to learn new behaviors to use our products. These new behaviors ... are not always intuitive to users ... To date, this has not hindered our user growth or engagement ... result of a large portion of our user base being in a younger demographic and more willing to invest the time to learn to use our products.

On the second point, Josh Elman, from Greylock, has described it as the new design paradigm - shareable design - one that requires you to learn it, and then gives your the bragging rights to share and show it your friends - something very typical of Snap's users.


We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability

No Country for Profit

So, many have already pointed out how a company that hasn't turned up any sort of profit yet should not be audacious enough to go for an IPO. Not sure, if this is the first time a company has gone public with Cost of Revenue higher than Revenues, but one thing is definite - Snap wants its investors to know that it may never be profitable ever. To put things into perspective, it might be work looking at other social media giants when they went public: facebook in 2012 and Twitter in 2013.
Looking at just margins and profits will convince most that Snapchat doesn't look like a business that should go public. There is hardly anything above the zero line, but at the same time it might be worth noticing that there is little difference between Twitter at its IPO (2013) and Snapchat(2016) when it comes to Average Revenue Per Monthly User:

Behind by just 10 cents in ARPU, it is very likely Snapchat has been immensely focussed on growth and has spent crazy money to grow. Also, cost to deliver Spectacles, which was more of a PR product in 2016, hasn't helped Snap's bottom line, but the point is Snap is not much behind Twitter of 2013!