SnApple – Apple should buy Snap

Posted on September 25, 2019September 30, 2019 by mikejsiegel

It feels like if Apple wasn’t so wedded to their own legacy branding — more on that in a bit — they would rename this thing the iCamera.
MG Siegler https://500ish.com/apples-boar-on-the-floor-mistake-ad99ec8e494a

The case for Apple to buy Snap

After watching the iPhone 11 event, it’s clear that the iPhone’s most compelling innovation has been with the camera. iPhone is no longer a phone first but a camera.

This is where the similarities between Apple and Snap begin. Although the public perceives Snap as a social network, Snap fancies itself a camera company. Apple can make the claim they make the best smartphone camera in the world. Snap can make the claim they make the best product that leverages a camera in the world.

It’s undeniable that both are obsessed with cameras.

For the past couple of iPhone events, software features to utilize the new camera’s abilities have become a focal point of the event. In 2018, it was animojis and this year it was slofies.

These features are fun but they pale in comparison to what Snap has done.

April 2011 – Snap makes the first popular ephemeral messaging platform. Snap also popularizes opening an app directly to the camera and vertical videos
October 2013 – Snap launches Stories
August 2014 – Snap launches geofilters
January 2015 – Snap launches Lenses
July 2016 – Snap acquires and debuts Bitmojis
May 2019 – Snap launches gender swap lense
September 2019 – Snap launches 3D camera effect

Evan and company have been busy. Over the last eight years, Evan has launched over six major hits that have been quickly copied by rivals. Evan has an uncanny intuition in how a person will interact with a camera.

Imitation is the sincerest form of flattery. Evan’s special talent for creating a product that takes advantage of the unique capabilities of a smartphone and its camera has been validated. Not only does Snapchat have over 203 million DAUs but many, most obviously being Instagram, have copied Snap’s features relentlessly.

Snap’s latest feature is a 3D camera which a user must have an iPhone X or later to leverage. This is an example of Evan not only taking advantage of the smartphone camera but quickly taking advantage of new features that are added to the camera

Privacy & Design

Apple and Snap share numerous core values. Apple prides itself deeply with being respectful and mindful about privacy, as does Snap.

Apple and Snap are design-first. Steve Jobs worked hand-in-hand with lead designer Jony Ivey for years. Likewise, Evan is known to work directly with the product designers at Snap to ensure the design is first-class.

Apple can afford it

Snap’s market cap sits at $23B as of this writing. Apple has over $200B cash on hand. Apple’s largest acquisition so far has been Beats Electronics in August 2014 for $3 billion. The ~ $25B price tag will be the biggest investment they’ve had but Apple can pull it off.

Apple has gone Hollywood

With the introduction of Apple TV+ and Apple entering the original content game, Apple has entered Hollywood in a big way. Snap is one of the largest players in the LA tech scene. Snap has accumulated incredible talent, have cut many content deals of their own and can be a major asset to Apple’s Hollywood aspirations.

Apple lacks a Product thought leader

With Jony Ivey leaving the company and Steve Jobs long gone, Apple no longer has a recognizable product thought leader. Although Tim Cook is a genius with logistics he is not the charismatic product leader and presenter that Apple lacks. This is a lofty claim, but Evan Spiegel is the perfect heir apparent to Steve Jobs.

Why it won’t work

There are many reasons Apple buying Snap may not work.

First, can it get done? Would the government, which has become wary of “big tech”, allow Apple to own a successful social network? Although this is a risk, with Facebook and Instagram’s domination, it would be hard for the government to make a case that this acquisition would lead to monopoly power.

Second, would Evan sell? Google offered Evan $30B in May 2016 and he said no. Although Evan fiercely wants to remain independent, a relationship with Apple would be hard for him to pass up. Apple is a better value fit for Evan and can accelerate his mission of Snap.

Third, Snap makes most of its revenue through ads. Although Apple sells ads such as placement in the App Store, Apple regularly slams companies whose primary revenue comes from targeted ads.

Apple could look at other business models for Snap. Perhaps Snap being tightly integrated with the iPhone will help Apple sell more iPhones and therefore Apple can avoid the Ad revenue. Or, perhaps this is an opportunity for Apple to diversify its revenue even more.

Bottom Line

Apple and Snap share the same values and could produce killers products together. Allowing Evan to have access to the camera months or years before it launches and letting him create a more integrated product is a dream. But that’s just the start. Giving Evan’s genius product mind access to Apple’s vast resources is a match made in heaven. What innovations could Evan add to iOS? What other areas of Apple could he make an impact?

Apple is perhaps the best business in the world. Apple has top of the line products, amazing logistics, and an incredible brand. But it lacks soul if you ask me. It’s easy to criticize Snap, but Snap has soul.

Sinking Snap

Posted on October 31, 2018 by mikejsiegel

A 6,000-word memo, Q3 earnings, the first desktop app, and an all-time low stock price. Snap has had a busy October!

The strong product/design-minded founder in Evan. The young user base. The LA location. The numerous hit products that have influenced many others. There is so much to love. But like any investment, there are many reasons to be concerned.

Identity Crisis

As a product manager, I appreciate focus. I prefer working for a leader that is capable of understanding what the company is, and what it isn’t. A mission that is inspiring and provides direction. This is one quality that has drawn me to Snap. Unlike Amazon, that does a little bit of everything, or Microsoft, that has its fingers in many cookie jars, Snap is focused. Snap has one app with a limited amount of functionality.

Since the IPO roadshow and the renaming of the company from “Snapchat” to “Snap”, Evan has insisted that Snap is a camera company. Evan’s 6,000-word memo continues this narrative. The first line of the memo is “We are a camera company.”

This line is followed up by –

“We contribute to human progress by empowering people to express themselves, live in the moment, learn about the world, and have fun together.”

This is an identity crisis. Evan’s stubborn attempt to label Snap a “camera company” is a leap. This may be his attempt to shake the “social media” label, which I commend, but it’s clear to me that Snap is a communications company. One that does an especially good job of allowing people to communicate through pictures and videos.

Later on, Evan says

“We’ve been working hard since the redesign to solve the problems that we created and continue making Snapchat the fastest way to communicate.

And sets the 2019 OKRs as follows

2019 OKRs

Make Snapchat the Fastest Way to Communicate

Find Best Friends for all Snapchatters

Achieve Full Year Profitability

Lead the Way in Augmented Reality

Spread Positivity

Camera or fast communication. What is Snap? Can it be both? What should Snap be?

Fastest Communication

Striving to be the fastest way people communicate is a noble goal that addresses a basic need for everyone on earth. From Western Union to AT&T to Tencent, many companies have been built by focusing on improving the speed of communication.

If Evan wants to make Snapchat the fastest way to communicate, what are the best ways? A picture tells a thousand words. In this way, Evan’s stance that Snap is a camera company makes sense. But peer-to-peer digital communication is largely a text game that Snapchat isn’t concentrating on.

Text-first apps like WhatsApp, Facebook Messenger, Hangouts and Tencent own the fast communication space.

These products are much different than Snapchat. They’re multi-device (PC and mobile). They’re multi-platform (iOS, Android, web). They have “light” versions to reach those with low bandwidth access.

There are some things that are slow to change. No matter how much mobile keyboards improve, users are still quicker at typing on a laptop/desktop keyboard. To be the go-to communications app, it’s important to have everyone’s friends on the app. Without a low bandwidth version, you will not accomplish that goal.

Beyond distribution, these Snpachat is a different experience than the leading messaging apps. Snapchat opens up to the camera, the others open up to a text box. Snapchat is ephemeral with no option to save your history. For Snapchat to become the fastest way for me to communicate, they’d have to move away from their camera-centric approach and greatly invest in their text-based communication.

One-on-One, One-to-Many, One-to-Newsfeed

ICQ, AOL Instant Messenger, WhatsApp, Messenger. These apps had/have a lot of users, with high engagement. But they also never made money.

One-to-Newsfeed products like Facebook, Twitter, and Instagram have shown to be highly profitable. Not many digital ads convert better than a native ad in a newsfeed.

One-to-one or one-to-many chat experiences, on the other hand, have rarely found a sustainable business model. Tencent *may* be the exception but WhatsApp and Messenger’s inability to monetize in the US shows there is still work to be done in this space.

Although I like Snapchat’s focus on fast communication I worry about its ability to monetize. Snapchat Stories, which is a One-to-Newsfeed type of model, is very monetizable (but now a crowded space). Facebook has started monetization with WhatsApp and Messenger by allowing businesses to communicate to customers. Facebook is in the process of rolling out paid tools for businesses but has not yet meaningfully monetized the largest communication apps in the United States.

Bottom Line

Evan needs to decide if he wants Snap to concentrate on cameras or communication. Despite monetization concerns, the “fastest communication” play is Snap’s best bet. Snap should invest in bringing Snapchat to different platforms (web, Apple TV, Amazon Fire), improve their text-based chat and create a low bandwidth friendly version. These steps will allow Snap to empower the world to communicate as quickly as possible.

The Positive Beat

Posted on April 30, 2018 by mikejsiegel

Beat reporting, also known as specialized reporting, is a genre of journalism that can be described as the craft of in-depth reporting on a particular issue, sector, organization or institution over time.

This month I’m taking a break from writing about tech to get meta. I want to write about writing.

My favorite content online is by those who have a beat. Writers with specialized knowledge on a subject. Writers with an expertise, not those summarizing a press release.

Throughout the years I’ve grown fond of M.G Siegler’s and John Gruber’s take on Apple. And Josh Constine’s take on Facebook.

There are two other commonalities about these writers that separate them from the pack. They have a distinct voice. I enjoy the way their writing sounds when I read it in my head. But perhaps more importantly, they all took a positive beat. M.G. and Gruber are known as being Apple Fanboys. Josh was able to see Facebook’s potential when many doubted them.

But, surprisingly, I find taking a positive beat rare. Even more of a bummer, M.G., Gruber and Josh are all spilling more ink on critical, negative beats. M.G. loves Amazon but hates Facebook and has grown more critical of Apple. Gruber is generally pro-Apple but detests Trump, Facebook, Guns and Google. Josh prefers to criticize Snap, and like the rest of the blogosphere, crucified Facebook over Cambridge Analytica.

After a newsletter where M.G. was bearish on the HomePod and MoviePass I wrote to him:

A lot of negativity in this one! HomePod is a flop, MoviePass won’t work out, etc.

Not that you always have to be a cheerleader but I think writing on things you are bullish about have always been your sweet spots. Back in the day you nailed the positives about Apple when the majority of your peers were pressed to write hit pieces.

I know you know this, but I think time will tell your take on the HomePod is wrong. Apple is playing the same strategy they’ve always played with devices. Go high-end, have good margins to start, don’t worry about market share. Marketshare comes with a superior product. I hope you write this down as claim chowder for yourself, if Apple shows a Watch-esque position with the voice-commanded speaker market, they pulled it off.

He replied:

I try not to think of things as negative vs. positive, I care far more about being proven right in the end! And yes, we’ll see how HomePod does — especially after the first price cut and launch of SiriKit at WWDC!

+1. Being right is more important than being positive. I’d never want to take an incorrect positive stance.

Hating clouds your judgement. People are at their worse (and illogical) when they’re offended and outraged.

M.G. made his mark by making the Apple bears look like fools. While most were writing about “Peak Apple”, M.G. saved their claims as claim chowder. When their foolish predictions were proven incorrect, he call em out. Yet, here is M.G., three years ago, incorrectly claiming (by nearly 500mm users) that we reached Peak Facebook.

Gruber, Siegler and Constine all took bearish stances on Facebook the last couple of months. I decided to go against the grain and defend them. As Facebook’s latest earnings report shows, the media once again overreacted.

And there you have it, my negative take on negative takes. M.G. is right, stick to being correct first and foremost, but there is too much positive going on in this world to focus on the negative. Negative bias appears stronger than Positive bias. Those who hate tend to get it wrong.

As I write going forward, I want to concentrate on the following. Write about what I know. If I don’t have anything good to say, I won’t say it all. I’ll find something else to cover. Put your money where your mouth is. If I write positively about a company, I should own their stock. And finally, write using a voice. This last part, the most important, is also the toughest.

Snap Back

Posted on February 23, 2018 by mikejsiegel

Our work during 2017 is proof that we aren’t afraid to make big changes for the long-term success of our business

– CEO Evan Spiegel

As I’ve been preaching on this blog, buying $SNAP requires patience. Snap (via Evan) continues to plan and execute for the long term. In Q4, Evan shifted the main goal of establishing a self-serve ad model to increasing user growth. Evan planned to do this by a UI Redesign, a new Android app and modifying the feed. When Evan announced these changes I expected results to take time. Three months later, and Snap has its user growth mojo back.

User Growth

Wall Street loves user growth. Although Snapchat has continued to grow every quarter the rate of the growth slowed. This freaked Wall Street out, who assumed that trend would last forever. Snap released improvements to the Android App that resulted in less crashes. This led to a 20% user retention increase. This change reversed the trend and Snapchat had 5% user growth compared to 2.9% in Q3.

This is great news and much quicker than I anticipated. What will happen in Q1 2018? Two major things are at play here. On one hand, Snap has rolled out a significant UI redesign. This design will alienate some of the most loyal users in the short term. Like Facebook News Feed redesigns, Twitter expanding to 280 chars, etc before it. Snap runs the risk of slowing user growth in the short term. In the long term, the easier-to-use UI will help onboard new users.

But, Snap has begun to take a page out of Facebook’s playbook. Snap is working with the ecosystem around Snapchat to help user growth.

We have recently launched partnerships with wireless carriers in over a dozen markets to begin reducing cellular bandwidth costs for Snapchatters around the world. We have seen that when data is less expensive, more people are willing to use our data-intensive products. This is important because Snapchat can be more fun to use out in the world rather than at home on WiFi.

Snapchat’s biggest headwinds are smartphone adoption, cellular broadband speeds and cellular data plan pricing. There are many strategies Snap can use to ease these headwinds. Similar to Facebook’s “Free Internet” play in emerging markets, Snap’s first attempt is to subsidize data plans with the goal of acquiring users. In the future, Snap could help subsidize smartphone contracts or make a “Lite” version of Snapchat.

This strategy will appease Wall Street’s user growth desires but will take a long time to increase revenue. The question is, is this the best place to invest time and resources or is improving the app and self-serve monetization? Can Snap do all three like Facebook has been able to do?

Bottom Line

In 2017, Evan focused on self-serve ads. Evan successfully (painfully?) transitioned the company to 90% of ads purchased programmatically. In Q3, Evan announced a shift in goals to user growth and was able to immediately show results for that promise. Evan continues to deliver on his promises. This reminds me of when Facebook had exactly $1b in profits the year leading up to the IPO. Hitting that profit goal was Zuckerberg’s way of conveying to Wall Street that he had ultimate control of the company.

Going forward, it is important to keep in mind what Snap is focusing on. If Snap is focusing on User Growth in Q4 2017 and Q1 2018 there could be a slowdown in ARPU growth. One quarter of a dip in the growth rate of a main metric is not a death sentence. Focus on the metric Snap is focused on.

Changing in a Snap

Posted on November 20, 2017 by mikejsiegel

After two defiant quarterly result calls, sticking to the plan, Q3’s call was different. Evan, for the first time since Snap went public, acknowledged it was time for drastic changes. Achieving user growth by a UI Redesign, a new Android app and modifying the feed are all in the works.

Some want to take the course change as a sign that Evan doesn’t know what he’s doing. That Snap has grown beyond Evan’s abilities. I’m taking the other take. This shows Evan isn’t stubborn and changes when the time calls for it.

I have concerns that Evan is buckling to pressure. Is Evan worried about appeasing Wall Street in the short term? Has he seen enough data to come to his own conclusion about Snap’s growth potential? That’s the question.

Data Crunching

At 178mm users using Snapchat over 30 minutes a day, Snap is a wildly popular product. But with a $15b market cap, Snap needs more than 178mm users to eventually hit a reasonable P/E.

Snap’s main financial levers are DAUs, ARPU, Cost of Revenue and Operating Expenses. DAU x ARPU gives us total revenue. Snap must increase DAU and ARPU at a rate higher than Cost of Revenue and Operating Expenses to become profitable. In the model above I’ve assumed a DAU q/q growth at 3%, ARPU growth at 15% while maintaining a 3% growth on Cost of Revenue and a 2% growth on Operating Expenses. That gives Snap healthy cash flow by the end of 2019 but its path to get there is uncertain and is not quick enough for Wall Street to tolerate.

There are chances Snap can hit profitability with modest user growth if Snap is able to greatly increase ARPU. With another large investment from Tencent, parent company of WeChat, Snap has access to a wealth of Tencent experience to help further monetize their base.

The Changes

Evan has stated Snap’s priorities in 2017 have been performance, quality, and automation. Android performance has improved but not as much as Snap was hoping for. On the quality front, Snap has invested in a device testing lab that should bear fruit in the future. On an Automation front, Snap has made huge strides moving its ad business to self-serve. For a company going public with the need to automate, these three priorities made sense for 2017.

The three new priorities for 2018 are user growth, content, and augmented reality. As seen above, unless there is out sized ARPU growth, more user growth is necessary to hit profitability.

User Growth

Redesigning the UI

Last month I defended Snapchat’s UX, pointing out that an intuitive UI is not the be all end all. I stand by the post but understand why Evan and Snap may have to migrate to a more intuitive UI. Snap continues to kill it in the 18-34 age group but has room to grow with other demographics. Evan seemed to wanted to stick with what got Snap this far and not dumb down the UI but the user growth stagnation seems to have changed his mind. This move is risky, how many current users will be alienated and defect?

Facebook and the algorithmic newsfeed, Twitter with an algorithmic newsfeed (and 280 characters). Keep in mind many before Snap have made drastic changes to the core UX and continued to grow.

Android app

The Android fragmentation is giving a company like Snap a run for their money. Snap likes to push the envelope with what a mobile device can do with Snapchat and this strategy has many risks. A rewrite is a costly, risky but with global domination in mind, having a rock solid android app is Snap’s only hope. This bet reminds me of Facebook’s first mobile stumble when they bet too much on HTML5 and had to rewrite their app with more native components. Although risky, this move at this stage appears to be the only hope.

The Feed

Evan wasn’t specific about the changes to come but what he did say showed an astute understanding of Snap’s users.

I think there’s a really exciting opportunity here for another evolution of that content feed that addresses some of the shortcomings of the friend-based content feed model.

So, for example, in a friend-based content feed, in order to get more content in that feed, you need more friends. When people start adding more friends, they then feel less comfortable posting content and so they start posting less. That means that you need even more friends to get more content. So you end up in this kind of precarious situation where because you base the content feed on what friends are posting, you sort of are inherently limited in how you grow that selection of content. Ultimately, what we found is that the best predictor of what people are interested in and want to watch is actually what they’re watching. I think there’s an opportunity here for us to create a really great personalized content service that doesn’t at all diminish the great and, I think, very differentiated communications business that we’ve established.

I’m a big fan of companies having a unique identity and Evan highlights a unique position Snap has with its users. Snap continues to be a place where friends share themselves more authentically with others than on Instagram or Facebook. This is why some will gravitate to Snap even if Instagram had the some features. How can Snapchat grow its user base and engagement while avoiding the “posting less” phenomena? I can’t wait to see what Evan has up his sleeve.

The Bottom line

Snap has not concentrated on “User Growth” as a priority in 2017. Snap is no longer growing the user base at a rapid pace organically and its long-term business prospects do not look as high as they once did. Does this mean Snap is done for? No, not in the slightest. Snap has made user growth a priority, identified areas which has impeded user growth and is actively working to improve these areas. Evan has evolved Snap before and will do it again.

Snapchat UX

Posted on October 20, 2017 by mikejsiegel

I attended a Product School talk this week where Snapchat’s UX was hot topic of discussion. The consensus in the room was that Snapchat’s UX is abysmal. Snapchat is succeeding despite its UX. I couldn’t disagree more!

The Criticism

There’s a bunch of hate on the Snapchat UX. First, when you sign up, the app opens to the camera with no tutorial. Unlike Facebook or Twitter, who will onboard users by adding their friends and showing them content, Snap says “make something!”. As with everything, there is a trade off. Snapchat may be harder to figure out but it sets the tone with that first experience. Snapchat isn’t for the lurkers, it’s for the creators.

The biggest criticism is that Snapchat is confusing. Snap Map is hidden behind a not-so-obvious two finger swipe on the camera. Activating lenses requires a user to press and hold on a face. You can swipe in any direction, pinch on any screen and other “violations” of UX Best Practices.

Something as mundane as having chat on the same side has irritated UX purists.

VS

The Coolness

I remember the moment Snapchat’s je ne sais quoi clicked for me. I was at a work Happy Hour and taking a Snap when a co-worker asked to add me. As I told her my snapchat name she looked at me like I had two heads. Instead she took my phone, went to my profile and took a picture of my Snapcode. Like magic it knew who I was and added me as her friend. All I could say was “whoa”.

That was the first but not the last time I was wowed by a friend showing me a feature on Snapchat. Adding “Friends Near by”, accessing filters and accessing Snap Map were all in-person wow moments. Not only that, but I was able to wow friends by sharing the same UI tricks I learned. It’s fun when you learn it and fun when you teach it.

Josh from Greylock coined the term “Shareable UI”

Shareable design understands this deeply social nature of how humans learn, and capitalizes on people’s desires to learn and to teach.
Snapchat does this brilliantly, because each of those seemingly obscure features is an opportunity for its users to show their friends how to do something cool. Showing your friends something cool can increase your social standing, or maybe it just gives you a good feeling. Either way it’s something you want to do! And for Snapchat, that’s great, because it’s converting you into an evangelist for its product, and you don’t even feel like you’re evangelizing: You’re just showing your friends how to do something neat.

Fun over Function

A Usability Study at UserTesting.com concluded –

Of the users who did enjoy Snapchat and wanted to keep using it, the primary reason was because they found it fun. Users who said they would keep using the app were more likely to describe it as “popular,” “fun,” and “cool.” None of the users described the app using words like “useful” or “helpful.” They simply didn’t see the app as a solution for a need.

Conventional wisdom says Interfaces “have” to be intuitive. Apps/products “have” to be a solution for a need. Snapchat shows this isn’t always the case. Perhaps like Seinfeld, Snapchat is an app about “nothing”.

Bottom Line

Snapchat’s interface is not conventional. The UX is not intuitive. These alone don’t make a UX good or bad. Although not intuitive, the Snapchat UX is highly shareable. It’s fun to teach others the secrets you know. The UI may not be conventional but it makes up for it with surprising delight.

Critics are pressed for Snap to follow an established playbook. Follow standard UX guidelines, modify the product to appeal to everyone, do more growth hacking, make the stories feed algorithmic, etc. Snap’s ability to break convention and blaze their own path is what I love about em.

Keep Calm and Snap On

Posted on August 18, 2017 by mikejsiegel

Snap has released their Q2 results. If you trust the pundits, it was “another failure on a long, downward path for the social media company.” Impatient journalists and those on Wall Street seeking the quick buck aren’t happy. The buy-and-hold types have a lot to be happy about.

The Good News

Daily Active Users grew 21% year-over-year from 143 million in Q2 2016 to 173 million in Q2 2017. An increase of 30.5 million users. For the quarter, DAUs was up 4.2%, adding 7.3 million users.
Average Revenue Per User grew 109% year-over year from $0.50 to $1.05. ARPU increased 16% over Q1 2017 when ARPU was $0.90.
Total revenue grew 153% year-over-year and up 21% from $149.6 million in Q1 revenue to $181.6 million.

Snap is growing in every way an investor would like (although not at the pace the greedy would like to see). The real story is the product evolution. Snap released 16 versions of Snapchat in Q2 compared to Facebook’s 6 releases. Not only is Snap moving fast with quick releases but some of the releases had massive features. Snap Map, a way to see where your friends are and what is going on at specific locations, was released in Q2 and well received. There has been much written about Snap being copied but Snap moves too fast. You can’t copy their soul.

Misunderstood – $FB vs $SNAP 166 Days Post-IPO

Snap isn’t the only tech company that was underwater 166 days after their IPO (the day of this writing). $FB IPO’d at $38 and closed down 42% from the IPO price at $22. $SNAP IPO’d at $17 and closed down 23% from the IPO price at $13. The $SNAP doomsayers emphasize the risk of losing top talent when the stock temporarily underperforms. $FB was able to weather a tougher storm than $SNAP is going through. If an employee is swayed to leave by short-term stock swings they are not buying into Snap’s potential like they should. They don’t get it, just like a lot of those on the Street.

After Facebook’s first two earnings reports the Street continued to be concerned about mobile monetization. Facebook had just started their mobile monetization efforts and the rewards were inevitable. This is similar with Snap. Some want revenue to grow quicker than it is but Snap just started to monetize. This will take time.

Analysts continue to speculate on User Growth, Revenue and Profit/Loss despite lack of guidance from Snap. Snap will “miss” these numbers and the market will respond (in the short-term). This is because Wall Street doesn’t understand Snap’s User Growth will not be like Facebook’s. Snap is for the savvy, smartphone owning, high speed bandwidth users. Facebook, with web apps, mobile apps on every platform, “Facebook Lite” etc, is for everyone. Snap is unlikely to have the 1.35 billion DAUS that FB has anytime in the next decade. Snap won’t dominate the masses but it will dominate the critical 18-35 demographic for sometime.

Bottom Line

Facebook is where the puck is. Snap is where the puck is going. User Growth for Snap will continue to feel the headwinds until the rest of the world catches up with high speed bandwidth. Snap would have to compromise the product too much to appeal to the emerging markets and it’s not worth their time in the long-run. Snap’s play is to continue to evolve the most modern social media app for the young and savvy. Continue to take advantage of the latest and greatest in tech and monetize those savvy users with deep pockets.

Snap’s market cap is currently ~$16 billion. Napkin math says Snap would need to get to 200mm DAUs at $20 annual ARPU for yearly revenue of $4billion and profit margin of 25% to justify that valuation (that would be a PE of 16). Despite being 5X away from that ARPU number, those seem like a layup for Snap. Someday we’ll look back at the market’s response to these early earnings reports and laugh, just like we do with Facebook now.

Oh Snap!

Posted on May 18, 2017 by mikejsiegel

Snap’s first earnings as a public company are in and there is a consensus! Snap’s first earnings are terrible and the company is a disaster. Or is it? Do we care about the opinions on Wall Street trying to earn a quick buck? Or click-bait journalists looking for impressions? Those investing in $SNAP must have patience, and if you do, there is a lot to be happy about in this earnings report.

Snap missed DAU and Growth Numbers!

What did Snap miss? Expectations set by bozos on Wall Street? Evan and the leadership team didn’t set guidance on revenue or DAU growth. Analysts on Wall Street made numbers up based on little precedent. Snap didn’t miss a thing.

Snap’s user base grew 36% yoy to 166 million. Quarter over quarter, Snap grew 5%. This is consistent with quarter-over-quarter growth from Q3 to Q4. Instagram Stories may have slowed down growth but Snap is growing at a healthy pace.

Snap missed Earnings with a whopping $2.2 billion loss!

Again, this is Wall Street expectations. $2 billion of the $2.2 billion loss was due to a one-time impact of stock compensation. I’m much more concerned with ongoing costs.

The flip side is Snap grew revenue yoy 286%. ARPU tripled yoy to 90 cents per user globally. North America monetization is at $1.81 a user and they’ve only scratched the surface. For comparison, Facebook is approaching $20 in ARPU. It’s encouraging to know there may be a long ways to go before we see a slowdown in ARPU growth with Snap.

Evan is selfish!

Another common theme is Evan is selfish. The $750mm bonus is evidence A. It’s quite the opposite in my book. Evan has turned down offers to sell Snap and could have been a billionaire years ago. Instead, Evan has shown an ability to delay gratification and plan for the long-term. This is why investors of Snap should be patient. Others in Evan’s shoes may resort to growth hacks to appease Wall Street. Evan keeps the big picture in mind. Evan dismisses short term thinking that doom companies in the long run.

Bottom Line

Expecting ~10% DAU growth and profitability from Snap this quarter was unreasonable. Evan is playing the long game with Snap and part of that approach is not optimizing for the short term. Snap is a product company investing money into R&D to grow and monetize. Instagram may have copied the story format but Snap is more than that. Snap is a different context to its users. Snap will morph in ways we can’t imagine. You’ll need patience if you want to buy and hold $SNAP but with that patience will come great reward.

The Simplicity of Spectacles and AirPods

Posted on March 29, 2017 by mikejsiegel

This isn’t 2007 or 2010 when the iPhone and iPad debuted but the Spectacles and AirPods have had a lot of hype. I had my doubts. I never liked Earpods, they’re uncomfortable and fall out of my ear. I didn’t immediately dig the style of the Spectacles. Despite those concerns, I had to buy both and try them for myself.

What Spectacles Do

Spectacles take up to 3 consecutive 10 second 720p videos. Click the button once to take a 10 second clip. Click again when the video is about to end to extend it twice, up to 30 seconds. Pairing Spectacles are a breeze – use the Spectacles to take a video of your Snapcode to pair. When not paired, Spectacles take snaps and sync later once paired.

Spectacles excel with physical activities. Riding a bike and beach volleyball are great examples. Times where a first-person point of view is compelling. Any two handed activity, like pouring a beer or driving a car, make great Spectacle snaps.

What AirPods Do

Like the Spectacles, pairing with AirPods is amazing. Take them out of the case near your phone and they immediately detect and pair. Going from phone to computer is seamless. The sound, microphone and fit are outstanding. I forget they are in my ear. They’ve lived up to the hype.

Cases

Both Spectacles and AirPods come with high quality cases that charge the devices. The Spectacles case is bulky and I find charging without easier. The AirPods case is excellent. Bye bye Wires! Carrying a small case is a subtle improvement that affects me every day.

Simplicity

Spectacles and AirPods are simple and limited. Unlike Google Glass before it, Spectacles do one thing and only one thing. Spectacles can not take photos. At first, this seems odd but Snap has learned from Google’s missteps. Snap may be limiting the ability to take photos to thwart the privacy concerns. The light allows someone to know when someone is recording but a photo would be harder to convey to others.

AirPods have only one gesture, a double tap, which you may set to contact Siri or play/pause. I miss not being able to adjust the volume with my headphones. This constraint has affected my behavior. After years of slow adoption, AirPods has increased my Siri usage.

Coolness

Both products have that X factor of coolness. Not very scientific but the products look and feel cool. People are curious about both and strangers will stop you to ask questions. In Venice the stops are more of an attack of how could I support Snap, who is “ruining” Venice. Spectacles, being smack dab on your face, get more questions than the AirPods. People express concern but are less freaked out about being recorded than I expected.

The Spectacles’ storefront on Venice is the epitome of cool. Facebook or Twitter isn’t pulling something off like this and wouldn’t think it’s worth it. Facebook once caught criticism for no longer being cool, as if that signaled doom. Companies don’t have to be cool to be successful but coolness can be a differentiator. Right now, Snap owns cool in the Mobile Entertainment space.

Bottom Line

Spectacles and AirPods are simple, cool and useful. I will use AirPods nearly every day making their $159 price tag cheap considering the value. Spectacles won’t get that amount of use, I prefer the aesthetics and feel of my New Wayfarer Ray Bans. Now that I live in Sunny LA, I’m sure I’ll wear them over 100 times this year. At $129, they’re worth it….as long as you don’t lose em!

Young Users

Posted on March 31, 2016 by mikejsiegel

Old habits die hard. As you get older your mental models of the world become more rigid. You know what you know but ya start becoming closed off to trying new things.

People making products, especially products with a shitload of users, run into this all the time. As processors and cellular networks improve, new features are possible but people are stubborn, they like the way they do X and they’re not trying to change it.

Facebook, with over a billion users, has a tough task on hand. They don’t cater to the lowest common denominator but they don’t cater to their advanced, or power users either. This means Facebook doesn’t release the most advanced product they can, Facebook makes concessions so they can release a product that will be widely used.

Snapchat, on the other hand, is doing an excellent job of capitalizing on bandwidth and smartphone improvements. “Stories” – a mixture of photos and videos that users create using the editing tools Snapchat provide are a perfect example of this. When Facebook came out, sharing videos was a pain in the ass, it was slow and cameras weren’t readily available. People form a mental model around what Facebook is as they use it and when things change it becomes difficult for companies to break out of the box their user base sees them in.

Facebook has done a great job pushing against that tide and have made huge inroads with videos, some say they’re even surpassing youtube, but taking a video of yourself and uploading it to Facebook is not the ubiquitous behavior you see in Snapchat.

Snapchat has a much younger and more open minded user base and this allows them to be more aggressive with their product. When Snapchat Chat 2.0 was released on 3/29 I was curious if they were going to push the envelope in the chat game. Sure enough, they delivered.

The chat game is crowded, as I pontified on before. It’s hard to make inroads but one of the ways to get started is to piggyback on your social network’s user base. Unlike Facebook and Instagram that have public ways of giving props, Snapchat lacks this which encourages users to send a chat if they like a Story or have something to say. It’s funny because, like the name implies, Snapchat started off as an ephemeral chatting app, evolved into a Social Network and is now getting back to its roots and beefing up its chatting abilities.

It’s one thing to release cool features it’s another to have them be used. At 33, most of my friends will be reluctant to embracing the new features. The majority in my age group insist on using feature-poor iMessage or SMS. Luckily I’m on the older side of Snapchat’s user base. Snapchat Chat 2.0 will be immediately embraced by their users. For whatever reason I find the stickers lame (too old?) but I look forward to seeing my (younger) friends live stream, create small gif-like videos, annotate em with Snapchat’s editing tools, audio notes and more.