Snapchat: New Features, Same Users
Stocks in Snap, Inc—the parent company of social media app Snapchat—jumped sharply last Friday. The company announced a number of exciting new features that it hopes will accelerate growth and will help it maximize ad revenue from its current user cohort. This comes as a relief to investors, which have had to tolerate months of sluggish growth from the tech giant.
The company, which has seen sluggish growth in recent months, has had a difficult time attracting new users to its service. What’s more, it has lost 1 million daily active users in 2018, and has lost more than 5 million daily active users since its peak last February. Part of the reason why it has seen a fall in numbers is because of its main rival’s success—namely, Instagram and its Stories feature. In the summer of 2016, Instagram unveiled the new feature on its service that resembled—if not downright mimicked—Snapchat’s Stories feature. Essentially, “Stories” allow users to post pictures that are viewable by all their followers and that disappear within 24 hours. In the first six months after its introduction, Instagram’s Stories had as many daily users as Snapchat’s total customer base. In fact, ever since Instagram adopted its Stories feature, user growth at Snapchat has been slow.
However, other factors may have also contributed to this slowdown. Indeed, the years in which Snapchat has grown the fastest—particularly 2015 and 2016—were also the years in which the company introduced innovative new products like its now-ubiquitous animated selfie lenses and its Discovery feature which allows media companies to provide news and lifestyle content directly to users.
Snap’s new proposals are an attempt to take the company back to its high-growth years: it is relying on new features to accelerate growth and retain existing users. One of these new products is Snap Games. Snapchat already has games embedded into some of its filters, but it plans on expanding the variety and types of games offered, as well as changing how they are accessed by users. Of course, users engaging with Snapchat’s games will also be exposed to ads. The US mobile games market was worth $62.3 billion in 2018, and Snapchat’s founder and CEO Evan Spiegel claims that the app engages 90% of those between 13 and 24 years of age in the United States. By fusing its young user base and the lucrative games market, Snapchat hopes to increase user engagement and ad revenue without necessarily attempting to attract new customers—the later of which has time and time again proven to be difficult for the company.
Snapchat is also unveiling the new Snapchat Audience Network, which will allow advertisers to buy ads in Snapchat and also see these ads implemented among a host of third-party apps. The advantage for companies is that Snapchat has data on users that third-party apps don’t necessarily collect, so companies can engage in more targeted (and thus more efficient) marketing. But Snapchat doesn’t collect nearly as much information on users as its competitors Facebook and Google, which also have their own successful audience networks. It is clear that Snap, Inc will have to compete with these two tech giants. What isn’t clear is exactly how it will do so.
Snapchat is determined to remain a relevant player in social media. By introducing new features, it focuses on generating more ad revenue from its existing user base. However, the fundamental problem of the company—the fact that not only is it not attracting new users, but existing users are defecting to Instagram, among other apps—remains unaddressed. In the short term, its revenues are bound to increase, which will make investors and stock-owners happy. In the long term, the relevance of Snapchat remains to be questioned.