Does Snapchat Matter for your Small Business? Not Yet.
October 5, 2015
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Snapchat took the world (or at least the US) by storm over the last few years.  What once started as the “sexting” app has evolved into a rapidly growing company.

Is this the age of Snapchat domination?

Since the company formed, it has moved fast.  Snapchat adopted the Facebook effect and has moved fast and broke shit.  It may even break Facebook (as rumors swirled with the Sony hack that Facebook looked to acquire Snapchat).

Why?

Snapchat represents an emerging ecosystem.  It has followed the basic Innovator’s Dilemma playbook by starting in one niche overlooked by current market players (private, secure messages).  It formed a rapidly growing user base that wanted privacy and expanded upmarket.

The Snapchat founders, Evan Spiegel and Bobby Murphy, have basically executed the playbook to perfection, culminating with a $485 million Series D round in December 2014 at a reportedly $10 billion valuation.

The recent moves to align with Square make complete sense.  The introduction of Snapcash aligns with other ecosystem players, except it will be part of the foundation for many new users.

While others disagree, I suspect they are thinking in transactional value or linear thoughts.  How does payments impact disappearing messages?

This article details the history and moves, but not the potential impact.

Re/Code has the partnership details.

As discussed in payments, outsourcing the processing to experts is the correct play.  The amount of scale required to run a successful payments processing is enormous.  The amount of experience to correctly secure a payments network to detect fraud is enormous.  Square is struggling with transitioning its amazing UI and UX into revenues, so advancing the product into mobile works.

Other moves made by the Snapchat team relate to ecosystem plays as well.  Snapchat introduced Snapchat Stories in October 2014.

Snapchat Stories add Snaps together to create a narrative. When you add a Snap to your Story it lives for 24 hours before it disappears, making room for the new. Your Story always plays forward, because it makes sense to share moments in the order you experience them.

 

The beauty of stories relates to muscle memory.  Stories creates an incentive to return to Snapchat repeatedly throughout the day to see updates.  Stories creates FOMO and drives user behavior, which is critical to gaining user attention.

Media channels are paying attention and creating Snapchat channels in order to distribute content to the younger generation.  Mashable recently released Our Year on Snapchat.

We joined Snapchat to reach our audience in a new way, but we soon found that it’s an extremely powerful tool for delivering visual stories. Snapchat is effective because the sharing process is simple and raw; with an estimated 100 million monthly active users, it has become a major player in the always-evolving world of social media.

Snapchat enters the ecosystem battle with some terrific momentum and a huge wildcard.  Snapchat is the main platform for the growth generation.  As Facebook reports decreasing growth rates in teenagers and millennials, that is Snapchat’s bread and butter.

Marketers leverage social media to reach eyeballs, it is the crux of the ecosystem battle.  The entity that controls consumer usage wins the marketers game…and the advertising revenue.  The players need to provide services for consumers to maintain their attention and Snapchat has developed products that engage the younger generation.

Brands have noticed.  As the following piece on The best brand advertising on Snapchat, so far indicates, the company is maturing.

Snapchat, once a niche forum where early-adopter brands could experiment, has evolved into a legitimate marketing platform in its own right. The “My Story” feature in particular has proven a useful tool that lets users stitch together narratives of their own.

Further, to advance the media game, then Snapchat looks to develop its own publishing unit, which will be called Discover.  One of the keys to Snapchat’s success (so far) is reliance on video.  As bandwidth and speeds continue to increase, then video will increasingly become the main content form for many people.  Snapchat started with pictures and now has a UI where images are the main player.  It is not a text-centric design, so users are trained to want video, which only helps news and other media outlets reach their audience.

Discover will predominantly feature videos up to several minutes long, another publishing executive told Digiday, but text and still images will also be included. The publisher-Snapchat deals will be good for six months, at which point other media companies may integrate into Discover.

Now, will this distract the team?  Perhaps, but as a disrupter, I think it shows Snapchat acknowledging they need to remain ahead of the game.

As Andy Grove said: Only the paranoid survive.

As investors look to the future for profit potential, the Snapchat looks all the more appealing.  The WSJ reports on Snapchat attracting “adult” talent.  Essentially, as the “sexting” app matures as a product, then the Board wants to ensure the management team matures as well.  It is the continuation of the Sheryl Sandberg to Mark Zuckerberg theory that helped fuel the Facebook transformation (and Facebook used to help monetize Instagram).

At the end of the day, will Snapchat ever pass Facebook as the social ecosystem?  It is too early to tell because Snapchat has years of execution left to reach the raw numbers that translate into profits (from an investor potential).  Snapchat is still predominantly US-based and would need global expansion to reach Facebook status.

In 10 years will either Facebook or Snapchat win the ecosystem game (like Android and Apple won mobile OS)?  Probably.  If Snapchat continues to create with mobile first in mind and focus on the next step to engage the growth market, then they have the best chance to disrupt Facebook.


I am long Snapchat, indirectly through holdings in Tencent, one of the Series A founders.