Snapchat rising: is Facebook-sized success the future?

What is the value of Snapchat? The notoriously secretive parent company of the ephemeral messaging app is about to find out.

Snap has this week released paperwork designed to drum up interest in its initial public offering, scheduled for March, which some analysts say could value the company at between $20 billion and $25 billion, making it one of the biggest technology offerings in recent years.

Snapchat was created in September 2011 as a selfie app that let users share pictures that deleted themselves once they’d been viewed. It quickly developed a reputation as a sexting app, although this wasn’t representative of how the app was actually being used.

“A lot of people misunderstood what it was about early on, thinking it was for sending naughty pics. But the value is that when you know stuff you share is not going to be part of a permanent online record, you can be a lot more casual, raw and honest,” said Jan Dawson, founder of Jackdaw Research.

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“It doesn’t have to be that perfectly framed selfie or the picture of your lunch that looks amazing. It can be a picture of the new zit that popped out or the fact that you put on odd socks because it was dark.”

The rawness was an appealing antidote to the highly curated environments of Facebook and Instagram.

“I like Snapchat because it’s more chill [than Facebook], it’s not forever,” said 14-year-old Lila, an active Snapchat user. “You can post funny videos and stuff and I like that you can talk to people without having a conversation, you can just send them a picture.”

Creative tools

Snapchat has since evolved its product offering, adding even more creative tools to enhance the camera and chat functionality, allowing 2.5 billion Snaps to be created each day. It has also launched Snapchat Stories, where users collect Snaps together in chronological order. This allows individuals, brands and media companies to tell their stories to larger audiences, and it’s the key area for selling advertising.

The stories section has allowed for social media stars to emerge on the platform, such as 27-year-old Cyrene Quiamco (username CyreneQ), who has more than 100,000 followers. Advertisers pay her between $10,000 and $30,000 to tell stories about their brands through a series of short videos.

Quiamco typically creates games and challenges, encouraging her followers to interact with and respond to her content.

“My content is fun and lighthearted. I do a lot of games. So I ask people to take a screenshot of my videos, then ask them to draw on it or create stickers. It’s fun, lighthearted and interactive,” she said.

For example, she worked with Walmart to promote Black Friday by asking her followers to pick a present for her mother, whose birthday coincides with the annual shopping extravaganza. Her followers sent her their ideas, which she re-posted to her story channel, before she picked her favourite and gave the present to her mother.

She does around four such commercial deals each month, as well as speaking gigs and consulting, that nets her around $500,000 per year.

“I still can’t believe all of this is happening,” she said.

Camera company

Despite it looking a bit like a media or messaging company, Snap describes itself as a camera company, something it reiterated in the IPO filing on Friday.

“In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones. This is because images created by smartphone cameras contain more context and are richer information than other forms of input like text entered on a keyboard.”

It’s impossible to talk about Snapchat without also talking about Facebook. Facebook tried to buy the messaging service for $3 billion in 2013, but Snapchat turned the offer down.

“Snapchat has been the only serious challenger that has threatened to take audiences away from Facebook,” said Dawson.

Facebook’s response was to build a clone called Slingshot, which didn’t take off. The social networking giant has since been relentlessly and shamelessly experimenting with incorporating many of Snapchat’s popular features, such as ephemeral messages, photo-editing tools, face-altering filters and scannable personal barcodes.

The scattergun approach appears to have finally taken off, with reports suggesting that the Facebook-owned Instagram’s cloning of Snapchat Stories may have led to Snapchat’s user growth stalling.

“Facebook has started to take a very experimental and incremental approach to try to counter Snapchat. Instagram Stories has been massively successful,” said Dawson. “It’s sucked some of the air out of Snapchat’s sales over the last few months.”

They have a very attractive audience to advertisers, but lack any ability to measure how many people are seeing ads.

Small thorn

Even if Snapchat continues to grow, it has got a long way to go before it would be anything other than a small thorn in the side of Facebook, which has 1.86 billion monthly users and made $27.6 billion in revenue in 2016.

By comparison, Snapchat has more than 150 million daily active users, generating more than $400 million in revenue, and has yet to become profitable.

“Snapchat is challenging Facebook and Instagram in terms of features, but certainly not in revenue,” said Deborah Aho Williamson, principal analyst at eMarketer.

In order to thrive, Snapchat, whose users are mostly aged between 18 and 35, will need to appeal to a broader user base and address some core concerns within the product, such as building better measurement tools for advertisers.

“They have an audience that is very attractive to advertisers, but lack any ability to measure how many people are seeing ads and whether their perceptions of the brand have changed. That needs to happen if Snapchat wants to win any mainstream advertising budget” said Dawson.

However, the more data Snapchat tries to generate for advertisers, the more it will have to compromise user privacy.

Back in 2015, chief executive Evan Spiegel said: "I got an ad this morning for something I was thinking about buying yesterday, and it's really annoying. We care about not being creepy. That's something that's really important to us."

In the future, being creepy will have to be less of a concern if Snapchat is to please investors.

The company will also need to diversity its offering given Facebook and Google continue to dominate the ad market.

Snapchat has dipped its toes in the water with hardware through the creation of Spectacles, smart glasses that record and upload 10-second videos.

PR masterclass

The staggered launch of the product through colourful vending machines dotted around the US, was a PR masterclass, with lines of Snapchatters waiting hours to buy a pair, and some reselling on eBay for thousands of dollars.

Although Spectacles haven’t been a big money maker for Snap, they could signal a move into the much-hyped realm of augmented reality wearables, where it could insert digital content over images of the physical world as they are captured by smart glasses.

“Snapchat has revolutionised communication for young people and Spectacles show it’s thinking creatively about new ways to communicate,” said Williamson.

“Whether that translates into Facebook-sized success remains to be seen.”

-Guardian