Earlier today I was talking to a colleague about valuations (and overvaluations) of a lot of tech companies, and in particular how the “get users at any cost” model appears to finally be showing some cracks (which make sense, since the whole concept of monetization has never been realized by most of them). Naturally, discussion veered to some of the hotter platforms out there now, including Snapchat.
I’ve been using Snapchat myself for a month or two now, after seeing my wife become addicted to it a few months earlier and finally giving in to see what all the fuss is about. My colleague has used it in passing, but it hasn’t caught on for him. Given that we’re not the demographic who’s using Snapchat the most, we turned our discussion away from “why is this popular?” to the more pressing question: “why is this worth so much, and how do they ever plan to make this profitable?”
Of course, Snapchat has been rolling out quite a few features lately that can bring in money – the most promising of which I think is their sponsored filters/effects. So they’ve got their eye on profitability, or at least some sort of revenue stream – and they’re doing it in ways that actually make sense as part of the platform rather than just sticking ads into people’s streams – but this brought up a much more important question. Is the lack of advertising and the lower usage of Snapchat by the “older” demographics part of the reason for its popularity? Is Snapchat so popular with the younger demographic due in part to the fact that they feel its a kind of club of their own?
If that’s the case, it’s entirely possible that as advertising and monetization move in, and as Snapchat becomes used by all the “grown ups” out there, the current large userbase might bail. It’s also possible that they will stick with the platform due to the inertia they’ve made in it, much like how Facebook users have stuck with Facebook as they’ve gotten older. In other words, Snapchat may not always be popular with the “younger” demo, but instead that younger demo may become accustomed to having Snapchat as part of their lives and its usage demographics will shift as the users shift. Same user group, different demographics over time.
The problem with this though is that Snapchat has a very serious risk that is built directly into the DNA of the product. By its very nature of “auto-deleting” posts after view, or even only having rolling windows of 24 hours for stories, Snapchat’s value only lies in the current space in time in which it exists. Over the course of a year, someone may engage with the platform thousands of times, but none of that has any historical record or value. Basically because you can’t go back and see what you did six months ago, your investment into Snapchat holds no value to you.
This is where platforms like Facebook have built up such resilience to customers simply abandoning the platform. With Facebook you have a historical record, like a virtual scrapbook, that you can go back in time and view. Throughout the time you’ve spent interacting and sharing you’ve built up a history that includes major amounts of data and information, all of which you would in essence “give up” if you were to abandon Facebook. Instagram is similar with its photo timelines, and Twitter with your tweet history. Snapchat has nothing of the sort. Yes you might build up a bunch of connections, but those are easily transported to a new service.
A good comparison from an e-commerce / tech perspective would be to think of switching analytics providers. If you’ve spent the last 10 years gathering your data into Adobe/SiteCatalyst, you have a lot of information (a vested interest) in the platform. Even if Google Analytics is better and cheaper, the cost of switching is huge because you lose all the information you have stored there (ignoring data exports, of course). The point is, all that data and historical interaction is of great value. An analytics platform that only told you what happened in the last 24 hours would be susceptible to major churn when something else hot comes along – and Snapchat is in the same boat here.
I don’t think Snapchat is anywhere near the end of its days – in fact I think it still has a lot of room for growth. But there’s a big risk built in to the way they work that makes them much more at risk than any other major platform in memory in that they have really no investments from their users that can be leveraged for continued brand loyalty.
The good thing is that with this risk, they will be required to continually innovate to keep users engaged. But once the new hotness comes into town, the exodus could be like nothing we’ve seen before (even counting the death of MySpace).