If you have listened to the Media Man Podcast a few times, you probably know that I’m not the biggest fan of Snapchat. It’s not because I’m one of the older millennials that just doesn’t understand why all the cool kids love this app (albeit, I do fall into that category), but I just don’t understand how this company is ever going to live up to the hype and valuations that have been cast upon it.
I’m not going to sit here and pretend that my negative outlook on Snapchat is based on looking at all of the valuations, the potentially bubbled-up market, or the company’s latest blunder with the unreasonably dry video explaining what in the world makes Snapchat so popular amongst the youngin’s.
Instead, my opinion of Snapchat is based primarily on the fact that I don’t see the added value of the product to marketers, which are ultimately what’s going to determine whether this entity will succeed or die. Because while Snapchat may boast an impressive $100m daily users (so it says anyway), the idea of turning those users into dollars isn’t necessarily so easy–at least not on its own.
An example of just how hard it is for them to make money is the fact that just a few months ago, we were talking about Snapchat pulling in $100 CPMs, and then not too long after that, we were talking about $20 CPMs. Now that’s a massive difference. And it’s a difference I would have liked to have seen play out before investing $200 million in them if I were Alibaba. It’s that kind of unwarranted bravado in pricing that worries me about a business like Snapchat. They’re trying to leverage the “cool” associated with the business, and usually that signals that they don’t have much else besides being cool…at least for the time being.
But the unforgivable pricing mistakes aside, the company does have what is reported to be an extremely intelligent CEO. It’s hard to argue that he’s not Mark Zuckerberg 2.0, maybe even more of a visionary than the Facebook prodigy. And just like Mark, Snapchat’s Evan Spiegel turned down a huge buyout of his business in favor of greener pastures, knowing that his business would be worth far more down the road. And as we sit here, reports have Snapchat being valued at nearly 5 times the amount Facebook was offering to buy the business for. Thus, so far, Spiegel is right.
But ultimately, will he be wrong? Sure, Spiegel and his team could cash out now and be proven right, and they are very likely to make it to an IPO to cash out later. I don’t doubt that he’ll be rich. However, is this company really one that can stand on its own in the long-term? They seem to be lacking the analytical prowess to make their advertising features attractive to savvy digital advertisers. They haven’t built out a small business facing advertising platform that could prove their model, their value and be an incredible learning tool for them in the long run. And they would truly benefit from a strong salesforce, which given some of the talk around their current burn rate and accessible capital, might be easier said than done. So while turning down Facebook seems like a bold and calculated move now, a few years from today, we may look back at this and think that being attached to Facebook could’ve been the best thing that ever happened to Snapchat.
This week, Snapchat’s CEO descended upon Cannes Lions to tell the world about Snapchat and how it thinks about its products. Given that he’s doing something the likes of me may never do, one could easily ask, “who the hell am I to be questioning this dude’s business?” To that I say…well, I couldn’t agree with you more. But I forge forward anyway, just as Spiegel forged forward to tell us a few things at Cannes this week.
For starters, Snapchat, Daily Mail and WPP announced a venture of sorts, called Truffle Pig, that will operate as a social content agency. Obviously, I love the partnership aspect of this business–bringing multiple parties to the table is an admittance of the fact that one isn’t great at everything. However, if you’re Snapchat, and what you’re bringing to the table is this cool factor and this ability to reach young millennials, then why are you signing up with a newspaper company and one of the most revered and oldest advertising conglomerates? I guess this kind of goes back to the fact that Snapchat could seriously benefit from entities with built-in sales forces and an understanding of what advertisers need from any marketing platform. But can Snapchat truly benefit from this in the form a partnership? Can it usurp the benefits of these more established companies for themselves, or are the other companies the ones gaining all of the benefits?
We also learned this week that Spiegel doesn’t like “creepy” targeting…whatever that means. In a world where analog dollars are moving to digital almost purely for the fact that ads on the internet are more targetable and measurable, Snapchat dislikes some elements of targeting and reportedly can’t measure the breakdown of males to females for its advertising partners. I certainly think Spiegel’s dislike for creepy targeting will dissipate the second some advertiser who forked over $750k for an ad unit comes in kicking and screaming, but just the very notion that an alleged tech company (as you know, I like to call companies reliant upon ads media companies) is against using the capabilities of its technology rubs me the wrong way. Sure, those ads that follow you around the internet can seem creepy, but if done right, there’s nothing creepy about it, because there’s no personally identifiable information being recorded…you’re nothing more than a screen and a cookie ID to a properly created remarketing ad. So while Spiegel’s reluctance to go with full-blown targeting may seem noble, it also seems somewhat naive.
Last but not least, we learned that Snapchat is going for this whole “3V” thing. It’s actually quite disturbing that Snapchat is creating this big public campaign about something that has existed for a long time. I was watching vertical videos on my iPhone years ago, and I didn’t see any advertisers screaming about the benefits of such technology. I’m sure Snapchat’s 3V is going to be of the highest quality, but they can’t fool me into believing that this is a brand new product that is going to change the game and put them lightyears ahead of the other established social platforms. Besides, last time I checked, they don’t have a patent on this (how could they, it already existed), so the other players should have no problem creating their own 3V ad units.
But who’s to say advertisers will even want to get on board with a “new” ad unit? This move seems like another one of those blunders that Snapchat will have to walk back on, like they did with their pricing model. When you’re entering the advertising playing field, looking for money, the last thing you should be doing is asking your clients to build out ad units that can’t be used across the board. And you especially shouldn’t do it when you can’t even offer the kind of detailed reporting that would determine whether this ad unit brought any clear cut advantages with it. If you ask me, this whole “3V” thing is a ploy by Snapchat to differentiate itself in the only way that it’s different, despite not having any real idea of whether that difference will add any value to its customers.
So the answer to the question you all have been thinking is, “Yes, I am down on Snapchat, and I don’t think its future is all that bright.” I’m not going to be surprised when Snapchat looks a whole lot like Twitter: capped at a certain level of users and looking like crazy to find a revenue model that can sustain the company. If they find that model, sure, it has a chance to survive the long haul, or at least flounder around like Twitter. But if they don’t find that model, along with a way to sustain those users when the next “cool” social media platform comes along, they might go the route of MySpace. I’m not going to lie. I’m figuratively shorting Snapchat. Ten years from now, that could be the dumbest thing I’ve ever said in my life, but the similarities are compelling: A very sudden growth in users. No current peer doing the same thing. A non-existent small business model. And no real switching costs for its users.
Again, I could look like a fool for coming to this conclusion…and the momentum of Snapchat would suggest that I will indeed look just like that. But I got to call a spade a spade. And while Snapchat is all the rage now, and all the agencies want to snuggle up to it and be BFFs, it’s hard for me to see the true value one is getting with Snapchat that can’t be derived elsewhere. Do you?