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The Bull Case for Snapchat (techcrunch.com)
53 points by xenophon on Feb 17, 2017 | hide | past | web | favorite | 49 comments



After initial skepticism, I like Snapchat for reasons in the article (lower pressure). And I think they "get" the younger generation and have good product strategy, a lot like Facebook succeeded in a crowded space for similar reasons with a similar amount of skeptics.

Problem to me is they seem more like Twitter than Facebook in that their only real monetization path is ads, but their ads don't seem that valuable.

If I'm selling watches, I want to pay Google to advertise to people who just searched for watches. If I'm selling retirement planning, I want to pay Facebook to advertise to middle aged people who like personal finance topics. But who wants to buy Snapchat ads? Some people who want to do brand awareness marketing on a trendy platform but not much else. So I think just because they can get lots of users does not guarantee success.


In Snapchat, people actually routinely engage with ads by spending time setting up and taking photos using branded filters, then sharing that ad with friends. That's starkly different from the typical loons you see replying to an ad on Twitter.


But the [multi billion dollar] question is do they then buy the stuff from the sponsoring companies? Most advertising on Snapchat is experimental, we'll have to stick around to see if the experiments are successful.


It might be more useful for brand awareness. Car companies don't advertise their products expecting to get a sale - they're doing it to strengthen their brand with consumers in general (more often than not for the people that already bought their product).

I don't use Snapchat nor am I a marketing whiz, so I could be wrong.


Isn't that the point in brand awareness, to sell product?


At some point, of course, yes. The rubber must meet the road.

The problem is that most marketers/advertisers can't meaningfully quantify the value of their brand spend. There's a joke in the advertising space: half of my marketing spend is useful and half isn't. I just don't know which half.


Understood, and this is why you tend to see more established spending spending money on campaigns that achieve brand awareness rather than campaigns that translate into immediate conversion right?


Doesn't matter, it helps brand image/awareness, which indirectly affects sales. They're already very successful.


If they want to justify $25 billion plus valuation they will need to open the platform to be useful to businesses other than the high spending brand advertisers, which is certainly a lucrative segment but not the totality of advertisers. Once the people at Snapchat just accept that buying things is also apart of the human experience, then they'll be able to build in direct response ad formats and sales tracking (online and offline). Right now their ad formats are on the level of vanity, though vanity does sell it doesn't sell to all. In the long run, for Snapchat to justify $25bn and greater the local Chinese restaurant needs to be able to send an ad with a call to action to Snapchat users in a vicinity of their choosing, and also be able to track conversion by who walked in. This is all technically feasible, and Snapchat may open up to more sales conversion advertisers. But, that same Chinese restaurant could be doing this advertising campaign today on Facebook and Google. So what makes Snapchat special? They will need to train their users to accept advertisements from unknown entities, because right now their ad content leverages previous brand recognition and borders more on entertainment than sales.


They're losing buckets of money and Twitter should be a great example of having trouble selling ads to social media users. Snapchat is the hot new thing so they're getting ad dollars in experiments from major brands, but it remains to be seen if it's a worthwhile investment for them.

If Snap can only offer brand image/awareness type advertising they are not worth what they think they are.


I'm not sure where you're getting this idea that Twitter ads are not very valuable. Empirically, advertising is the one area of Twitter that's growing (total revenue, revenue per user, etc.). Its their user growth that has stalled.

More abstractly, Twitter is very information-seeking / interest-oriented, which seems very ideal for advertising.


I don't know how much small businesses contribute to Facebook/Google's bottomline, but one of the big advantages of Google/Facebook is that creating ads and landing pages is easy.

Just put together a few stock photos, add some copy, pull a free landing page template and you're good to go.

I'm not a heavy Snapchat user, but it seems to me that small businesses will struggle to create creatives for Snapchat ads. Nearly anyone can write, but very few are actually comfortable with a camera. Most small businesses also don't have editing chops or even the sheer creativity to put together a compelling Snapchat ad.

Much of Snapchat's value seems to be in driving top of the funnel awareness, but I'm not sure most businesses have the capacity or even the need for this.


FWIW, whenever I have ventured into the sponsored stories section of Snapchat, I have been shocked at how "amateur hour" / "web enthusiast from 1995 thinking they can design" the content is, even from the large and successful brands that I know have the expertise to do better... I actually think something about this playing field makes it totally viable for random people to complete.


TV advertising is as large as all digital advertising combined. And TV advertising is almost all untargeted brand advertising, if they can get a big chunk of that pie it doesn't matter if a small business can't microtarget users with shitty ads.


How similar is this younger generation to the younger generation of the 90s/early 2000s? Is there any reason to think that because a company "gets" todays younger generation, that they will get the younger generation of 2027?


P2P payments? P2P sales? Games? The messaging system is just a social platform to build the other services. Other chat systems have built similar services.


I don't think P2P sales can justify a $25B valuation.


Snap to me smells too much like a company based around a particular fashion, rather than a fashion company - if the analogy makes sense.

They do the one thing really well, but it's going to go out of style at some point as these things tend to - and I'm not sure I believe they have enough other projects going on to overcome that.

I could be wrong, for sure.


>They do the one thing really well, but it's going to go out of style at some point as these things tend to

I sort of get your point, but this exact same thing has been said about Facebook, Instagram & Twitter. To counter my own point, there's also MySpace, Path, YikYak and Google+. However, I imagine that Snapchat has surpassed the "terminal velocity" in user growth/size to a point where I don't think its going anywhere anytime soon.


Facebook asks for a lot of information from users and grew its way into government contracts and safer high $value arrangements due to how much data they store. Even if you're not "on" Facebook, people you know will establish a presence for you in Facebook's data.

Twitter accounts are cheap and the platform only has value as long as advertisements can run unchallenged by a large number of users.


Twitter is not the best example, as their struggles are well-known.


A social network based around low-effort content (because pictures expire) among one's friends sounds like something that could be a useful permanent fixture of the landscape.


I'm sorry but the day I take financial news and advice from TechCrunch is the day I've official gone looney tunes.


Snapchat makes money on premium accounts which are mostly amateur porn accounts. Idk if that helps or hurts. edited to say: I don't know how much money they make but they seem to have a pretty substantial direct-to-consumer porn platform going on lol.


On the other hand they have zero user lock-in and are heavily losing money. That's a risky combination.


If they have zero user lock-in, then Instagram/Facebook have zero user lock-in too.


That would be the case if Instagram/Facebook's only source of lock-in was a user's established friend connections. However, Instagram/Facebook also have extensive history of each user's actions and content.

This is valuable, and why Facebook creates retrospectives for its users (in the last year you posted X times... here's where you were 2 years ago... etc). Snapchat lacks this due to the very ephemeral nature of the service.

Edit: grammar


This is an asset for their users, not a liability.

If you were to try to compete with Snapchat on the basis of having history, you would fail.


A product of similar nature to Snapchat (posts are deleted after n hours) could quickly grab all Snapchat users if Snapchat fatigue sets in and the other product looks new and shiny. All it takes for users is to download another app.


All it takes is for users to download the app and convince all their friends too. That's the tricky part, and definitely the incumbent advantage.

I'm not sure x hours is enough of a pain point (if it is at all) to get people to move.


That is valuable for advertising. It is of marginal value for users. Being able to stalk someone's history is not the main use case for Facebook/Instagram.

My point is that the same friend network effects that Facebook/IG emjoy are also enjoyed by Snapchat.


If you used the product you would know there is a core feature that locks in users. Go google Snapchat Memories. I don't get why people make assumptions on products without using them.


Memories is not the core product, and I'd expect a lot of people don't use it.


This feels like a tone-deaf week to publish an article suggesting that Snapchat will become a $100B company in 2020 by acquiring Magic Leap.


The thing is, everyone says it's a 'fad' yet look at Twitter and Facebook--a decade later and still going strong. There is something about web 2.0 that makes it immune to the boom and bust cycle that beset web 1.0 companies (like Myspace, Aol, Yahoo, etc). Everyone seems to be using it..and the mobile rich media makes it ideal for advertisers, who pay a lot for those ads


Twitter still going strong? Check the latest news on that. What's interesting about the tech scene and Snapchat right now is that there are a lot of popular startups/apps, but only some are wildly successful while others are struggling to make money. There isn't a 1:1 correlation between popularity or number of users and profit.


> ... and the mobile rich media makes it ideal for advertisers, who pay a lot for those ads

Until they don't. At some point, the companies making actual stuff that people use will realize that, despite the made-up "metrics," there's not much value in surveillance-based advertising. It's hardly better than the pile of paper you transfer from your mailbox to your recycle bin every day.


Myspace was founded only 6 months before Facebook!


Snapchat will be the next biggest bust since Theranos and Magic Leap.


Sorry, tuned out at $100 Billion. This is doing keg-stands of your own Kool-Aid.

If you think Snapchat has the same macroeconomic value to the world as Intel, Cisco, or McDonald's... Then you've lost the ability to evaluate a technology business.

I'm not sure whether to accuse this of being shill or to systematically prove how flaky the argument is. The fact is that it doesn't save photos is as much lack of a feature as it is character. The users of this app know how to take a screenshot... It's the ICQ of a different 3 years worth of teenagers that will get stomped by the next messaging app that is different from the one other people used for the past 3 years.

Snapchat is valuable because of demographics. Unfortunately those demographics grow up quickly, and the ones that replace them will rebelliously reject what preceded them just like teenagers have done for the last 50 years.

The fact that they are worth $18bn now is nothing but a prime example of the times. Mind you I know the company I'm in. VCs invest based on their bet and the reason that valuation sticks is more marketing than it is reality.

Snapchat just isn't that valuable to the world.


> It's the ICQ of a different 3 years worth of teenagers

Snapchat is already 6 years old and my mum joined it last week to keep up with all her friends and family.

That's the thing with the bear case, you're right 95% of the time because most businesses fail but you never have to justify or be accountable for the 5% of times you're wrong.

HN history is littered with pessimism about tech companies - Facebook isn't worth $30 billion[1], Facebook isn't worth $50 billion[2], Facebook isn't worth $100B[3], Uber isn't worth $10 billion[4].. Snapchat isn't worth .. repeat. rinse.

[1] https://news.ycombinator.com/item?id=1719975

[2] https://news.ycombinator.com/item?id=2062145

[3] https://news.ycombinator.com/item?id=4002857

[4] https://news.ycombinator.com/item?id=7911560


Personally I'm not a chronic pessimist, but my view on Snapchat is the same as Twitter, and look at what is happening with them.

They are only worth their Market Cap in the sense that investors literally bought-in that much because of a hypothetical upside based on scale. What happened when they tried to sell the company? The realization sets in that the company just isn't worth that much money, nor can anyone foresee how it could be in the near future.

It is a self-sustaining situation with these companies. Nobody wants to write off that big of a loss, so the valuation is sustained.

Many others are sustained on the inflated belief that the market for Ad views is adjusted for the prevelance of fraud. How many times has it been shown that click, view and user bots are used in staggering numbers. The companies making all the money have little incentive to correct this. But of course Ads clearly work in many situations. I'm just saying these bloated valuations based on ad revenue have not been adjusted for the fraud reckoning. Google struck gold because the underlying utility of the search engine is so unquestionably powerful and ubiquitously necessary to the idea of the internet that it guarantees a truly awe-inspiring user base. The value proposition of getting that service for free makes viewing Ads a second thought - it is a reasonable deal for the user.

What do people need from Snapchat that will keep them there? Sharing pictures and text messages is rapidly, and I mean rapidly, approaching a commodity service on par with landline telephones.

Anyways, the blanket optimists are subject to the same odds. If you believe everything is going to succeed, inevitably you will be correct. Everyone has confirmation bias.


Facebook's market cap right now is $386B. If they play their cards right, Snapchat hitting one fourth of that is by no means impossible.


How big is the media space. It's becoming dominated by Facebook and Google and Apple and Twitter. Snapchat would be number four. All media companies. Can the market accommodate another big player? Definitely.


If Snapchat fits then I think it means an endless stream of next-Snapchats will also fit. All of these things are 6 of one/half dozen of the other. The limit is people arbitrarily swapping messaging apps like phone cases based on mood.


Exactly same things were said about Facebook. Larry and Sergey laughed it off circa 2007 as pointless diversion.


Less space than a nomad


The 50th messaging app with a friends list is the same technological advance as the iPod?


Snap has nothing to do with Augmented Reality. HoloLens is AR, Google Glass could have been AR but were too underpowered. Snap Spectacles are nothing more than passing fad.




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