While Facebook, YouTube and Twitter were making headlines and testifying before Congress, Snapchat spent the past decade quietly entrenching itself as teens’ favorite social media app. Left for dead by some analysts five years ago when Facebook’s Instagram copied its signature disappearing-photo feature, Stories, Snapchat instead kept growing by coming up with a new set of playful features.
Until now. An economic downturn, seismic shifts in the digital ad market and the meteoric rise of TikTok have thrown Snap for a loop, and on Aug. 31 it laid off 20 percent of its employees. An internal memo from CEO Evan Spiegel, first obtained by The Verge on Wednesday and viewed by The Post, acknowledged that the company is on track to badly miss its internal growth targets for 2022. Since January, the Los Angeles-based company’s stock has lost nearly three-fourths of its value.
No longer the sprightly upstart in the social media world, Snap faces a new challenge as it enters its second decade: how to build a mature, profitable business around an app that remains beloved by teens but largely ignored by older adults with disposable income. A company known for an optimistic culture and whimsical product initiatives, which prided itself on being the anti-Facebook, is now paring back its ambitions and clamping down on employees as it struggles to capitalize on those young eyeballs amid threats to its revenue model from Apple and TikTok.
“I think it’s a perfect storm,” said Dan Ives, an analyst at the financial services firm Wedbush Securities. TikTok is intruding on Snap’s demographic, online advertisers are spending less, and a move by Apple to limit the data apps can collect from iPhone users has been “a gut punch to the business model,” he said. Snap has always struggled to convert its popularity into profit, and that has only gotten harder thanks to “massive head winds” in the digital ad market.
It adds up to a dizzying reversal of fortunes for a company that had been quietly thriving. Following a failed 2018 redesign that sent influential celebrities such as Kylie Jenner to rival Instagram, Snapchat regained its footing thanks to an overhaul of its previously buggy Android app, improved advertiser tools, and surging interest in social media during pandemic lockdowns. It also developed clever new features to ingratiate itself into its young users’ daily routines.
In a statement, Snap communications chief Julie Henderson attributed the company’s layoffs and stock slide to “a challenging macro environment,” noting that the company is still adding users and increasing revenue faster than many rivals. While Snap is “fundamentally strong,” she said, “we had to make the tough decisions to best position our business for the future.”
Snap cutting 20% of staff as ad sales continue to dry up
As Instagram’s user base aged and broadened and its algorithmic feed catered to influencers, Snapchat solidified its reputation with teens as a place to communicate privately and spontaneously, out of view of parents and teachers. Kids share their location using Snap Maps to arrange impromptu parties and obsessively track their Snapchat Streaks, or consecutive days of sending snaps to one another, with best friends. Snap also made key strategic partnerships to integrate its technology and AR features with companies such as the dating app Bumble, Ticketmaster and Disney.
Snap ducked many of the content moderation scandals that have rocked Facebook and other rivals by eschewing algorithmic recommendations in favor of human editorial oversight of content that’s highlighted in the app. It leaned hard into features intended to make messaging more fun, such as digital filters that can make you look like a baby or an animal or swap facial features with a friend. (Some of those filters have sparked controversies of their own.)
Snapchat’s active user base surged to 350 million people per day, more than Twitter, Pinterest and Reddit. By 2022 it was the fifth-largest U.S.-based social media platform by active users, behind only Meta’s Facebook, Instagram and WhatsApp and Google’s YouTube. An April survey by Pew Research found that 59 percent of American teens use Snapchat, while 15 percent said they use it “almost constantly.”
And the future looked bright. In April, Snap reported that it was still adding millions of users, even as Facebook’s growth had stagnated. It even turned a quarterly profit for the first time in its five-year history as a publicly traded firm.
Amid a triumphant mood at its annual developer conference, the company flew out a $230 “selfie drone” called Pixy that could shoot pictures and video and post it to Snapchat, continuing its tradition of surprising hardware announcements.
Spiegel touted his vision of augmented reality, or AR, as the future of consumer technology, contrasting it favorably with Meta CEO Mark Zuckerberg’s vision of a virtual reality “metaverse.” Rather than donning a headset to escape the world, Snap foresaw people sliding on its circular augmented-reality Spectacles to superimpose digital images, called Lenses, on their view of the world around them.
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Meanwhile, Snap was continuing to invest in a quirky empire of experimental projects and products, from an in-house start-up accelerator to a mobile gaming business to a slate of original short-form video shows to a high-minded magazine of ideas about technology and society.
Fast-forward three months, and the effervescence has evaporated, courtesy of a gloomy earnings report and the first mass layoffs in the company’s history. The company cut some 1,300 jobs from a workforce of more than 5,000, including entire teams, and shut down acquisitions such as the stand-alone social map app Zenly.
As for the start-up accelerator, gaming business, original programming and tech magazine? All shuttered. The Pixy drone: discontinued.
Among the company’s remaining ranks, the mood has soured, according to current and former employees.
“Morale is super low,” said one Snap employee, who spoke on the condition of anonymity to discuss company matters. They cited concerns about new leadership, the “Amazonification” of the workplace — a reference to the use of unforgiving performance metrics to grade employees — and the decline of its “kind” culture. (In August, Snap promoted senior vice president Jerry Hunter, formerly of Amazon, to chief operating officer after its previous business chief left for Netflix.)
“People are definitely not as optimistic” about Snapchat’s future, the employee said. They noted that some colleagues were distraught that the layoffs included people on parental leave and employees who had been pivotal in the company’s diversity efforts.
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In the company’s telling, the biggest factor is a pullback by digital advertisers due to the Ukraine war, inflation and fears of a recession — conditions that also affect Snapchat’s rivals. Indeed, Facebook and Twitter have also been tightening their belts amid flattening revenue in recent months, and Google CEO Sundar Pichai said at a conference this week that he aims to make the business 20 percent more efficient.
But Snap’s stock has suffered the most, and some analysts believe its challenges are more daunting than just an economic downturn. One big threat is the stunning rise of TikTok, the Chinese-owned video app that took off in the United States starting in 2018. The survey by Pew found it has soared past Instagram and Snapchat as American teens’ most heavily used social app other than YouTube.
While TikTok and Snapchat don’t serve the same functions, they’re competing for the same young people’s time — and the same advertiser dollars targeting that demographic, said Ives, the Wedbush analyst. According to the analytics firm Insider Intelligence, nearly half of Snapchat’s U.S. users are under the age of 25, despite the company’s long-standing efforts to broaden its appeal.
Some of the advertising head winds are blowing straight down Highway 101 from Apple’s headquarters in Cupertino.
Last year, Apple imposed new privacy rules for app makers such as Facebook and Snapchat, curbing their ability to collect data on users for the purposes of targeted advertising. App makers were required to explicitly ask their users if they wanted their internet activity to be tracked — a request many users turned down. Those changes led Snap and other tech companies to repeatedly warn investors that the changes would impact their revenue.
While Snap executives have touted their investment in new analytics tools for advertisers, the company is increasingly looking for other ways of making money.
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Those include e-commerce, with retailers offering products for sale within the Snapchat app that allow users to virtually “try on” makeup, clothes and other items through augmented reality, and a new subscription business, called Snapchat+, that launched in June. For $3.99 a month, subscribers get special badges and features within the app, and their replies to celebrities are shown above replies from nonsubscribers.
By August, Snap said Snapchat+ had reached 1 million users; it’s aiming for 4 million by year’s end and 10 million by next year, according to Spiegel’s internal memo. He also said the company will continue to try to expand its user base beyond Zoomers to Millennials, who are now in their thirties and forties.
Meanwhile, Snapchat has followed Instagram in attempting its own TikTok-like video feature, called Spotlight. It’s a reputation-risking reversal for a company that has long prided itself on being the one that develops innovations copied by others.
In a TV interview this week with CNBC, Spiegel said he believes the ad business will eventually recover, but that the company needs to “refocus our business” and show it can turn a profit in the meantime. “You know, innovation is about taking risks, and sometimes that means really consolidating on the things we see working, like augmented reality,” he said.
But the magnitude of Snap’s layoffs and its shutdown of experimental initiatives risks sacrificing some of its long-term growth potential, said Mark Shmulik, who covers U.S. internet firms for the firm Bernstein.
“It just feels like they’ve probably taken a machete where a paring knife probably would have sufficed,” Shmulik said.
On the bright side, he added, Snap has proved that it can overcome adversity and reinvent itself in the past.
“They are now faced with another one of those, call it ‘existential moments,’ where you know they are making another pivot,” Shmulik said. “Every time they go through it, there’s always a new threat on the horizon, or dynamics change, and somehow they persevere.”
Source by www.washingtonpost.com