<\/p>\n
While Facebook, YouTube and Twitter were making headlines and testifying before Congress, Snapchat spent the past decade quietly entrenching itself as teens\u2019 favourite social media app. <\/p>\n
Left for dead by some analysts five years ago when Facebook\u2019s Instagram copied its signature disappearing-photo feature, Stories, Snapchat instead kept growing by coming up with a new set of playful features.<\/p>\n
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 August 31 it laid off 20% of its employees. <\/p>\n
An internal memo from CEO Evan Spiegel, first obtained by The Verge on Wednesday and viewed by The Washington Post, acknowledged that the company was on track to badly miss its internal growth targets for 2022. Since January, the Los Angeles company\u2019s stock has lost nearly three-fourths of its value.<\/p>\n
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. <\/p>\n
A company known for an optimistic culture and whimsical product initiatives, which prided itself on being the anti-Facebook, is paring back its ambitions and clamping down on employees as it struggles to capitalise on those young eyeballs amid threats to its revenue model from Apple and TikTok.<\/p>\n
\u201cI think it\u2019s a perfect storm,\u201d said Dan Ives, an analyst at the financial services firm Wedbush Securities. TikTok is intruding on Snap\u2019s demographic, online advertisers are spending less, and a move by Apple to limit the data apps can collect from iPhone users has been \u201ca gut punch to the business model\u201c, he said. Snap has always struggled to convert its popularity into profit, and that has only gotten harder thanks to \u201cmassive head winds\u201d in the digital ad market.<\/p>\n
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\u2019 daily routines.<\/p>\n
Snap communications chief Julie Henderson attributed the company\u2019s lay-offs and stock slide to \u201ca challenging macro environment\u201d, noting that the company is still adding users and increasing revenue faster than many rivals. While Snap is \u201cfundamentally strong,\u201d she said, \u201cwe had to make the tough decisions to best position our business for the future.\u201d<\/p>\n
As Instagram\u2019s 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. <\/p>\n
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.<\/p>\n
Snap ducked many of the content-moderation scandals that have rocked Facebook and other rivals, by eschewing algorithmic recommendations in favour of human editorial oversight of content that\u2019s 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 swop facial features with a friend. (Some of those filters have sparked controversies of their own.)<\/p>\n
Snapchat\u2019s active user base surged to 350 million people a day, more than Twitter, Pinterest and Reddit. By 2022 it was the fifth-largest US social media platform by active users, behind only Meta\u2019s Facebook, Instagram and WhatsApp and Google\u2019s YouTube. An April survey by Pew Research found that 59% of American teens use Snapchat, while 15% said they used it \u201calmost constantly\u201d.<\/p>\n
And the future looked bright. In April, Snap reported that it was adding millions of users, even as Facebook\u2019s growth had stagnated. It even turned a quarterly profit for the first time in its five-year history as a publicly traded firm.<\/p>\n
Amid a triumphant mood at its annual developer conference, the company flew out a $230 \u201cselfie drone\u201d, called Pixy, that could shoot pictures and video and post it to Snapchat, continuing its tradition of surprising hardware announcements.<\/p>\n
Spiegel touted his vision of augmented reality, or AR, as the future of consumer technology, contrasting it favourably with Meta CEO Mark Zuckerberg\u2019s vision of a virtual reality \u201cmetaverse\u201d. 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.<\/p>\n
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.<\/p>\n
Fast-forward three months, and the effervescence has evaporated, courtesy of a gloomy earnings report and the first mass lay-offs in the company\u2019s 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.<\/p>\n
As for the start-up accelerator, gaming business, original programming and tech magazine? All shuttered. The Pixy drone: discontinued.<\/p>\n
Among the company\u2019s remaining ranks, the mood has soured, according to current and former employees.<\/p>\n
\u201cMorale is super low,\u201d said one Snap employee, who spoke on the condition of anonymity to discuss company matters. They cited concerns about new leadership, the \u201cAmazonification\u201d of the workplace \u2013 a reference to the use of unforgiving performance metrics to grade employees \u2013 and the decline of its \u201ckind\u201d 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.)<\/p>\n
\u201cPeople are definitely not as optimistic\u201d about Snapchat\u2019s future, the employee said. They noted that some colleagues were distraught that the lay-offs included people on parental leave and employees who had been pivotal in the company\u2019s diversity efforts.<\/p>\n
What happened?<\/strong><\/p>\n In the company\u2019s telling, the biggest factor is a pull-back by digital advertisers due to the Ukraine war, inflation and fears of a recession \u2013 conditions that also affect Snapchat\u2019s 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 aimed to make the business 20% more efficient.<\/p>\n But Snap\u2019s 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 US, starting in 2018. The survey by Pew found it has soared past Instagram and Snapchat as American teens\u2019 most heavily used social app other than YouTube.<\/p>\n While TikTok and Snapchat don\u2019t serve the same functions, they\u2019re competing for the same young people\u2019s time \u2013 and the same advertiser dollars targeting that demographic, said Ives, the Wedbush analyst. According to the analytics firm Insider Intelligence, nearly half of Snapchat\u2019s US users are under the age of 25, despite the company\u2019s long-standing efforts to broaden its appeal.<\/p>\n Some of the advertising head winds are blowing straight down Highway 101 from Apple\u2019s headquarters in Cupertino.<\/p>\n 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 \u2013 a request many users turned down. The changes led Snap and other tech companies to repeatedly warn investors that the changes would impact their revenue.<\/p>\n While Snap executives have touted their investment in new analytics tools for advertisers, the company is increasingly looking for other ways of making money.<\/p>\n Those include e-commerce, with retailers offering products for sale within the Snapchat app that allow users to virtually \u201ctry on\u201d make-up, clothes and other items through augmented reality, and a new subscription business, called Snapchat+, that launched in June. <\/p>\n For $3.99 (about R70) a month, subscribers get special badges and features within the app, and their replies to celebrities are shown above replies from non-subscribers.<\/p>\n By August, Snap said Snapchat+ had reached 1 million users; it\u2019s aiming for four million by year\u2019s end and 10 million by next year, according to Spiegel\u2019s internal memo. He said the company would continue to try to expand its user base beyond Zoomers to Millennials, who are now in their thirties and forties.<\/p>\n Meanwhile, Snapchat has followed Instagram in attempting its own TikTok-like video feature, called Spotlight. It\u2019s a reputation-risking reversal for a company that has long prided itself on being the one that develops innovations copied by others.<\/p>\n In a TV interview this week with CNBC, Spiegel said he believed the ad business would eventually recover, but that the company needed to \u201crefocus our business\u201d and show it could turn a profit in the meantime. <\/p>\n \u201cYou know, innovation is about taking risks, and sometimes that means really consolidating on the things we see working, like augmented reality,\u201d he said.<\/p>\n But the magnitude of Snap\u2019s lay-offs and its shutdown of experimental initiatives risked sacrificing some of its long-term growth potential, said Mark Shmulik, who covers US internet firms for the firm Bernstein.<\/p>\n \u201cIt just feels like they\u2019ve probably taken a machete where a paring knife probably would have sufficed,\u201d Shmulik said.<\/p>\n On the bright side, he added, Snap had proved that it could overcome adversity and reinvent itself in the past.<\/p>\n \u201cThey are now faced with another one of those, call it \u2018existential moments,\u2019 where you know they are making another pivot,\u201d Shmulik said. <\/p>\n \u201cEvery time they go through it, there\u2019s always a new threat on the horizon, or dynamics change, and somehow they persevere.\u201d<\/p>\n