Snap: Investors get spooked when you have no long term plans

Matt Donegan
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Snapchat Parent Snap Begins Trading On New York Stock Exchange
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There are a number of reasons that, in the cold light of day, investors have become less confident about the long-term success of Snapchat.

Putting aside the obvious facts that it is yet to trade anywhere near profit and is reliant on a young audience (more of that later), what are the main causes for concern?

Snapchat was built as a social media platform, yet was floated as a camera company. Seems a little odd, and so bears the question – what is the long-term goal of Snap Inc?

Despite the launch of its Snapchat Spectacles, it’s highly unlikely that Snap’s investors wanted to invest into a fully-fledged camera hardware company. But if it goes that way, how and where does a camera company fit into the social landscape?

First, it’s likely that Snap is betting on the potential value of what’s being created on our smartphones. These pictures and selfies merged with Augmented Reality are going to become essential when the search bar slowly disappears and “visual search” is created. But with Google, Facebook and Microsoft already harbouring vast stores of visual data, is Snap a tad late?

Second, Snapchat is facing fierce competition – the likes of Facebook and Instagram have already proved themselves skilful at mimicking some of its core features. With Facebook’s 1.86bn-plus monthly average users and Instagram’s reputed 600m monthly users, it’s safe to say Snapchat faces a battle to reach new engaged users, while its competitors are busy replicating and perfecting its features.

Which brings us nicely onto the third: its audience profile. Snapchat isn’t showing the signs of growth it previously did and in order for it not to flatline it needs to attract an older demographic. However, if an older audience adopts Snapchat as a platform, there is a real danger that this will disenfranchise its existing user base as “mum and dad” jump on the bandwagon.

And last, one of the major stand-out differences for us geeks between Snapchat and other platforms is a lack of engagement with third party developers. Although it now has APIs (application programming interfaces) allowing external developers access to the platform, the success of major platforms such as Apple’s iOS, Google, Facebook and B2B apps such as Salesforce comes down to the practice of building an ecosystem of developers ultimately expanding the use of the platform.

This practice has worked brilliantly for the majority of platforms as it generates scale quickly, creates advocacy among other businesses and helps discover uses of the platform that the core business hasn’t spotted – or are a lower priority for them. Given Snapchat has been less open with its APIs, there has been less opportunity to develop the ecosystem that platforms thrive on.

Matt Donegan is managing director of Social Circle.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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