BILLIONAIRE BRANDS: CASE STUDY 2 - GROWTH STORY OF SNAPCHAT

10 July 2016

Introduction

Snapchat Inc. first grabbed global headlines in 2013, when the young start-up rebuffed an acquisition offer from Facebook Inc. worth more than $3 billion.

To most observers, the move appeared foolish and greedy.

Snapchat had zero revenue, no business model and was led by Evan Spiegel, then a 23-year-old college dropout with no prior experience running a company. 

But what attracted Facebook soon became apparent to many others: 

1. Snapchat was rapidly accumulating users, mostly teenagers, and getting them to spend long periods of time in the app every day.

2. Its core feature, developed by Mr. Spiegel and his two co-founders as classmates at Stanford University, is the ability to share a photo with one or more friends under the condition they can only view it for a short period of time before it disappears forever.

With more than 100 million users sending over 400 million snaps a day, the company has expanded into new areas, including peer-to-peer payment service Snapcash and a media newsstand called Discover. 

Investors eager to get a piece of the popular mobile app have piled in cash at fast-rising valuations, from $1.5 billion in November 2013 to more than $10 billion less than a year later. 

Important tests remain for Mr. Spiegel, who must now try to generate revenue without falling out of favour with his legion of loyal users.

The company tiptoed into advertising last year as Mr. Spiegel vowed not to be “creepy,” or target individual users with ads, a lucrative practice now common among all major Internet companies.

The CEO, who rarely makes public appearances and asks partners to sign lengthy nondisclosure agreements, nonetheless brought unwanted attention on himself when a batch of leaked emails from his college frat party days contained offensive remarks he made about women.

A management bench that includes former Facebook executive Emily White and former Credit Suisse banker Imran Khan will help try to help the young company live up to its soaring ambition and turn its free service into a moneymaking business.


Key Growth Takeaways

While the world is still debating whether or not privacy is the biggest right – Snapchat stepped ahead of the debate to launch its algorithm of self destructive images and gave users the freedom to be fun, to be themselves and share it with their “inner circles” without wondering what the consequences would be, if the photographs made their way to Facebook or the web.

Snapchat is liberating in its basic essence and here are three other features that rule:

1. The app is not limited to smartphones.

2. Doesn't need a data plan – if you can find a Wi-Fi hotspot, you're good to go.

3. The photo and writing app lets you be creative and self-destructive images give you the freedom to share it with a closed group.

A New York Times story spoke of how the co-founders shared an iPhone version of the app with 20 of their friends in September 2011.

A few weeks in, they saw multiple new users join and noticed unusual spike in activity, particularly from 8am to 3pm. The activity was courtesy several high school goers of an Orange County high school, who heard about the app from Speigel's cousin studying in the same school. 

Soon the app spread to other schools in Southern California. Educational centres and skill building institutions like SQL training centres became the hotspots where teens and young adults shared the app with one another and Speigel's app went to have 30,000 users from only 3,000 a month earlier!

If Snapchat's growth could be attributed to a single reason, it would be its popularity amongst the teenaged millennials. The truth is teens and the younger millennials are in fact the primary trend setters. Other demographic groups adopt the trends set by teens and young adults. 

Snapchat revamped itself for tweens (8 to 12 years), the teens and college-going, young adults.


Implications? 

- Teens with no personal smartphones or data plans could use the app on the family's iPad or computer and all that – without wreaking havoc on the family's data plan. 

- This is why Snapchat won the patronage of the youth.

- Reduced friction: Photo-sharing is one of the most frequent daily behaviours of smartphone users. By making photos private and disappearing Snapchat reduced the friction or hesitation to share since: 

a) You're more likely to share a goofy photo and send more per day if it's not on FB. 

b) You're more likely to send something a little edgy (whatever that means to you) if it's going to disappear. 

In addition the UI is one screen which makes it extremely easy and fast to send a photo or video in the moment.


The Viral Effect

The most viral products are those that have increasing value as more friends use them.

Typical examples include Whatsapp, Facebook, Instagram or even LinkedIn. 

Even more extreme as pure viral products are communication tools such as a phone, text message or email, which effectively have zero value without at least 1 other person using them. 

Products such as these face a huge challenge of making something addictive enough that it will be used at high frequency between friends but if they're able to achieve this they can generate almost indefensible network effects.

Here’s one of the secret sauces to Snapchat’s viral growth:

- Its group messaging functionality: when a user sends a snap to multiple friends, the recipients receive a snap indistinguishable from an individualized message. In effect, mass snaps feel personalized. This is the holy grail of messaging platforms: evoking strong emotion with minimal friction. 

Consider this emotion/friction matrix:

The virality of a messaging platform equals its emotion-friction ratio, and the Snapchat paradigm maximizes this virality coefficient.  

A Snapchat of a funny face will evoke a visceral reaction in the recipient before they have time to consider the meaning behind the message. 

Conversely, when someone receives an MMS, the first thing they see is the recipient list. Users immediately dissect mass text messages before experiencing them.

To solve this problem, Snapchat is intentionally ambiguous. 

- Since the meaning behind a snap is opaque, Snapchat alleviates senders’ social inhibitions. 

- This is revolutionary: by altering the social dynamics of digital messaging, Snapchat created an atmosphere in which people share more openly. 

- Have you ever felt self-conscious about your “texting ratio” after you send three or four texts without a response? Snapchat has no messaging history; it relieves insecurities about message imbalances. 

Problem solved.

- Have you ever sent someone a joke via text then feel insecure after not receiving an immediate response? You read and re-read your message, thinking “How did (s)he interpret my text? Was my joke funny?” In Snapchat, you can’t read your sent messages, so there’s no past correspondence to dwell upon. 

Problem solved.

- Snapchat improves the messaging experience because it minimizes the inhibitions of texting.” This idea of full attention plus intimacy is another big appeal.

If you have a success story you want to share I would love to hear about it and feature it on my blog!


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Pssst….this is only the beginning, come back on Monday next week for Case Study 3…. 


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