Snap has had a tough year.

With another poor earnings release in Q3, the company's stock hit new lows last week. Most alarmingly, Snap only added about 4.5 million users.

Unfortunately for Snap, it's starting to look a lot like our prediction prior to its IPO is coming true - Snap looks a lot like Twitter.

Despite its early success with a niche audience, Snap has been unable to grow the network of its core platform, Snapchat, at the rate investors hoped. Growth has dipped from more than 17% QOQ a little more than a year ago to just 2.9% this quarter.

Snap's earnings estimates look no better. As we predicted almost a year ago, Snap has struggled to hit its billion-dollar earnings goal for the year. It earned just $207.9 million in Q3, below analyst projections of $237, meaning it's on pace to fall well below its yearly target.

Repeating Twitter's Mistakes

Snap's struggles all map back to one key issue. Its product doesn't scale. What worked for the first 150 million users won't always work for the next 150 million and beyond.

This is especially true for Snapchat, which has been intentionally and notoriously user unfriendly in terms of its design. Snapchat provides none of the UI hints that its competitors like Facebook or Instagram do. Many new users find the app confusing. Snap CEO Evan Spiegel has in the past hinted that this was by design, with the company viewing it as a way to keep parents and other undesired users out of its network.

Even worse, Snapchat has very little in the way of passive content consumption experiences. This challenge is the same one that's doomed Twitter for years. In order to get a lot of value out of Snapchat and Twitter, users have to put in a lot of effort to find and follow the right content creators.
Snap's user search is still not very robust, despite many improvements, which makes it difficult to know who to follow and how to find them.

Finally, Snap has no central place to consume content. In part, this is the result of Snapchat building one platform on top of another. Snapchat built a messaging platform first, and then Stories, a content platform, on top of that.

Like Twitter before it, Snap has struggled to resolve its identity crisis. Is it for direct 1-1 communication (an exchange platform), or should it focus on the content platform (a maker platform with a 1:Many dynamic)?

The Money's in the Feed

If Snap wants to grow its content platform, it's missing a key ingredient that almost all successful content platforms need: an algorithmic feed.

About year ago, Snap introduced a feature call Auto Advance Stories that autoplayed all the Stories of users you followed one after the other. However, the feature was short lived. Snap's Spiegel reportedly killed the feature after receiving negative feedback from a few power users (namely, celebrities) - without looking at the data behind it. Or, apparently, considering its strategic importance.

Snap needed this feed both for engagement and monetization. Power creators on Snapchat saw a significant decline in views after Auto Advance was removed, and without the feature, Snap had no way to get users to watch ads between viewing content.

While the initial Auto Advance feature simply the stories of everyone you followed in chronological order, the logical next step would have been to introduce algorithmic curation into this feed.

And now, with its fortunes declining, Snap has finally decided to do just that.

The hope is that this feed will help jumpstart user growth and monetization again. But for Snap, it likely comes a year too late. The last 12 months have seen Instagram's Stories platform significantly overtake Snapchat in terms of daily users. Facebook's ecosystem today seems unassailable.

Before it went public, Snap tried to sell itself as a true challenger to Facebook. Unfortunately for Snap and its investors, the company may have already missed its chance.

Published on: Nov 13, 2017
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