Here's a question for you: How do you separate something that's a "good idea" from the "truly innovative?"

For Snap CEO Evan Spiegel, it has always been about getting back to basics. Says Spiegel, "Somewhere along the way, when we were building social media products, we forgot the reason we like to communicate with our friends is because it's fun."

Humble Beginnings

Back in 2011 while a student at Stanford, Evan Spiegel was toying around with ideas for a startup. "We would experiment and fail. We must have attempted nearly 34 projects. One of my buddies wanted to be able to send disappearing pictures," Spiegel said. "It seemed like you could have fun doing that, so we built a very simple app."

Fun and simple - the cornerstones of Snapchat's aesthetic - were now in place, however there was nothing innovative about a disappearing picture application. What set them apart was another friend's suggestion that they add functionality to detect screenshots.

With these simple features, they set their app into the wild and watched as teenagers started to adopt it as their top method of communication. Snapchat gave people something that no other Social Media tool could: a way to be "authentic" online.

Constantly Evolving

Herein lies the secret to Snap's success. Spiegel and his partner Bobby Murphy stumbled upon something important early on - this platform is all about the people using it. To that end, they spend a lot of effort on observing usage trends. Snapchat began introducing new features that would enhance the experience, giving people more opportunities to engage with each other.

Another thing that sets them apart is that individual features are constantly evolving. Snapchat Stories began as a way for people to communicate their own day to their friends and now have become the de facto way for a full generation of people to receive their news on the internet, outclassing Instagram, Twitter and Facebook. While those platforms have relied on algorithms to curate news feeds, Snap has gone old school, showing people live, first-person perspectives of events happening around the world.

The Imitation Game

All this innovation comes at a price, however. Instagram and Facebook have both lifted liberally from the Snap playbook, both of whom released a "Stories" feature. Instagram reached 150 Million Daily Active Users (DAU) within 6 months of releasing the feature, to Snap's 158 Million DAU.

For the first time in its 5 year history, their growth has slowed. As Spiegel and team prepare to launch an IPO, it was revealed that in 2016 they suffered a net loss of $515 million on revenue of $404 million. This compares with a 2015 loss of $382 million on revenue of $59 million.

However, their quarterly average revenue per user is climbing, likely due to their strong understanding of how to market to their existing userbase. According to their S-1 filing, they are receiving $1.05 per user in the fourth quarter of 2016, compared with just $.31 in 2015.

The Future of Snap

With their new product, Spectacles, Snap aims to bring to the mainstream a way for people to share their own perspective of an event, and relive it as they saw it. With other recent acquisitions, they look to be heading into the augmented reality space, which will bring you one step closer to your dream of giving everyone you see bunny ears and a top hat.

And with their IPO, Spiegel and Murphy are doing something else truly innovative - they are removing voting rights from the IPO, creating a structure where the only people who are in control of making company decisions are the two company heads. In essence, they're asking shareholders to take a gamble that these two twenty-something wunderkinds know a bit more about their products than Wall Street.

It's certainly a risky proposition, but one that has paid off for the team so far.

How Snapchat Became a $20 Billion Business In 5 Years
Published on: Feb 28, 2017