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Today, we’re talking about a company that many of us have forgotten about: Snap.
Let’s get to it.
🎧 If you prefer listening to reading, you can listen here: Oh Snap! (Audio Edition)
👻 If I convinced you to use Snap, add me and check out the essay as a Story here: packymcc
In 2012, I invested in Facebook at around $19 per share. In 2013, I sold it for $45. I thought I was a genius. Since then, though, Facebook is up another 5x - I missed out on most of the gains. Back then, people were unconvinced that Facebook could do mobile well. Once they did mobile well, people doubted that they could increase the ad load in the mobile News Feed in order to sustain growth. Wrong again. Facebook has built one of the two best advertising businesses in human history.
What I learned: when you think you’ve found the next big platform, don’t worry about the little things. Invest in it, don’t trade it.
Over the next five years, Snap has the potential to be as big as today’s biggest tech companies. Becoming the next platform is a once-in-a-generation opportunity, and I think Snap is best positioned to be that platform.
The stakes are high. The chart below shows the market caps of today’s biggest consumer(ish) tech companies, which provides a rough estimate of the upside in Snap if it’s able to take advantage of the opportunity ahead of it.
Snap has had a rough go of it as a public company, and most of us kind of forgot about it. I’m putting everyone back on alert.
I haven’t been as excited about a company as I am about Snap in a long time. It checks some major nerd boxes for me:
✅ Hype Cycles: We are catching Snap at the right time, as it’s heading up the Slope of Enlightenment. Others will slowly begin to wake up to Snap’s potential, you heard it here first.
✅ Worldbuilding: Spiegel and Snap are patiently laddering towards a long-term vision so big that most people missed it.
✅ Mirrorworld: Snap is building the next major platform - Augmented Reality. Aside from being a lot of fun, AR presents an internet-scale financial opportunity.
While most of us were distracted, Evan Spiegel built a new world. Today, Snap is weaving together a complex and defensible suite of products, technology, content, and SDKs that position it to build the next big platform - the one that blends the physical and digital worlds.
If you, like me, missed it, don’t worry. We’re not alone. Scott Galloway declared “The End of Snap” in October 2018. Ben Thompson hasn’t written seriously about the company since last July, after writing about it almost monthly between 2015 and 2019. There’s a good reason, too.
The Hype Cycle
I want to take you back to a time when the only app on our Nokia phone was Snake, when Britney Spears’ ...Baby One More Time was #1 on the charts, and one of my all-time favorite movies was released. That movie, She’s All That, has a lot in common with Snapchat.
In case you haven’t watched She’s All That recently, I’ll give you a quick rundown.
Zack (Freddie Prinze Jr.) starts the movie as the most popular guy in school, but falls from grace when his girlfriend breaks up with him. In an effort to gain back popularity, he accepts a bet with his best friend Dean: that he can turn Laney Boggs, a dorky art student, into the Prom Queen. Against all odds, and after a persistent effort, Zack and Laney start to like each other, and it looks like Zack might win the bet and the girl. But then Dean (traitor!) reveals that Zack only asked her to win a bet.
Zack and Laney break up. They’re both at a new low. Zack takes his sister to prom, and Laney’s planning on skipping altogether until Dean shows up and takes her. Laney loses the Prom Queen crown to Zack’s ex, Taylor, and goes home, where… ZACK IS WAITING FOR HER!!
They fall in love again by the pool. They kiss. It’s one of the most romantic scenes in cinematic history. (You can watch it here)
At graduation, we are left with the impression that the best days are ahead for Zack and Laney. And we cry happy tears, and those tears come back any time we hear Sixpence None the Richer’s “Kiss Me”. (Wait, just me? Embarrassing.)
Zack and Laney’s journeys look something like this:
Cool, so we’ve established that I love She’s All That. What does any of this have to do with Snap?
Well, hidden beneath those screen grabs is a chart that will be familiar to you if you’ve been reading Not Boring for a while: the Gartner Hype Cycle. According to Gartner itself:
Gartner Hype Cycles provide a graphic representation of the maturity and adoption of technologies and applications, and how they are potentially relevant to solving real business problems and exploiting new opportunities.
More simply, Gartner Hype Cycles describe the fact that many technologies, industries, and products come out of the gate hot with an initial use case, get really popular for a little while, then fade as that initial use case fails to live up to the hype. At that point, some products just die - countless flash-in-the-pan apps fall into this category - while others find real practical applications and rise from the ashes to provide ongoing value.
Rocketship to the Peak
Snap certainly fit the left side of the chart. Triggered by cameras on every phone and ephemeral messaging (hence the Ghost logo), Snap shot up to the Peak of Inflated Expectations quickly. Evan Spiegel, Bobby Murphy, and Reggie Brown (we don’t talk about him) launched Snapchat as “Pictaboo” in July 2011. By October 2012, Snapchat users were sharing 20 million images per day. By November 2013, two-year-old Snapchat had users sharing 350 million photos per day, and Spiegel reportedly turned down a $3 billion acquisition offer from Mark Zuckerberg and Facebook.
Snapchat was a rocketship, even if, or because, it was viewed as just a sexting app. This whole timeline is worth checking out, but suffice it to say, Snapchat grew spectacularly from its 2011 founding through its March 2, 2017 IPO. Its stock closed at $27.09 the next day, good for a $39 billion market cap. Turns out, though, that three years later, $27.09 is still SNAP’s all-time high.
Elevator Down to the Trough
I remember the SNAP IPO distinctly, because I remember all of our parents asking whether they should buy SNAP. We thought it was way overvalued for a photo messaging app, and it turns out, the market agreed. SNAP’s stock price tumbled 81% from its March 2017 high of $27.09 to an all time low of $4.99 on December 21, 2018. In September 2018, Recode cited four reasons for the fall:
Slowing Business Growth: Snap was slow to bring advertisers onto the platform, causing analysts to cut their revenue estimates by 50%.
Increased Competition: Instagram Stories copied Snapchat, and used Facebook’s distribution to eclipse Snapchat’s Daily Active Users (DAUs).
Losing Users. Snap redesigned its app in early 2018, pissing off important users. Kylie Jenner’s tweet about the redesign caused SNAP’s market cap to drop $1.3 billion in a day, and Snapchat lost 3 million DAUs in Q2 2018.
Executive Departures. Between the IPO and the Recode article, Snap lost its CFO, CSO, VP of Product, VP of Sales, VP of Engineering, and General Counsel. Those executives’ compensation was heavily based on the sagging stock price.
This is right around the time that Galloway called “The End of Snap” and that Thompson stopped writing quite so frequently about the company (I count 10 articles in 2017, 6 in 2018, 4 in 2019, and 0 in 2020). I’m guilty here too. I’ve written about all of Snap’s contemporaries, but I haven’t talked about Snap. I didn’t hear a lot about Snap and I wasn’t receiving snaps, so I kind of forgot about it. Even when I asked people who have opinions on every company for their opinions on Snap for this piece, I got a lot of, “I don’t knows” and “I haven’t thought much about Snap.”
What I missed, though, is that I didn’t hear about Snap as much as competitors like TikTok by design. TikTok is the greatest virality engine ever built; Snap doesn’t want to go viral. I just tried to Snap something and share it broadly, and I couldn’t figure out how to do it. So while us olds sleep on Snap from the outside, millions of younger best friends spend their entire lives communicating in there. We all underestimated Evan.
Hitting the Trough of Disillusionment is the make or break moment for a company. From down there, the journey up the Slope of Enlightenment is far from guaranteed. Most once-buzzy social companies don’t make it out the other side. RIP Yo, Yik Yak, and Whisper.
Galloway, and many others, predicted that Snap would go the way of Yo, Path, and Myspace. If it was lucky, maybe Disney or Amazon would buy it.
But here’s the thing: I think what defines whether a company makes it through the Trough of Disillusionment or not is whether there’s a Worldbuilder or a Shotcaller at the helm.
The companies that fail after the initial hype were Shotcallers: they only had one product in mind and they ran at it hard, backed by big venture dollars. The Yo guys really thought that sending “Yo” to each other was the future, communication in its simplest form. When that didn’t work, there was no backup plan.
Evan Spiegel didn’t even cross my mind when I was writing Two Ways to Predict the Future, but he really should have. Evan Spiegel is a Worldbuilder.
In Two Ways to Predict the Future, I wrote that Worldbuilders have three things in common:
They predict something non-obvious about the way the world is moving before others see it and before the market is ready for their ultimate vision.
For Spiegel, this was that the camera was going to be the way we all communicate and interact with the world.
They create a wedge into the market and leverage it into a much larger opportunity. The public often ridicules or dismisses the initial wedge product.
This one’s too easy. Everyone dismissed Snapchat as a sexting app.
They timestamp their vision, whether in public announcements or confidential documents.
This 2018 company-wide memo from Spiegel clearly lays out (parts of) the plan, and this tweet from former Snapchat employee Lucy Guo shows that Spiegel has been working on recently-announced Snap Minis for at least four years.
Worldbuilders are rare. Bezos, Musk, Carta’s Henry Ward. When you find one, you bet on them. I’m a little late to the party, but not too late. Snap is right at the beginning of the climb up the Slope of Enlightenment.
I’m now convinced that when its journey is complete, it will be one of the biggest, most important companies in history.
Just taking a quick breather to remind you to subscribe to Not Boring if you haven’t already!
So What is Snap Building?
If you’re a Worldbuilder, one of the advantages of being in the Trough of Disillusionment is that it gives you time out of the spotlight to build your world. Over the past year or so, as measured by Google Trends, Snap had less public interest than it has since early 2015.
Over the past two months, though, the new Snap emerged, with two big events driving renewed interest in the company:
Gangbuster Q1 earnings and user growth that sent shares up 37% in one day.
Thursday’s Partner Summit 2020, in Augmented Reality (AR), renewed excitement and convinced me that Snap is the leading contender to make AR real.
Last week, in Business is the New Sports, I wrote about the power of keynotes and product launches in rallying fans around a brand, using Steve Jobs and Elon Musk as the canonical examples. Evan Spiegel and Snap took the torch on Thursday.
Turner Novak, who has understood Snap better than anyone for a long time, wrote a thorough summary of the event, which you should check out, in addition to just watching.
Watching the Summit unfold, I felt like Charlie in It’s Always Sunny.
Before watching the Summit, I thought of Snap as a social media company, a competitor to Facebook, Instagram, Twitter, TikTok, and the rest. It’s not though. Snap isn’t just building a camera-first messaging app; it’s building the platform of the future. It’s building mirrorworld.
Welcome to Mirrorworld
In February 2019, Kevin Kelly wrote one of the most thought-provoking essays I’ve read: AR Will Spark the Next Big Technology Platform -- Call it Mirrorworld. In it, Kelly describes a digital world mapped 1:1 with the physical world, which we can interact with, experience, and manipulate just like the real world. Mirrorworld, according to Kelly, won’t take place in Virtual Reality (VR), but rather in Augmented Reality (AR). It will blend digital and physical, layering bits’ infinite possibilities on top of atoms’ realness.
Mirrorworld means being able to reproduce that Travis Scott Fortnite concert in a park instead of our basement, with real people, whenever we want, or looking at a restaurant from the street and being able to see the menu and pictures of the dishes. It means having a full suite of digital tools available to enhance our physical experience.
It also means a big business opportunity. The first platform of the digital age was the web. The second was social media. The third, according to Kelly, will be mirrorworld.
We are now at the dawn of the third platform, which will digitize the rest of the world. Whoever dominates this grand third platform will become among the wealthiest and most powerful people and companies in history, just as those who now dominate the first two platforms have. Also, like its predecessors, this new platform will unleash the prosperity of thousands more companies in its ecosystem, and a million new ideas—and problems—that weren’t possible before machines could read the world.
Kelly points to Microsoft (Hololens) and Magic Leap (uh oh) as the two leading contenders to build mirrorworld.
He doesn’t mention Snap once. But watch this video. What does it make you think of?
Watching that clip gave me chills. Qi Pan, the Snap Computer Vision Engineer narrating the video, says about Local Lenses:
Now, Snapchatters can join a persistent, shared AR world built right on top of the physical one. You and your friends can step into these worlds together, collaborating creatively and experiencing a whole new dimension of AR.
They’re building fucking mirrorworld!
Snap’s Ladder to Mirrorworld
When I said that Evan Spiegel was a Worldbuilder, I meant it literally. And when you think of Snap as the company that’s building mirrorworld, everything starts to *snap* into focus.
Back in March 2016, when Ben Thompson still wrote about Snapchat, he wrote Snapchat’s Ladder. In it, he compared Snapchat to Netflix, in that both were executing “ladder-up” strategies: a series of moves that build off of each other with the end goal in mind from the beginning. It’s like a Worldbuilder starting with an unassuming wedge and trading up en route to the ultimate goal.
For Snap, to Thompson, that means starting with Snaps, then building Stories, then Discover, then Feeds and Optionality. The ladder he described built up to “owning messaging in the United States.”
What Thompson didn’t grasp - nor could anyone outside the company - is that those three rungs were just the first three rungs on a ladder dozens of rungs high. At the top of the ladder, high above “owning messaging in the United States,” is mirrorworld, with Snap as the platform powering it all.
To climb the ladder, Snap is employing the Amazon “First and Best Customer” strategy. It builds products for its own app first - like Lenses, its first AR hit - and then opens up the tools to both its community to create within Snapchat, and third-party developers to incorporate Snapchat’s features into third-party apps.
Snap is building a wide-ranging set of products that build off of each other and work together to lead to a future in which Snap powers the mirrorworld. It’s big and complex, so let’s start small. Bitmoji gives a glimpse into Snap’s foresight.
Bitmoji - Those Are Those Stickers That Kinda Look Like Me, Right?
Snap acquired Bitstrips, the creators of Bitmoji, in March 2016. Thompson thought it was smart because Snap might be able to monetize Bitmoji by selling stickers to Snapchatters and selling companies the ability to create branded stickers. Snap’s plans were much bigger. Now, Bitmoji is a key part of Snapchat’s Chat, Snap Games, Snap Map, and Weather products.
Here’s how the “first and best customer” strategy works at Snap: first, they build for Snapchat, then they open up to 3rd party. Product, then platform. It’s a flywheel.
First, Snapchat made it really easy to send Bitmoji through the app, pulling new users into the product and retaining existing ones. The first time I used Snapchat was to create my Bitmoji. Now, through Bitmoji Kit, Bitmoji is available in 3rd-party Android and iOS keyboards, giving Snapchat reach into nearly every smart mobile device on the planet.
Similarly, Snap first used Bitmoji in Snap Games, and has now opened up Bitmoji to be used by 3rd party game developers, giving Snapchat a presence in games far beyond the ghost icon. This map shows Bitmoji’s reach within Snap and in 3rd party products.
Snap even built its recently announced Minis - little apps built right into its Chat - on top of its game infrastructure. It’s not difficult to imagine Minis one day being available in all of the keyboards where Bitmoji currently live.
Bitmoji is Snap’s friendly tentacle into a universe of 3rd party apps and a testing ground for mirrorworld. And that’s just Bitmoji. Until like three minutes ago, most of you thought they were just silly cartoons.
The Camera Company
Snap’s Camera is an even more powerful platform than Bitmoji, and the main one on top of which they’ll build the mirrorworld. The evolution of Snapchat’s Camera is deserving of an essay in itself, but if you strip away a lot of the complexity (and brilliance) it can be expressed as a ladder.
From humble beginnings as a camera that may or may not have been used primarily to send dick pics, Snap has built one of the most broadly distributed pieces of AR technology in the world. In some ways, mirrorworld is already here: over 135 million people create AR with Snap every day. And with the announcement of Camera Kit, which allows 3rd party developers to integrate Snap’s Camera into their apps - transitioning the Camera from a product to a platform - that number will rise.
Combined with the announcement of Local Lenses, soon millions of people in hundreds of apps will be able to digitally transform the physical neighborhoods in which they live and the way they appear in them.
Instead of Shotcalling - building out the full suite of hardware and software and pushing it onto users - Snap is building the platform on which Snap, its users, and partners will build the mirrorworld together.
And Snap Has the Right Users for a New Platform
Snap has a big, engaged base of users who are the right age to pioneer a new technology platform. It’s in the sweet spot - it has been around long enough to have a large user base, which is necessary to create enough adoption for a new platform, while its users are young enough (and geographically dense enough) to adopt a new spatial platform.
To that end, two stats from the Partner Summit blew my mind:
Because Snap is not designed for virality, it’s really difficult for an outsider to realize just how big it is with this key demographic. On a September 2019 Talks at GS podcast, Spiegel highlighted his user growth strategy: don’t worry too much about attracting older users, just keep its users engaged while they get older and continue to attract new young users. Despite the pressure on him to grow DAUs - which he could do by making the product friendlier to older and/or international users - Spiegel realized something magical that Matthew McConaughey’s character in Dazed and Confused summarized so succinctly (and creepily):
Boomers and even older Millennials won’t be the early adopters of a transformative new platform. Just as my Pop Pop wasn’t among the first people to adopt the internet, and my mom wasn’t one of the first people on social media, I won’t be one of the first people in mirrorworld. Snapchat owns the people who will be: young Americans.
Because its users are Gen Z and younger Millennials who appreciate Snap’s values, it can say and do the right things now and build long-term trust with them. Spiegel kicked off the Partner Summit with words of support for the protestors, and his team introduced four new docuseries featuring a black cowboy, the world’s most popular fighter, a transgender hair stylist, and two gay black friends. Facebook can’t do that.
Snap is on the right side of history, particularly in the eyes of its young demographic. Mirrorworld will be more intertwined with our lives than any previous platform; that level of trust is crucial.
Because there are so many pieces to the Snap puzzle, I feel like I’m still just scratching the surface. In addition to the suites around Bitmoji and Camera, Snap also boasts Minis, Snap Map, Local Business Listings, Voice Control, Snap Originals, Happening Now, Ad Kit, Story Kit, Creative Kit, and Login Kit, and I’m sure I’m missing some.
Snap might be the first American company to become a WeChat-style super app. Its mobile-first streaming business puts Quibi to shame and is approaching Netflix’s US viewership. 125 million people interacted with its news service last year. Through Snap Kit, it powers 20 of the top 100 apps in the iOS and Google Play Store. The Snap Map is a crucial lens into the heart of the protests, offering unfiltered and unbiased views on the ground.
And we didn’t even talk about any of those products in this piece.
Even if we can’t see it yet, these are not just standalone products. Snap has shown that its products connect in ways that are not obvious to outsiders. Who would have thought that personalized cartoons would serve as a Trojan Horse into games and mobile operating systems?
I started untangling and retangling all of the ways that Snap’s products could work together to power the AR platform of the future, and if I can get that map to a legible place, I’ll share it. Without seeing the full picture yet, though, I can already see something beautiful and powerful emerging.
By spinning a web of connected products, each building and feeding off of the others, Snap has built moats that will make it impervious to feature theft. When it all comes together, Snap will be one of the most important companies in the world.
Business is the new sports, and I’m jumping on the Snap bandwagon.
Thanks to Turner Novak, Tommy Gamba, Puja Bhatt, and Dan McCormick for your feedback!
I’m long SNAP through underlying equity and some long-dated calls, but not long enough that it would make sense for me to write anything I don’t believe in this essay.
This is not a short-term buy recommendation (and I’m not a financial advisor, it’s not a buy rec at all, don’t listen to me, make your own decisions, leave me alone SEC, etc...). I have no idea how Snap will perform in the next week, month, year, or decade. It could go to zero.
The Road to 5,000
I’ve been writing this newsletter for a little over a year. Three months ago, I decided to take it more seriously, rename it, and try to grow. I set a goal of 1,000 subscribers by the end of quarantine. We blew through it, so one month ago, when we were at 1,200 subscribers, I set a goal to grow our crew to 5,000 people by the end of summer. Today, there are 3,580 of us here! That is insane to me 🤯
In order to hit 5,000, I need all of your help. If you’re enjoying Not Boring - learning and laughing - I’d really appreciate it if you shared it with your smartest friend.
Thanks for reading,
I am so glad I stopped by and read this! I am one of those who probably dismissed SNAP as just another Gen Z social app which would be decimated by TikTok ...
Excellent points and analysis!
Really enjoyed reading this.
For some more background on the rise and fall (before the rise again!) of Snapchat, I wrote about them early on when they went public: https://medium.com/@ChrisHarveyEsq/snapchat-files-its-ipo-and-reveals-information-about-its-operations-48b0251c7830
One thing we both didn't touch on is also perhaps one of the most competitive moats that Snap has built into its DNA: Privacy.
Evan is a huge privacy proponent.
If you haven't read his USC commencement speech on this issue, I implore you to read it. It will be the banner that future generations will look to and think, "Wow, this guy was way ahead of his time."
I'll leave the story out but the first passage struck a cord in me:
"It reminded me that oftentimes we do all sorts of silly things to avoid appearing different. Conforming happens so naturally that we can forget how powerful it is – we want to be accepted by our peers – we want to be a part of the group. It’s in our biology. But the things that make us human are those times we listen to the whispers of our soul and allow ourselves to be pulled in another direction. Conformity is so fascinating and so pervasive that it has been studied for a very long time. It turns out there are two things that can dramatically reduce conformity in a group setting.
• The first is a single dissenting voice.
• The second is the ability to communicate privately with other members of the group.
Our government gives us the right to privacy and the right to express ourselves freely in the hope that we might mitigate conformity. Democracy wasn’t designed to promote popular thought. It was architected to protect dissent. For, as President Kennedy said, 'Conformity is the jailer of freedom and the enemy of growth.'
...Voice your dissent."