Snapchat’s epic strategy flip-flop

It takes courage to say you were wrong about almost everything. But that’s what Snap Inc. CEO Evan Spiegel did this week, and that’s what it will take to save Snapchat.

From algorithmic feeds to partnerships to target markets to recruiting adults, Snap is planning a 180-degree turn across the board.

Headwinds and face wins

It’s warranted. The Q3 earnings report was a blood bath, with Snap’s share price down 18 percent. User growth slowed to a 2.9 percent crawl. Revenue fell $30 million short. $40 million of Spectacles sit unsold. The company lost another $443 million. And the head of engineering just bailed.

On the outside, Snapchat Stories clones WhatsApp Status and Instagram Stories now have 300 million daily users each. Snap’s whole app has just 178 million. Instagram now has its own augmented reality face filters. Facebook is pushing its own Stories feature hard. Facebook Messenger has become ubiquitous with 1.3 billion users. And Facebook is willing to buy any startup that gives it an edge with teens, like its new acquisition tbh.

Netflix and YouTube keep getting better at original premium video. Creators and influencers want money, not just audience, so they’re turning to Patreon. More details keep emerging about Apple’s AR glasses that could trounce ones Snap makes. And Snap’s sagging share price makes it harder to convince startups to sell to it.

“Keep on keeping on” is no longer a viable strategy for Snap, and Spiegel knows it. After reinventing messaging and social media with ephemerality, now he has to reinvent Snapchat. The product. The user base. The philosophy.

Here are the big flip-flops Snapchat is planning.

Influencers

Before: Snapchat spent years shunning social media influencers despite huge interest from these creators. A week after Snapchat Stories launched in 2013 I wrote “Who’s going to be the first Snapchat Stories Celebrity?” But the company denied influencers like Mplatco official ways to monetize, provided weak analytics on viewers, ignored their requests, refused help with account lock-outs and only started verifying their accounts like real celebrities in August. Many Snapchatters eventually left for YouTube and Patreon where they could earn money directly.

“Snapchat is a close friends network, making ads more influential and interactions more meaningful,” the company wrote on its For Business blog. “Personal, one-to-one Snaps sent directly to friends are what make Snapchat a close friend network — not a broadcast network for reaching the largest number of people,” it explains.

Now: Spiegel announced on the Q3 earnings call that shunning creators was a mistake, and it needs them to keep viewers coming back. “We have historically neglected the creator community on Snapchat . . . In 2018, we are going to build more distribution and monetization opportunities for these creators . . . Developing this ecosystem will allow artists to transition more easily from communicating with friends to creating Stories for a broader audience, monetizing their Stories, and potentially using our professional tools to create premium content.” The question is if it’s too late to lure creators back to an app with sluggish user growth.

The developing world/android

Before: Snap relies on high-bandwidth video that doesn’t load as well in the developing world, where ads also command lower rates. But rather than embrace the engineering challenge of improving load times, shift the product to focus on photos in these regions or commit to building ad value and prices, Snap largely abandoned the Rest of World market. That ignores the network effect Snapchat needs to survive, and cedes the developing world to Instagram where its feed is already popular.

In its February IPO filing, Snap wrote: “We expect growth to continue to come from developed markets with readily available high-speed cellular internet and high-end mobile devices,” and on the Q1 call Spiegel said: “Historically we’ve really focused our efforts on markets where both of those are available.”

Snap’s average revenue per user increased just one cent from $0.29 to $0.30 in the Rest of World this quarter. Though the company disputes the claim, Snapchat is being sued by a former employee who stirred controversy by accusing Spiegel of saying “This app is only for rich people. I don’t want to expand into poor countries like India and Spain.”

Snap also admitted in its IPO filing that “although our products work with Android mobile devices, we have prioritized development of our products to operate with iOS” because that’s where its early users were. But by Q1 Spiegel was saying “Overall, especially in the last half of last year, we had a really tough time with Android,” blaming sign-up flow bugs for slowed user growth.

Now: Snap finally acknowledges that it needs to enhance its network effect and lay a foundation for the future by winning users everywhere on every device despite the challenges. It’s also starting to play videos before they’re fully loaded and may seek zero-rating deals for free data use on certain networks.

On the Q3 call Spiegel said: “In order to further scale our user base, we need to accelerate the adoption of our product among Android users . . . and users in the Rest of World markets. We are taking action both internally and externally to improve connectivity for our community. Internally, we are focused on product improvements like our new streaming architecture for Story playback . . . Externally, we are exploring partnerships with select wireless carriers who can help us to provide our service at a lower cost to our community.” And “to attract more Android users, we are building a new version of our Android application from the ground up.” But many of these users have already been burned by poor Snapchat app performance.

Adults

Before: Snapchat has viewed itself as a cool app for teens that could be turned off if adults signed up, even though this excludes a massive potential audience. It proudly didn’t label its buttons, leading confused adults to abandon the app after install.

On the Q1 earnings call, Spiegel said: “We do tend to market our products directly to younger people because, frankly, they are more interested in learning how to use new technology products. And that’s sort of — is partly inspired by trying to teach my grandma how to use email; and she’d really prefer to just talk on the phone . . . And so I think, over time, that strategy has worked for us.”

Now: Snapchat seems to have suddenly woken up to the fact that its plummeting daily active user growth per quarter (once over 17 percent before Instagram Stories launched, now a weak 2.9 percent) is exacerbated by it avoiding adults. On the Q3 earnings call, Spiegel said: “In order to further scale our user base, we need to accelerate the adoption of our product among . . . users above the age of 34. This means that we will have to make some changes to our product and business.” Gracefully, coordinating this shift without scaring off loyalists will be a huge challenge.

Usability

Before: Snap actually thought having a confusing interface was a value-add because it made it viral amongst school kids who’d show each other the tricks to using the app. Adults in particular had a hard time understanding the app, leaving them vulnerable to competitor Instagram that built a more obvious Stories interface and that already had an easy-to-use feed that’s popular with adults.

In the IPO filing, Snap wrote: “Even when we have the right solution, it’s often in the form of a new product that might take a while for our community to learn how to use. Just because products are sometimes confusing when they’re new doesn’t mean we are going to stop building innovative products for our community. . . These new behaviors . . . are not always intuitive to users . . to date, this has not hindered our user growth or engagement, but that may be the result of a large portion of our user base being in a younger demographic and more willing to invest the time to learn to use our products most effectively.”

Now: With Snap desperate for growth, it’s going to risk alienating existing users with a massive design overhaul. Rather than gradually simplifying the interface over the years, the usability problem now requires drastic action, which is both commendably bold but also more dangerous. This is why Facebook avoids backlash by only changing design elements slowly and steadily.

On the Q3 call, Spiegel said: “One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use. There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”

Algorithmic feed

Before: Snapchat at first succeeded by being the opposite of Facebook, with content that disappeared instead of lasting forever. But a source close to Snap Inc. tells me Spiegel’s anti-Facebook orthodoxy kept him from embracing a News Feed-style algorithmically relevance-sorted feed, even as Instagram and Twitter saw engagement improve after adopting this curational method. Instagram Stories shows the people you’re most likely to watch first, and that’s led it to 300 million daily active users — dwarfing the 178 million of the app it cloned.

Snapchat has always ranked its Stories list purely by which of your friends posted most recently. That’s useful if you want to read the pulse of where friends are right now. But as people’s Snapchat social graphs grow, this sorting buries your best friends and favorite content creators in favor of constant oversharers. Plus Snap now has Snap Map for real-time location. I wrote a piece in April about how “Snapchat is stifled by its un-algorithmic feed,” advocating for at least adding a relevancy sorted tab or a section of your favorite people to watch at the top.

Now: Snap has realized that sorting its content to show the most engaging stuff first is its best chance to revive user growth.

On the Q3 call, Spiegel announced a personalization effort, saying: “We are going to make it easier to discover the vast quantity of content on our platform that goes undiscovered or unseen every day. We are developing a new solution that provides each of our 178 million Daily Active Users with their own Stories experience, leveraging the tremendous benefits of machine learning without compromising the editorial integrity of the Stories platform that we have worked so hard to build . . . We hope that showing the right Stories to the right audience will help grow engagement and monetization for our partners and for Snapchat.”

According to a source speaking to Business Insider, Snapchat is planning to launch this new design around December 4th that puts all messages and Stories from friends to the left of the camera, and all celebrity, publisher, search and Snap Map content to the right. “Snap will use algorithms to personalize the ‘endless’ feed of videos to the right of the camera,” Alex Heath writes. The question is whether Snap will also algorithmically sort Stories from friends, which could go a long way to making the app more enjoyable for new users.

Philosophy

Before: Spiegel’s strategy has always been to go with his instincts over data, and try to surprise people rather than foreshadowing Snap’s movements or publicly beta testing products, sources close to Snap have told me in the past. While Facebook rigorously A/B tests features on segments of its user base and implements what boosts engagement, Spiegel has preferred to trust his gut. That’s what led to ephemeral messaging and Stories, after all. But as Snap scales, that strategy is wearing thin.

Spiegel initially refused to accept there was a user growth problem caused by Instagram’s competition despite the evidence, sources told The Information. He eliminated the Auto-Advance feature that made watching Stories easier without any data showing that would help growth. “While not all of our investments will pay off in the long run, we are willing to take risks in an attempt to create the best and most differentiated products on the market,” Snap wrote in the IPO filing. And on the Q1 call, Spiegel confidently joked that “We’re kind of famous for not giving guidance on the product pipeline.”

Now: Spiegel spent most of the Q3 call giving guidance on the product pipeline, as noted throughout this article. “2018 promises to be a productive and exciting year for Snap, with many changes coming to our products and platform,” he explained.

To pull off such a broad flip-flop of strategy, Spiegel will have to learn to trust the data alongside his instincts, test products widely to avoid a disastrous misstep with the redesign and communicate with the world to boost confidence while Snap’s share price sags. As early shareholders sell, Spiegel is slated to gain sole control of the company, and that leaves investors to only be able to vote with their wallets. They have to believe in Spiegel’s newly plotted course. And navigating it will take as much a reimagining of the company’s philosophy as its app.

[Featured Image Credit: Contently via TechCrunch]