Does Snapchat Have A Place In The Crowded Digital Video Space?

Does Snapchat Have A Place In The Crowded Digital Video Space?

A finger is posed next to the Snapchat app logo on an iPad. Fotografia de: Photo by Carl Court/Getty Images, August 3, 2016, London

There’s a lot of hype around Snap Inc., parent company of Snapchat, and its upcoming IPO. The company has valued itself at $25 billion and reportedly plans to sell $3 billion of non-voting shares. Snapchat’s biggest draw is that it appeals to a young generation that craves immediacy and novelty. Users can easily send photos or videos that ostensibly disappear not long after the recipient views them. Snapchat’s 158 million active users, many of them under 25, send more than 2.5 billion snaps per day.

But in the long run, as with all social media companies, Snap will have to evolve to remain relevant. The largest social media sites – Facebook, Twitter – all have their eye on a strategy that involves video content. Can Snap become a major player in this game, with a sustainable competitive position? Possibly, given Snapchat’s unique user experience and captive, young user base. But it will have to fight hard to establish its position in an increasingly crowded digital video marketplace.

Snapchat’s differentiators

I think Snapchat has a shot because of its unique tools for user-generated video. Snap recognizes that its users crave novelty. In addition to its photo and video decorating tools like emojis, bitmojis (personalized emojis), and stickers, it cleverly created the following revenue-generating tools to embellish snaps:

  • Sponsored Lenses: Allows users to add graphics and animation to their photos. According to Adweek, after Taco Bell created a sponsored lens for Cinco de Mayo that let users turn their head into a taco, the lens received 224 million views in one day. The Financial Times estimated that the advertiser cost for Sponsored Lenses ranges from $450,000 or more on a “nonpeak day” to $750,000 for a tie-in to a holiday or event.
  • Geofilters: Tag a city or event, like San Francisco, with special graphics.
  • Spectacles: The wearer can capture and share circular video that mirrors the experience of the eyeball. Through Spectacles, users can share video directly with their networks more quickly than recording and sharing video.
  • Discover: Special editions for mobile video of TV shows such as The Bachelor and The Voice, and other content.

Another advantage for Snapchat is that its experience is more like how we watch TV, compared to other social media sites. As the Wall Street Journal recently noted, “Once your network is sufficiently big, viewing stories can feel like the ‘lean back‘ experience of watching television, as opposed to the ‘lean forward’ experience of engaging on social media… It’s reality TV, starring people you know.”

Emerging competition

Last year, Facebook struck multi-million dollar deals with media companies and celebrities to stream video on Facebook Live. And last week, Mark Zuckerberg doubled down on its video strategy: “The goal that we have for the product experience is to make it so that when people want to watch videos or want to keep up to date with what’s going on with their favorite show, or what’s going on with a public figure that they want to follow, that they can come to Facebook and go to a place knowing that that’s going to show them all the content that they’re interested in. That’s a pretty different intent than why people come to Facebook today.”

Despite an early foray that ended poorly with Vine, Twitter is also branching into video. In December, Twitter allowed users to stream live video without using Periscope. In a high-profile move, Twitter partnered with PBS to livestream President Trump’s January inauguration. YouTube is also investing heavily in its live streaming product YouTube Live.

Given this direct competition, Snapchat will have to overcome three challenges to succeed:

  • Their video editing tools can be copied, as Facebook and Instagram are doing with Stories. It may be why its growth has slowed down lately, and why some question its $25 billion valuation.
  • With 150 million users, Snapchat is significantly smaller than some of the bigger players. Facebook is getting close to 2 billion and YouTube claims over a billion users. Critical mass is particularly critical for a network business to survive in the long run, so Snapchat needs to consolidate its market share position in the video space. Otherwise, it could die a slow death like Vine, or get cheaply acquired in the process (my teenage nephews say no way that’s going to happen).
  • Their strategy may have to shift to include user-generated video longer than 10 seconds, because ultimately, some of its users’ attention is shared with others like YouTube, which also thrives on (minutes-long) short-form, user-generated content. However, the company could alienate its young user base and its unique platform for advertisers: currently the ads are very brief in stories, so several can be inserted into stories without being distracting.

Ultimately, Snap’s success may hinge on being different than Facebook, Twitter, or Instagram. In the IPO statements, Snap actually bills itself as a “camera company.” And in an environment where real-time rules, that may be a defining difference.

Dr. Granados is an Information Systems professor at Pepperdine Graziadio Business School. He researches digital trends in travel, media, and entertainment. Follow him on Twitter, Forbes.

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