Snapchat and AR
Snapchat has truly revolutionized the social media game. The ephemeral message and story has quickly become the latest fad in the space and Snapchat and has been leading product and feature innovation since its inception.
The users have been responding. Snapchat has seen tremendous organic growth since the beginning – by the end of 2011 (the same year as it launched), the company saw 1,000 daily active users (DAUs). Without significant marketing or sales, the app then grew to 100x that in early 2012; by October of that year, it had hit 1M users1. To put this in perspective, it only raised a seed round of $485,000 by May of 2012. Series A didn’t come until the following February13
The users kept coming because Snapchat continually had the best and most interesting products out there. They seemed to really understand what their users wanted and how to keep them coming back. This was obvious in its ridiculously high engagement numbers – Snap’s 158M DAU’s visit the site 18 times a day, for an aggregate 25-30 minutes on average3.
One of Snap’s most successful innovations is its deep integration of AR. It’s become a pathbreaker the space by making AR accessible, free, and fun for its users. No one had done that till now. Augmented Reality has served the company in both value capture and creation:
Value Creation: perhaps the most notable and popular feature on Snapchat, AR lenses pioneered a use case for augmented reality by allowing users to apply virtual reality masks / embellishment on their faces in the camera as well as on their surroundings. Snapchat routinely updates lenses – this drives users back to the app to try them out and share on their stories / with their friends.
Value Capture: Though ostensibly a feature simply for fun, Snap quickly was able to monetize this as well. Though the company attempted a lens “store” in order to sell the actual lens, they quickly discontinued it wasn’t very positively received4. Instead, lenses were sold as promotional tools for brands or launches (i.e., a sponsored Transformers lens was offered to users before the launch of the movie). The lenses are carefully crafted to fit within the user aesthetic and not detract from the general Snapchat experience4. Sponsored lenses are now an integral part of Snapchat’s advertising portfolio.
With their recent foray into stories, it’s clear that larger competitors like Facebook and Instagram are trying to encroach on Snapchat’s value proposition. New competition makes it even more important for Snap to continue its strong track record on innovation so that it can continue to preempt the competition.
Snap AR can be more than fun – it can be made to be functional too. Since Snap has previously expressed interest in commerce (it’s collaborations with Square Cash for example), retail could be a compelling way to take Snap to the next level. I could see Snap integrating with retailers (based on a geo-fence) and enabling the shopping experience. For example, shoppers in a store could hold up an items or its tag to the Snap screen and the retailer can merchandise similar or matching items. These items could then be virtually tried on (perhaps via Bitmoji, a Snapchat property) and users could flip through variations or styles of a particular item. I could see AR being integrated at stores like Sephora, where users can scan an item and see how a particular shade of makeup would look directly on their face. Thinks about trying new hairstyles out a salon. The geo-fence around a salon can be rented out like a lease or else charged ona consumption basis. This could go further into true commerce and experiment with AR-based couponing or else promotions.
Ultimately, the possibilities are endless with AR. However, it’s clear that the walls are closing in from a competitive perspective so it’s essential that Snapchat build processes and structures that enable it to continue innovating ahead of the curve.
Sources
- Nusca, Andrew. “Snapchat: An Abridged History.” Fortune, 05 Feb. 2017. Web.
- Snap, Inc . Crunchbase, Web
- Fitzgerald , Brian. “Snapchat: A Modern Day Imitation Game?” 28 Mar. 2017.Jefferies LLC
- Terry, Heath. “Snap Inc. (SNAP) Buy: Venture stage investing in premium creative platform; Initiate Buy.” 27 Mar. 2017. Goldman Sachs
Very interesting post! The user growth and engagement numbers for snapchat are pretty incredible, but i wonder if snapchat will continue to sustain such an engagement advantage as instagram / facebook continue copying key snapchat features. Particularly given the reach provided by WhatsApp (if the company uses it), facebook seems better positioned to win in the long-run even if it is an innovation follower. It will be interesting to see if snap is able to transition from serving as mostly a communication / leisure platform to delivering additional utility in the commerce space, and how the revenue structure for that model develops.
I agree that it seems like Instagram is well-positioned to win over the long-run. I also remember reading an article about how advertisers were having difficulty understanding the many different ways of advertising with Snapchat—it’s a less familiar medium for them, and oftentimes they don’t know how the pricing works for Snap filters, geotags, stories, etc. If advertisers are already having trouble with the available features, I think any potential incremental e-commerce options would be even more challenging to navigate. Instagram / Facebook seem to have been better able to communicate and partner with advertisers. I think it will be really interesting to see if Snap makes a bigger push into AR / VR content.
Interesting post, Meghana, thanks for sharing! I am curious what capabilities both SnapChat and retail advertisers/brands would need in order to scale the lens phenomenon. What types of talent does SnapChat need to hire, and how big is that investment? And on the flip side, how do brands measure the ROI of the investment? I think this is a fascinating way to engage with younger Gen Z consumers who may be more immune to advertising, but there is also a fine line between creating a fun feature and annoying your customer base with too many promotional features.