Presumably, you had once heard or is still using Snapchat. Just in case, you have been seriously out of the loop lately, chances are you have heard about the Snapchat IPO. After a slight uptick in the first few days of trading, the share price came tumbling down and erased most gains. It seems as though investors have become convinced that the company is highly overvalued. However, based on current trends and competition, Snapchat’s troubles have only begun.
Snapchat’s daily active user growth has declined rapidly over the past few quarters. Instagram (a company owned by Facebook) appears to be playing a major role in Snapchat’s downward trend in recent months due to the launch of Instagram stories in 2016. A quick analysis shows that Snapchat’s daily active user growth slowed by as much as 82% after the arrival of Instagram stories. Within just a few months after first launching, Instagram stories had amassed 150 million daily users. To put that number in perspective, Snapchat only reached that level towards the tail-end of 2016 (years after first launching).
Of course, the slowdown cannot be solely attributed to Instagram. A host of other competitors have also started to challenge Snapchat’s dominance in the social networking arena. Viber (boasting over 800 million registered users) recently launched disappearing secret messages and photos into their app. In addition, Snow (a Korean startup that is essentially a Snapchat copycat) has seen newfound growth as well. In 2016 alone, Snow reported downloads exceeding 80 million. The app seems to be performing quite well in a number of Asian markets, especially China where Snapchat is currently banned. It seems as though, tech companies have become convinced that Snapchat largely derives its value from its story functionality and has aimed to mimic this very concept. Recently, Snow received a significant investment from the Line Corporation (a Japanese messaging giant that went public on the NYSE in 2016). This investment coupled with rapid growth in nations with little to no competition is sure to prove to be at least a hindrance to Snapchat’s future international expansion efforts.
Facebook has quite blatantly increased efforts to directly challenge Snapchat after launching Facebook stories on both the Facebook app and its messenger counterpart. It is interesting to note that the Facebook story functionality appears to be nearly an exact replica of Snapchat. Facebook has not just added the coveted filters that many argue create an enjoyable story experience, but the messenger app now includes the option to add a picture to “Your Day” as soon as an image is sent over the application. Messenger currently has more than 1 billion users and Facebook as a whole has more than 1.86 billion monthly active users. One can quickly see why Snapchat may have a major problem on its hands going forward. If even a small minority of Facebook users begin to actively adopt the new story function, that is enough to surpass Snapchat’s overall userbase.
Judging from current trends, adoption rates for Facebook stories have not been overwhelming in any sense. However, it is also easy to remember that many were averse to the Facebook news feed after it had first launched, but the update was accepted and users adjusted to the new platform relatively soon. It is not unlikely that Facebook stories will one day overtake Snapchat as the dominant player in the photo messaging arena. However, with the concerted efforts of its Instagram and messenger platforms, Facebook may have already achieved that feat to an extent.
Final thoughts
Ultimately, there remain three avenues for Snapchat going forward. Either Snapchat can become another Friendster or MySpace, in which the social media app simply becomes defunct due to a rapid loss of users. The second option for Snapchat is to become another Twitter. This would indicate that Snapchat would retain a core group of loyal users (i.e. young adults in the US) while maintaining very gradual growth, but the company would remain largely unprofitable from a monetary perspective. The third and final route is for Snapchat to truly re-invent itself. It has become clear that Snapchat cannot continue to rely upon solely stories if it wishes to continue its past rapid growth trend. There are many ways Snapchat can go about this process: diversification of the business platform, attracting non-millenial groups, etc. However, one aspect is certain: The company must change core business processes in order to reach profitability while in addition continuing to add updates that attract large cohorts of new users.
Only time will tell whether Snapchat is able to recover or if it will be yet another app that was once popular.
