According an article on CNBC, ad experts do not think Snapchat poses a threat to Facebook anytime soon. Facebook must disagree with these experts because it tried to copy Snapchat’s stories feature with Instagram and Messenger adopting it. I think Snapchat’s growth is sustainable over the long term because it is centered upon creating content instead of viewing content. When you open the Snapchat app, it has the capturing task open instead of the stories tab. The lenses make creating content fun. The 24-hour length of stories makes posting less strenuous.
Facebook has been having problems with original posts declining as posting hasn’t changed much in the past few years. Sure, the live video feature was added, but it’s not necessary to see an up to the second video of your close friends and family. There isn’t a benefit in sharing life moments live for most people. Everyone being on Facebook (especially family) makes posting controversial, interesting status updates more of a burden. Original post declines are a leading indicator to people spending less time on the website because if the information can be gotten elsewhere, then the websites with that original information will take traffic from Facebook.
Twitter has a user growth problem because people don’t see the point of creating an account in order to post. Clearly the tweets on Twitter are valuable as Trump’s tweets led him to win the election. They are seen worldwide as they are reported on by news outlets. Twitter is a valuable product to celebrities who want to get their message out, but isn’t necessary for an everyday person. Twitter has much more difficult monetizing logged out users because it can’t customize ads to fit the users’ preferences which generates higher engagement. The big risk to Twitter is if celebrities stop using the service because they’re afraid the megaphone that is Twitter, isn’t as effective with the lower engagement and almost non-existent user growth.
Snapchat is reliant on its own innovation more than Facebook and Twitter are which can be a good or bad thing depending on how you look at it. When users go on Snapchat they check out the new lenses and features. This means Snapchat has to come up with new ways to draw people to the app. Twitter and Facebook are more reliant on the content created on their apps. This means they require less innovation, but it also means it’s tough to re-accelerate traffic. For example, Twitter considered its Moments product to be one of its biggest launches in history. It had the goal of increasing user growth and usage growth, but it didn’t have much of an effect. What did have a positive effect on Facebook and Twitter was the election because more must-see content was created.
I do worry that Snapchat’s usage can be faddish, but considering the messaging feature is built-in, I think this gives it more staying power. Facebook separating Messenger away from the app is universally considered to be a great move because Messenger’s number of users has risen. However, I think of it differently. Messenger is a feature which brings people onto Facebook. Messenger is the loss-leader which brings people onto Facebook which is where the company makes most of its money. Users can now delete Facebook and keep Messenger which allows them to keep the loss leader without using the profit center. If Facebook is able to monetize Messenger at a higher rate than Facebook, I will be proven wrong, but as of now, there hasn’t been much movement. Right now there is not a trend of users deleting Facebook and keeping Messenger, but this separation could be contributing to the decline in original posts. There’s also been a decline in page views among desktop and mobile from 29.36 billion in July to 25.51 billion in November. This is a 13.1% decline over 4 months.
In the CNBC article, the current e-marketer projections were cited to show Snapchat doesn’t pose a threat to Facebook. These projections suffer from recency bias. The social media landscape is fast-changing, so looking at past results and projecting them forward doesn’t work. Most young teens do not like Facebook, so it’s popularity can wane quicker than analysts expect.
An interesting perspective was given by Birch Box who has used Snapchat, Instagram, and Facebook to drive sales. Birch Box used a vanity URL to test the metrics Snapchat brings compared Facebook. The Snapchat post brought more organic traffic than Facebook posts. Facebook has many metrics, but those metrics have been proven to be inflated. Snapchat doesn’t have metrics, but it did better than Facebook in this case. As advertisers become aware of this potential discrepancy, they will switch from Facebook to Snapchat.
The Snapchat campaign for Birch Box’s skin care line also did better than on Instagram stories. This is because Snapchat is an app where users actively seek out content opposed to passively seeing it on a stream on Instragram. Users actively screenshotted the Snapchat ad and looked it up. This active engagement wasn’t seen on Instagram. Instagram is more palatable to most brands because the app links out to e-commerce websites. As soon a Snapchat creates this feature, brands will switch. The numbers Snapchat has in chart above are meaningless because Snapchat hasn’t even gotten started with its plans, with this potential feature being one example.
One point I need to mention is I do not think Snapchat stock will be a buy even though I am bullish on its business prospects. The valuation is too rich. It’s pricing in all this growth already. As you can see from the chart below, the 26 times forward revenue for its potential IPO would be double what Twitter did its IPO at. The stock will likely rise even further initially in the aftermarket, so I don’t see any potential profits left for me.
Conclusion
Birch Box is a case study for the potential shift in ad dollars away from Facebook and towards Snapchat. Snapchat has young users which important because the companies most likely to use digital advertising are technology related. These tend to be geared more towards having younger clients. Eventually other firms such as consumer products ones will have their budgets allocated more towards digital advertising. However, I think digital firms will always gear more towards this format because they can more easily drive direct sales. For example, an Instagram ad can lead you to download an app, but it can’t make you directly buy a can of Coke or a box of tissues. Amazon may change this soon, but as of now vending machines and physical stores are where these grocery items are purchased.
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