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AR continues to be a north star at Snap. True to its camera company ethos, AR is central to its product, user engagement, and revenue. Those three things are tightly linked as Snapchat lenses drive deep user engagement, which is then monetized by brand sponsorship.
But all is not completely rosy at Snap, just like other ad-supported tech giants. Snap, Google, and Meta all missed Q3 earnings over the past week. So Snapchat’s true test is to course correct through this period in which revenue growth has slowed and its stock price has fallen significantly.
But Snap is keeping its eye on the prize and even doubling down on AR as it restructures in the current environment. CEO Evan Spiegel has repeated over the past weeks and months, including last week’s earnings call, that it’s focused on AR as the future of Snap’s business.
This was a message, along with several other insights and soundbites, at the WSJ TechLive conference this week. Spiegel sat down with WSJ’s Joanna Stern to break down Snap’s current thinking and directions – the subject of this week’s XR Talks (video & takeaways below).
Inherently Monetizable
AR’s role at Snap is foundational but it’s also just the latest evolution in the company’s lifecycle. Spiegel explains that Snapchat started by making the smartphone camera into a communication medium. It elevated texting with visual-centric messaging (the “chat” in Snapchat).
Since then, the camera has evolved – partly a function of the arms race between mobile giants who see the camera as their biggest competitive differentiator. Along the path of that hardware evolution (and ample software evolution), AR found fertile soil on the smartphone.
That was amplified with Snapchat, given its central focus (excuse the pun) on the camera. Spiegel explains that Snapchat is the only social app that right to the camera, as opposed to a feed of other people’s posts and photos. It’s all about launching communications through photos.
AR has aligned well with that mission because it simply elevates photos and video. And that started by adding some levity and whimsy to communications between friends using filters such as dog ears and rainbow vomit. But over time, and continuing today, that’s evolving into AR utilities.
“Toys are a prelude to big business,” said Spiegel from the TechLive stage. Indeed, utilities are stickier and have higher frequency. For example, Snap has leaned into AR shopping, such as product try-ons. This broadens AR’s use cases, and does so in inherently monetizable ways.
Headwinds
Back to the elephant in the room, how does all that translate to Snap’s recent revenue and valuation declines? Much of it is due to macro-factors and headwinds, such as an economic downturn when ad budgets are generally slashed. Apple’s ATT measures also have a big impact.
There’s also TikTok, which has siphoned usage and ad dollars from other social players, essentially fragmenting those already-shrinking ad budgets noted above. Beyond TikTok’s overall threat as a new player and competitor for ad spend, it’s now also elevating its AR efforts.
But Spiegel remains optimistic about all the above (or is at least skilled in diplomacy). On TikTok, he says that Snap has learned from its algorithmic feed in boosting user engagement with personalized content. It has applied those learnings to its Discover and Spotlight features.
As for the macro environment, Snap is reorganizing itself around performance-based advertising (as opposed to branding ads), which tends to be more resilient in economic downturns. And it’s working on ways to boost revenue per user (ARPU), which is relatively low among social apps.
Finally, regarding Apple’s app tracking reform, Spiegel admits this is a sizeable shift but one that will be resolved (again, diplomacy). He notes that Apple is incentivized to keep developers on its platform so it’s working on ways to support ad monetization in privacy-compliant ways.
The M-Word
Finally, Spiegel’s feelings about the metaverse as a buzzword and a concept are no secret. He’s mostly shunned the term and advised his employees to do the same in public comments. He believes it’s too nebulous and undefined, thereby distracting from Snap’s AR-focused mission.
He explains from the TechLive stage that he sees the metaverse as “living inside your computer,” which he’s not interested in. A better use for immersive technology is to enhance the physical world through AR (which some define as a flavor of the metaverse, a la metavearth).
Further, the goal is for the technology to not be a point of friction, as VR currently is. AR still raises some friction in its mobile and head-worn form factors, but the goal is to work towards AR glasses that make the technology disappear and the computing elegantly blended with your world.
Spiegel is first to admit that it will be several years before that vision arrives. But the good news for Snap is, unlike most companies producing consumer AR software, it’s generating real revenue today. That revenue has slowed lately, but Spiegel appears to be in it for the long haul.
We’ll pause there and cue the full video below…
Header Image Credit: the Wall Street Journal
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