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Snap today announced the formation of a new company, Specs Inc. Resting under the ownership of Snap Inc., the subsidiary will focus on the creation, evolution, and advancement of headworn AR products, starting with this year’s highly anticipated consumer Spectacles.
Before getting into strategic implications and analysis, what are the deal points? Specs Inc. will be a subsidiary that’s operationally distinct from, but wholly owned by, Snap Inc. The “wholly-owned” part could change as Snap has specified the potential for minority outside investment.
In fact, that’s sort of the point. The new Specs Inc. can have targeted pitch to private market investors about funding the faceworn future of computing. That’s a different message than the business drivers for Snap Inc. So it’s about delineating the messaging, among other things
Altogether, the environment Snap creates for Specs Inc. makes it more like a startup. As such, it can maintain focus on its hardware-centric mission, as well as develop its own culture of innovation, funding cycles, and financials. The latter means a separate balance sheet and P&L.
Long Game
All of those dynamics lead to another key point: valuation. Specs Inc. will be valued separately, which is probably a smart move so that Snap Inc. can develop a more focused narrative for Wall Street. As seen with Meta, large-scale emerging-tech investment can spark investor unease.
So the key word is every sense, and for both entities, is focus. That includes focused financials, mission statements, and operations. For the latter, Specs can move forward with a dedicated mission that isn’t steered by Snap’s broader priorities, including the rigors of quarterly earnings.
So in some ways, this move does Spectacles a favor by taking them private and sparing them of the burden of public market scrutiny. A glimpse of that burden can be seen in Meta’s Wall-Street-appeasing moves to strip resources from Reality Labs over the past month.
To be fair, public market investors aren’t without scrutiny. But the key difference is that they tend to have a longer-term investment horizon – or at least longer than Wall Street’s quarterly cycle. That’s where you tend to see more patience from investors who are in it for the long game.
But one operational question is the degree to which Snap’s mobile AR work stays with the mother ship. Presumably, it’s all or most, as mobile AR is a revenue center for Snap. If so, the question is how to do that while maintaining cross-pollination and product synergies with Spectacles.
Future Bets
This move also follows historical best practices in focused spin-offs and re-capitalizations for other tech players. At the top of that list is Google’s formation of Alphabet to delineate its core search business from its future bets. Specs inc. is similar, broadly at least, in the “future bets” part.
In fact, it makes one wonder if spinning out Reality Labs is strategic for Meta. The answer is likely no, as different dynamics are in play. For one, Reality Labs is likely better off under Mark Zuckerberg’s dominant controlling interest in Meta… which has protected the division so far.
Back to Snap, several questions remain as today’s announcement, didn’t provide much more detail. But more granularity – such as near-term capitalization, incorporation timeline, and product road maps – will be revealed in time. We’ll report back as soon as we hear more.
Meanwhile, one key detail provided to us by Snap propels Specs Inc. on a high note: the company is hiring. Totalling about 100 open roles globally, its timing as right as there are thousands of recent Meta Reality Labs pros that represent an immediately-available and AR-adept talent pool.