Key points:

• Snap’s cool image has helped it grow, but this could also be a risk. If Snap is unable to remain innovative, an emerging next cool app could replace it.
• Snap’s move into consumer hardware with Spectacles points to a broader platform strategy. By offering a varied portfolio of products and services Snap will compete with a much wider range of companies that may have very different business models.
• Another potential threat for Snap is the ability of its competitors to copy its most innovative or appealing features is. Often with larger audiences and deeper pockets, Snap’s competitors can afford to develop competing services.

Analysis:

Innovation, cool brand positioning, and the uniqueness of its role in documenting people’s lives have been key to Snap’s success. After its IPO, it is vital that Snap maintains its loyal audience to mitigate the impact of competitors copying its features.

Among its risks, Snap highlighted that the nature of its youth audience means brand loyalty can be low. A decline in the number of its core users would undermine its advertising business. Building a business purely on cool youth brand appeal may not be a sustainable long term bet. Beyond the brand loyalty issue, this also underscores the fact that Snapchat does not have a wide audience pool. Snapchat only commands a subset of online audiences, which means it cannot attract ad budgets for all demographics, unlike peers such as Facebook, which have users across all age groups. Snapchat has strong appeal for brands that want to target its highly-engaged and valuable young audience but brands looking to target a broader demographic will need to use other platforms as well as, or instead of, Snapchat.

Snap reported a net loss of $520.4 million in 2016 as its shift from a relatively low cost ephemeral messaging app to a full content platform increased costs. Snap’s move into consumer hardware with Spectacles points to a broader platform strategy. By offering a varied portfolio of products and services Snap will compete with a much wider range of companies that may have very different business models.

Global expansion is not a priority for Snap. Instead, it is focused on markets with advanced mobile infrastructure and advertising technology. Its content and video centric app experience means it relies on users with higher end smartphones, access to fast mobile data networks and the ad infrastructure needed to monetise them.

Threats from Facebook

Snap’s cool image has helped it grow, but this could also be a risk. The next cool thing could displace it. Snap started off as a photo-messaging app and then built a wider platform. Many Snap users remain active users on Facebook. Over the years Facebook has built strong brand loyalty and become an essential daily communication tool for many. Snapchat is a trendy social app, with cool features like filters and camera effects. If Snap is unable to remain innovative, an emerging next cool app could replace it. In launching new features and deploying advertising, Snap must also be careful not to disrupt its communications proposition. Communication features are crucial to maintaining high levels of engagement within the app and across a wide network of users.

Another potential threat for Snap is the ability of its competitors to copy its most innovative or appealing features is. Often with larger audiences and deeper pockets, Snap’s competitors can afford to develop competing services.

Facebook’s Instagram is its most obvious immediate competitor—given the app’s photo and video focus, strong youth audience and premium brand appeal. Both Instagram and Facebook apps added Snapchat-like ‘Stories’ features in 2016 at a time when Snap’s overall user growth started to slow.