Evan Spiegel gazed out over the floor of the New York Stock Exchange, where onlookers were recording him with his company’s retro-cool, video-enabled sunglasses, then rang the opening bell on Snap’s first day as a public company. Breaking the tech titan’s dress code in his suit and tie, he grinned and, unlike his biggest rival, made no grand proclamations about his company’s world-changing potential.
Nearly five years earlier, it had been Mark Zuckerberg kicking off Facebook’s first day of trading, wearing a hoodie and taking on the role of tech visionary. “Our mission isn’t to be a public company,” he declared. “Our mission is to make the world more open and connected.”
The contrasts do not end there: Facebook was a profitable company when it went public, unlike Snap, which lost more money last year than it generated in revenue. But the investors who pushed Mr Spiegel’s company to a market value of more than $28bn by the end of trading on Thursday were clearly hoping that Snapchat can dent Facebook’s dominance of online advertising, particularly with younger users.
Snap — the owner of Snapchat, an app popular with young people for its disappearing messages — wants to be the first company to successfully take on Facebook, which is now worth nearly $400bn. The question is whether its loyal user base and clever technology will be enough — or if it will follow the disappointing trajectory of another would-be Facebook challenger: Twitter.
Mr Spiegel has invited the comparisons with Facebook, acknowledging that Snap cannot match the social network’s daily active user base of 1.2bn. Instead, he insists that a smaller, more selective audience — Snapchat has 158m users a day — is a virtue.
“One of the challenges we’ve encountered over time is to explain to people why bigger isn’t better,” Mr Spiegel said in a video for investors. Taking a dig at Facebook, the 26-year-old co-founder rejected the notion that the more friends or followers you had, “the better your life would be”. Instead, Snap has a “relentless focus” on ensuring users choose who they add carefully, hoping people spend more time in the app because it is for communicating with their close friends. Its disappearing photo messages allow people to chat with pictures, comfortable with being themselves rather than creating a profile preserved for posterity.
The hope is that this young, engaged audience will be attractive to advertisers. Snap’s largest age group is Americans aged 18 to 24. More than 60 per cent of its users live in the top 10 advertising markets, its filing to the Securities and Exchange Commission said.
Dennis Phelps, a partner at IVP, venture capitalists that first bought Snap shares at the equivalent of 98 cents each, says Facebook has become a “contrived portrayal” of how people wanted to be viewed. “Snapchat is more like a private, candid conversation with friends; Facebook properties are more like a public billboard,” he said.
Snapchat has grown up in the shadow of Facebook. The app was less than a year old when Facebook went public in 2012. But just 18 months later, Facebook saw it as a significant threat and offered to buy it for $3bn. Mr Spiegel and his co-founder Bobby Murphy, rejected the overture, a move that has paid off for them: after this week’s IPO their stakes are worth more than $4bn each.
When Mr Zuckerberg could not buy the hot social app — as he had with Instagram and, later, WhatsApp — he asked his engineers to copy it. After initial failures with Poke and Slingshot, Facebook succeeded last summer when it introduced “stories” — collections of photos that last for just 24 hours — to Instagram. Now Instagram Stories has more than 150m daily active users. It aims to copy the feature in WhatsApp and the main Facebook app.
“If imitation is the sincerest form of flattery, then Evan should feel very flattered by the attention from Mark [Zuckerberg], Kevin [Systrom] and others over there,” Mr Phelps says, referring to the Facebook and Instagram chief executives.
Facebook v Snap
Facebook | Snap
Market capitalisation: $31bn | $19.7bn
Funds raised at IPO: $16bn | $3.4bn
Daily active users, 2016: 1.23bn | 158m
Revenue, 2016: $27.6bn | $404m
Profit, 2016: $10.2bn | $515m loss
Snap is not the first company to try to break the duopoly of Facebook and Google, which together had 57 per cent of the global digital advertising market in 2016, according to E-Marketer.
The most recent contender — and for Snap, a cautionary tale — was Twitter. The messaging platform has great brand recognition, and famous users including US President Donald Trump.
Like Snap, it had a successful IPO, closing up 73 per cent on its first day of trading in 2013, but its user growth slowed and it is still losing money. Today Twitter is valued at about half Snap’s IPO market cap and trades 40 per cent below its price at its own IPO.
“No one has ever come close to succeeding in competing with Facebook,” said David Kirkpatrick, author of The Facebook Effect. “It is almost silly.”
As with Snap, Facebook tried to buy Twitter then copied key elements of the service, from allowing public posting to trending hashtags. Mr Kirkpatrick believes Twitter would now have more “relative heft” as a business if Facebook had not made those changes.
As Facebook promoted its scale and ability to use personal data to create targeted advertisements, the smaller, less data-rich Twitter struggled to prove itself with marketers.
Once Wall Street turned against Twitter, marketers started to question whether it was worth their dollars too, says Debra Aho-Williamson, a research analyst at eMarketer. “Every quarter, Wall Street is hammering Twitter. Over time the messages start to hit home with users and advertisers,” she says. “Snapchat will be under similar scrutiny in the next quarters and years. How Evan Spiegel and others handle that scrutiny is going to be really telling.”
Jessica Liu, an analyst at Forrester Research, notes that social marketers complain about Snapchat’s lack of user data and its ability to measure the effectiveness of adverts. “You can only ride the ‘cool’ wave for so long,” she warns.
Unlike Twitter, however, Snap has already moved from its core product. Disappearing messages are just one element of the Snapchat experience, with a quarter of daily users adding snaps to their “story” for their friends to see what they have done in the past 24 hours and publishers from Cosmopolitan to CNN creating content specifically for the app.
Rebranding as a “camera company” last year, it has ventured into hardware, launching its video-shooting Spectacles and reportedly experimenting with 360-degree cameras and drones.
Benedict Evans, a partner at the venture capitalists Andreessen Horowitz, says Mr Spiegel has a “pretty startling track record” of building new kinds of products that focus on expression and experience. “Snapchat tends to do stuff that breaks the rules in Silicon Valley,” he says. Snapchat’s location in Venice Beach, about six hours’ drive south of Silicon Valley, gives it a different perspective, he adds.
The pressure will be on Snap to innovate in a way that Facebook, with its large user base, does not have to. Snap knows this: when its user growth slowed in the fourth quarter of 2016, it partly blamed fewer product launches, as well as a glitch with the Android operating system in smartphones.
Gabriel Kahn, a director at the Annenberg Innovation Lab, part of the University of Southern California, said Snapchat particularly appealed to younger people who do not consume media online in forms akin to traditional TV clips or news articles. Instead, 20-year olds like the fact that Snapchat has its own vocabulary.
“It is OK for Instagram to copy Snapchat but Snapchat could never get away with copying Instagram. [Users] expect Snap to invent something new, which, when they do that, is where the power lies,” says Mr Kahn.
Snap is unlikely to match the reach and power of Facebook, which may end up being the only large social network. Some say Snap should avoid the term completely. “Facebook is a social network anomaly and any social network hoping to replicate Facebook’s user growth and revenue success will be disappointed,” says Ms Liu.
Chi-Hua Chien, an early investor in Facebook and Twitter and co-founder of Goodwater Capital, says Snap should be seen more as a media company.
“The designation of social network is where Facebook has built a lot of value and really won,” he says. “HBO, ESPN and even Netflix are very, very valuable companies. You do not have to have all the users in the world in order to be valuable.”
Snap has tried to make investors understand that it is not Facebook 2.0. Wall Street analysts have warned of slowing user growth and fierce competition, with both Nomura and Pivotal Research putting out price targets of less than the $17 offer price.
But it is not clear that the message has sunk in. Excited about the first IPO of a leading US technology company since Twitter, investors bid up shares in Snap until it closed 44 per cent higher at $24. Now the newly public company will have even higher expectations to meet.