by Neil S. Siskind
Analysts and journalists continue to misunderstand Snap, and continue to publish misguided articles and analyses bashing the company and inappropriately comparing its financials to those of Facebook/Instagram (Facebook and Instagram will be referred to herein, collectively, as “Instagram”).
Analysts are trained to compare companies within the same space or within the same “breed”. But, when businesses have no similar breed- or operate within entirely new spaces- such as with e-commerce companies earlier in the century and with Snap today- analysts keep getting it wrong by trying to compare what is not comparable. They are unable to predict a company’s future any better than any of us when it comes to something brand new. Worse, by pretending they are on-point, they mislead investors either to the upside or to the downside. All the same apply to financial market journalists.
Instagram is in the business of asking “us” to provide content so that it can sell advertising around our meaningless and self-directed postings and pictures.
Snap is in a different business.
Snap is in the business of providing fun and entertaining features, games, and services to attract users to whom it will sell and broadcast (either through downloads, through subscriptions, or by selling advertising based on viewership) professionally produced content, such as that of Time Warner, A&E, and CNN. Drones, maps, augmented reality tools- they are all designed to build a fan base, or “club”, or “cult”, of “Snapchatlovers” to which Snap can deliver and broadcast original and professionally-produced movies and television-type programs. Snap is almost competing more with the A&Es and Bravos and Hulus of the world than with Instagram. Just because Instagram steals another company’s ideas and copies another company’s services, and then places ads around them, does not mean that such other company desires to be in Instagram’s business. Snap never wanted to be in Facebook’s or Instagram’s social media content advertising-based businesses- or else it would simply attempt to sell more ads.
Think of Instagram as a toy store that sees its toys primarily as ways to sell ad space around customers’ in-store toy-play, while thinking of Snapchat as a toy store that sees its toys primarily as ways to drive customer viewership of professionally-produced content … different businesses; one store is for customer activities that get immediately monetized through ads sent to those customers, and the other store, for customer activities that lead to subsequent monetizing through the delivery and broadcast of high level entertainment to those customers. People open different toy stores for different customers and different purposes.
Snap has already become the first social media company with the primary goal of converting its social media audience into viewers of professionally-produced content- as opposed to Instagram’s (and Facebook’s) goal of driving its users to its more transient, self-centered, user-generated content.
Try looking at it this way:
The term “social media” as it applies to Instagram, primarily means people socializing through dialogue and sharing of photos, and that is the “media” part of it.
The term “social media” as it applies to Snapchat, primarily means television and movie studio produced entertainment-media that is broadcast and distributed on a platform where people are socializing. The dialogues and shared photos are not the media part- they are just entertainment tools to attract and keep users who become the audience for the subsequent media part.
You will read analysts’ notes that the advertising world and social media personalities are frustrated that Snap will not cozy-up to them or help them in their efforts to buy and sell advertising. This is because Snap does not really want or need these ad sources. Snap is interested in distributing and broadcasting content of major studios that will sell their own advertising space and split the fees with Snap. In the future, advertisers will have no choice but to come to Snap to buy advertising space, since the audiences those advertisers will want to reach will be reached by Snap with the professionally-produced content Snap now has, and that which it will be adding to its platform in the future; quality in-demand content, as opposed to Instagram’s gratuitous and self-serving postings.
Snap does not have to get more “users” than Instagram in order to succeed- even TV networks don’t have Facebook’s or Instagram’s user bases. Advertising-oriented business models, like those of Facebook and Instagram, require constant user-growth to increase their sales and earnings, and, hopefully, their stock prices (in cases where such companies are public companies)- but content-consumption models, like those of Bravo and HBO (and Snapchat), require loyal audiences to which they can keep selling (if using a subscription or download model) or keep broadcasting (if using an advertising model) new programs. Snap wants a different audience than Instagram’s- for a different purpose. It wants loyal “Snapchatlovers” who will play, stay, and whom Snap can parlay into viewers of a large volume and variety of professionally produced TV-type shows and movies on the Snapchat platform- and that comes with big money- potentially much bigger than ads placed around silly posts and low quality user-generated videos and pics.
Instagram seeks to “advertise to” (or “bombard”) its users to make its money. Snapchat seeks to “entertain” its “audience” to make its money. Which sounds like a better plan to you? But it matters not. Instagram makes a bundle of money in the way it does business, while Snap makes (well, hopes to make) a bundle of money in the way it does business. It’s not one company or the other- despite how analysts and journalists are presenting it.
It true that, presently, some of Snap’s revenues come from advertising connected to user “snaps” (with the rest of it coming from ad revenue-sharing deals with content providers), but this is more a function of Wall Street’s demand for fast revenue growth and increases in quarterly revenues and earnings than a function of Snap’s ideal revenue sources. Wall Street is not the ideal place for idealism. Longer-term, ad revenue-sharing, content subscriptions, and content downloads (and, potentially, proprietary hardware sales) will make up the bulk of Snap’s revenues if Snap is to become what it wants to be- a broadcast, distribution and production platform of quality content for its loyal “Snapchatlovers”. But, if Snap is to be an independent entertainment platform, it needs to move fast to get the mass media broadcasts and professionally-produced content it needs in order to attract viewers and increase revenues and earnings from these sources.
While I used to see Apple as the best and most likely suitor for Snap, I think that the window of opportunity for both companies has closed. Snap will likely be bought in the coming months by Google for its need to combine quality social media and augmented reality tools with its YouTube service (and, perhaps, to have as an exclusive AR service for its Android platform now that the new iPhone has significant AR features), or by a more traditional media company, like Disney or Netflix, that wants/needs Snap’s young and loyal social media audience to drive content viewership, along with Snap’s offerings of augmented reality features for its platform. (Any media company that has its own famous, beloved, and innovative social media platform with hundreds of millions of daily active users that can be used to promote its programs is operating with a great advantage over its competitors.) Whether any of these combinations is something Snap wants, as opposed to remaining an independent platform for the broadcast and distribution of various third-parties’ movies and TV-type shows (as well as its own productions), remains to be seen.
As part of any investor’s evaluation of whether to invest in Snap, Instagram, like any other media company, app, or platform, is just one of many factors to consider when assessing the overall landscape of content and media production, broadcast, and distribution and how Snap is and will be affected thereby; but, it is neither the only nor the most important factor, nor is it the determinant of Snap’s ultimate success or failure.
_ _ _
About the Author
Neil Siskind is: President of The Siskind Law Firm, focused on product investments, trademark licensing, product distribution, and real estate; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of the global charity marketing initiative, Caring is Free®; Founder of National Fatherhood Day™; Owner & Conservator of The Neil S. Siskind Nature Preserve, over 7 acres of conserved waterfront land along New York’s majestic Hudson River; and author of The Complete Guide To The Ways To Manufacture & Sell Your Products.
Other Recent Articles by Neil S. Siskind:
- New JonBenet DNA Test: A Farce
- The Real Reason Why O.J. Should Not Have Been Paroled
- Will Amazon Be Buying Your Favorite Fashion Brand?
- Two Communications Brands Together: Will Apple Buy Snapchat (Part I)?
- Food Investing: When Taste Matters More Than Sales
- The Complete Guide To The Ways To Manufacture & Sell Your Products
- Romney vs. Trump: Does Mitt Romney Respect the Value of Business Branding?
- To “Loan” is not to “Own”
- How the Sharks……Tank
- Is Licensing a Trademark Worth it?
- Distribution is King
- Why the “Affluenza” Defense is So Dangerous
- A Shark, a Chicken, and a Trademark
- Celebrities “and” Brands; Celebrities “as” Brands