Thoughts about the Snapchat IPO 👻

Last year I wrote about Snapchat and their unique approach to things. I’d like to think that my predictions at the end of that blog came true ?. Why? Because we see Instagram betting big on streaming and disappearing video i.e. copying Snapchat features. If anything, it’s proof Snapchat is a force to be reckoned with. And they seem to be making Zuckerberg & co. nervous.

So it’s not unexpected that the Snap Inc. IPO (their new name to separate the business from the app) is right around the corner. And their S1 filing offers some curious insights. Mostly about their technology.

People like to make comparisons with the Facebook and Twitter IPO. Facebook as a good example, because Facebook is still growing and posting big numbers. Twitter as a bad example because Twitter is struggling a bit and has less overall users. For the sake of argument let’s compare it to Facebook.

I’ve always been somewhat skeptical about Facebook, but I have been proven wrong time and time again. Firstly, if  you had asked me “will me people put their entire personal lives online without any reservation?”. I would have answered: no. I was wrong, of course. Secondly, when the Facebook IPO was coming up, I thought, surely it can’t be worth that much. I was wrong again. I have no problem being wrong, as long as I can learn something from it.

And what I learned from this and what took me some time to realize, is Facebook is not about picture profiles. It’s about three other things:

1. Facebook is, like Google, about selling ads. Yes, there is a lot of money in ads.
2. Facebook was very smart in spending their IPO money. Among other things they bought WhatsApp: best app since sliced bread. And they bought Instagram: which in my opinion is best deal on the internet since Google bought YouTube.
3. Facebook is a technology company, and this is very important. They, just like Google and Amazon, have been able to grow their business because of unique in-house developed technology. People don’t realize this enough, but you couldn’t just download a tool to index the entire the web and make it searchable. Or buy some software to connect 2 billion people together, or just get an of-the-shelf infrastructure where you can upload 300 million photos every day. You have had* to think up, create and develop the tools, infrastructure and everything around it (storage, computing etc.) yourself. And you needed this level of technology as an enabler for your service just as much as you needed it to provide the competitive advantage to stay ahead of the competitors. I’d argue that the technology was often the difference between success and failure. MySpace couldn’t keep up with Facebook. Just like Altavista and Yahoo couldn’t keep up with Google. And Google realized they couldn’t keep up with YouTube so they bought it. Amazon is another example. Sure, they sell books and everything else. But behind the scenes Amazon is a tech company that has developed a lot of technology to enable being the biggest online warehouse. (Amazon has been smart about this and the way I see it their AWS product basically started as rebranding in-house developed technology. Google is doing the same now with Google Cloud.)

So back to Snap Inc. Number 1 is pretty clear, right? Even though I think targeting Snapchat users is harder than targeting Facebook or Google. I think they have less info on their users. But still, ads will be very good business for them.

I can also see number 2 happening, getting a few billion dollars will enable you to buy other companies and breach out c.q. pivot. So this is probably what will happen. But number 3, this is where it gets interesting.

From this post titled, “Snap commits $2 billion over 5 years for Google Cloud infrastructure” it became clear that Snap doesn’t have a lot of their own (infrastructure) technology. And also they are not planning on building it. So they depend on another company (Google!) for this.

You can kind of guess the sort of responses to this. Hacker News, of course, has plenty of those.  And a lot of the reactions are more or less centered around “See, this is all just blowing smoke! They are not a real tech company, they are too dependent on Google! How will they ever be able to have a competitive advantage. etc.” This all seems to sound reasonable when you indeed compare Snap to Facebook. However, there are two reasons we shouldn’t do this.

1. Snap is known for doing things differently. And this fits right in there. The only thing you can conclude from it is that I think it defines them as a service or media company as opposed to a tech company. And this is not necessarily a bad thing. Just, different. But a very important difference because comparing them with Facebook is like comparing apples and oranges. Apart from certain similarities it’s specifically this difference that makes both companies fundamentally different. Facebook is a tech company that gets its edge mainly because of the technology (the world has never seen such a huge interconnected network before). Snap is more of a media company, that gets its edge because of a different kind of user experience (Snaptacles anyone?).
2. Another aspect is that (infrastructure) tech is becoming more ubiquitous. Yes, when Google, Facebook and Amazon started you needed to develop the tech yourself (*see above). But nowadays it’s much easier to buy/outsource critical infrastructure and focus on what you do best. And it’s clear Snap is doing just that. And this is a change from what we’re used to; that a web company needed to be a tech company. That the tech is what set you apart and you needed to own and control the whole tech stack. But nowadays you don’t need to own the whole stack you have to decide what tech you have to develop and what tech you can/need to outsource. And with Google and Amazon you can just rent complete data centers without having to patch one cable yourself. Things have changed.

After the IPO the main focus for Snap will probably, still, be growth. So my guess is Snap will start buying companies. And you either buy technology to enable further growth, or buy (growing) communities with lots of users. I think Snap will focus on the latter and will start buying and creating different user/media experiences and grow from there. Because this is simply closest to what they are. They are not a classic “tech” company and they know this. However, they could still buy and try to become a more real tech company. They have the cash, but it would surprise me because it’s different from what they are or do. Either way, I am not betting against them. I have been wrong too often to do so.