Enrique Dans
Published in

Enrique Dans

Where is Snap headed?

Anna Pavlenko of Ukrainian magazine Novoye Vremya asked me some questions about Snap, Evan Spiegel and his recent IPO, and included my answers in his article in Russian entitled “26-летний капитан” (“A 26 years-old captain”)

Snap shows not so much the importance of ideas, but of the capacity for execution: how a seemingly simple idea that can be easily copied is now valued in excess of $20 billion and has raised $3.4 billion.

It is interesting to see to what extent the personal characteristics of Evan Spiegel — a rich kid with a clear inclination to make seemingly risky decisions — will condition the running of a company that does not seem worried about creating its own hardware, or redefining itself on the basis of a fashion, or launching an IPO with a skewed ownership structure the market was obviously going to penalize.

Such an approach can inspire many things, and not all of them good, but it seems clear that a different kind of person would have gone about things differently, starting by selling up to Facebook for $3 billion in November 2013, following by the reaction to Zuckerberg’s repeated attempts to copy Snapchat, or the brilliant way Snapchat has structured its advertising business. In short, Snapchat’s prospects, for better or for worse, are tied to the arrogance of Evan Spiegel.

Below the questions Anna sent me and my answers:

Q. How does Snapchat differ from other social media platforms? What are its strengths and weaknesses?

A. Everything about Snapchat boils down to an amazing capacity for execution: it ain’t what you do, it’s the way that you do it. The original idea behind Snapchat, ephemeral messaging that self-destructs within a few seconds, is not a particularly overwhelming concept, but it was designed in a way that made it very appealing to a specific target audience and allowed the company to become a real trend-setter that every other social media competitor is now copying. This obsession of “walking its own path” and waiting for others to follow is what clearly differentiates Snap as a company: Evan Spiegel is a rich kid that manages his company as if money and resources were not an issue, starts new lines of business — even hardware, despite the old adage that says “hardware is hard” — as if there was no tomorrow, and gets investors crazy about the trends it could generate. His main strength is definitely his capacity for execution, and his weakness, a dependency on a sociodemographic segment that has previously proved to be fickle in its tastes and adoption patterns.

Q. How would you characterize Snap’s co-founder and CEO Evan Spiegel? What helped him to become the youngest billionaire in the world?

A. Evan Spiegel is a man with an idea. He has been pursuing that idea for many years, through several dozens of projects — Snapchat, originally called Picaboo, was no less than his 34th entrepreneurial attempt — and always with a strong focus on what the customer wants. The best way to understand Evan Spiegel is by following the way he communicates through the Snapchat corporate blog. He is clearly trying to redefine the way young people communicate, and he has stuck to that challenge, and so far, he has been pretty successful: 160 million users every day sending each other messages… when they have nothing to look at, they just point their camera at an empty wall and send it along with some recording of themselves speaking, just to stay in touch. Even Spiegel is an incredibly ambitious person following a very well defined vision.

Q. What are the Snap’s perspectives?

A. Snap’s IPO was cleverly designed as a way to capitalize on the company’s ability to attract legions of fans who believe in his success story, even though financially, the company is still far from that. The plan was to attract as much money as possible, releasing the minimum amount of control. In fact, the original idea was probably to let Snap’s market cap to be pushed so high that major indices, including the S&P 500 index and the MSCI USA Index, would have to include the stock, so index and pension funds that track these indices would all have to buy the shares, driving up the share price even further. However, there’s a limit: a group representing large institutional investors approached index providers S&P Dow Jones Indices and MSCI Inc., and tried to bar Snap Inc. and any other company that sells investors non-voting shares from their stock benchmarks. Apparently, the company went too far in trying to preserve its control, so some wise observers decided this was against the interest of the common investor. Financial markets are tough to deal with, and even worse when they grow suspicious. Right now, there’s no way to know whether Snap’s IPO will follow the successful path previously trodden by Facebook (regardless of its initial problems) or the not so successful road down which Twitter has travelled… but Snap’s financials and user base now definitely resemble Twitter’s more than Facebook’s. Only time will tell.

(En español, aquí)

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