Here’s a paper I wrote for my Strategy class. It’s not as good as I wanted but there was a hard limit on words. Conciseness is important, I get it! I got a 73 on this, which is towards the bottom end of the class. Apparently, I did not do the following:
(b) part of the exercise of the last question is to choose your focus and frameworks to be applied in a meaningful way. Some of you did not get high marks because you did not answer the question (i.e., analyze/recommend strategy) but instead focusing on applications of frameworks. For a strategist, frameworks are your tools, means to your end.
I agree with that. I could have focused on one tool and recommend a way forward for Snap. There was very little of that in my essay. Anyway, I had fun writing it and here it is.
Snap Chat Strategy Analysis
What is Snap Inc? The self-proclaimed ‘camera’ company’s strategy will likely be as ephemeral as the messages its users trade amongst each another. To outside observers, the company exists as a social media company. It competes against Instagram[1] and Facebook for users and their attention, as well as advertisers and their dollars. On the other hand, the executives at Snap think they compete against the likes of Canon, Nikon and Sony. Is their Annual Report willful ignorance or a clever marketing ploy? I ask again, what is Snap Inc?
In this brief I argue that Snap Inc must change strategy. I will briefly summarize the industry using Porter’s 5 Forces, then detail how Snap Inc built a superb product based on a core insight, and how now, the company has failed to leverage that core insight and streamline the company’s key activities around it. Finally, using the MINDSPACE Framework Snap Inc can make some immediate moves to establish inroads against its competitors.
Platforms & The Five Forces
There is one aspect of Snap Inc’s strategy that is obvious – Snap is a platform – which brings together groups of users in a two-sided network. (Eisenmann, Parker) Currently Snap Inc struggles to compete on both sides of its social media platform. On the user side, Facebook’s 2.5 billion users eclipse Snap Inc’s 218 million users by an order of magnitude more. (MorningStar) The moat around Facebook not only seems to prohibit Snap from growing but also users from leaving Facebook, further limiting the growth and acceleration of Snap users. On the advertising side, Facebook’s advantage is clear enough with $67 billion in advertising revenue compared to Snap’s $2 billion. (Enberg) On platforms, pricing is determined by a subsidy side and a money side, and on social network platform, users are subsidized by advertisers. (Eisenmann, Parker) It’s been unclear if Snap Inc’s advertising platform is attractive enough to advertisers, or if Snap Inc can make any inroads into Facebook’s extremely profitable advertising unit. Even as advertising spend grows globally, so does advertising inventory, and there is no guarantee advertising spend will flow to Snap. (MorningStar) Finally, as platforms compete in winner take all markets, there’s significant risk for Snap to be enveloped by the larger platforms. (Eisenmann; Parker) I summarize Snap’s challenges in the in the social media industry below:
| Five Forces | Ranking | Explanation |
| Bargaining Power of Buyers | Strong Force | Social Media is a zero-sum game. Users can only give their attention to one app at a time. Switching costs are low and users have low loyalty. Snap has a large user base but only one good product to keep their attention. |
| Bargaining Power of Suppliers | Strong Force | Advertising dollars are growing but limited. Facebook and Google are deeply committed to their advertising business and attract the vast majority of ad spend. While Snap Inc has a hold on the highly coveted 18-24 demographic, it’s not guaranteed that advantage is persistent. |
| Threat of New Entrants | Weak Force | Due to the network effects in social media platforms it’s incredibly difficult to reach scale attractive enough for users. It’s extremely unlikely a new social media platform emerges to challenge Snap in this space. |
| Threat of Substitutes | Strong Force | There are low switching costs for mobile phone applications. The economic costs of using other applications is generally low as well. There are also many different applications available to use. |
| Competitive Rivalry | Strong Force | While there is a relatively small number of competitors in the market, the winner take all dynamics of platforms mean a single strong competitor will dominate most of the ad revenue and user attention. Snap Inc faces a significant challenge in courting users and advertisers from Facebook. |
Strategy and Product Analysis
Snap Inc’s core insight was that users of traditional social media don’t want their lives permanently documented. Snap Inc developed its core product SnapChat so that messages between users would automatically delete. This product built a rapid following with a younger demographic, who trusted the company over its rivals. It was particularly attractive for teenagers, who worry about snooping parents or future admissions offices or employers. Once Snap Inc’s first product Snap Chat began to gain users, it successfully implemented a “Ladder Up Strategy.” (Thompson) This strategy leveraged a large user base to move up rungs towards profitability and has been used successfully by digital companies such as Netflix, who laddered up from shipping DVDs, to streaming content, to creating their own content. Each of these rungs was more profitable than the last, but only possible with a large user base and in successive steps. (Thompson). The problem in Snap Inc’s ladder up strategy is that they are not leveraging their user base together with the core insight that attracted the users in the first place – trust.
It is this core activity – trust – that separates Snap from its rivals Facebook, Twitter, and Google. Moreover, Snap Inc’s current strategy is damaging this valuable goodwill based on its “camera” strategy. Cameras by nature are documentation devices. This runs counter to Snap Inc’s insight that what users really desire is for large parts of their lives to be undocumented. When Snap Inc released its Spectacles product – a wearable pair of sunglasses that records moments in your life – sales were dismal. (Constine). They have continued iterating on the product line, ignoring that it runs counter to the core benefit that attracts users to Snap.
I propose that Snap reorganize its strategy from a ‘camera company’ to a ‘communication company’ based around trust. Generally, communication between friends and family is a trust-based activity. People often believe conversations are implicitly trustworthy. What is communicated is considered to be true, as well as that the communication will not be distributed to a larger network. Snap is well positioned to be the ‘communication’ company of social media, the destination users go when they want privacy, or to be themselves. Their rivals cannot do this. Facebook Inc’s mishandling of user’s data coupled with their repeated scandals, followed by Twitter’s user’s venom and broadcasting, present a unique opportunity for Snap Inc to establish itself as the trusted social media company in the world. Facebook was able to mask its untrustworthiness until recently because there are no explicit transaction costs in the economic transaction with Facebook. (Berg, DickHaut and McCabe). However, users are more aware of the implicit costs of using Facebook and that exposes a weakness Snap should exploit. Is Snap better than Facebook? Likely not. They employ the same business model of selling advertising inventory based on user’s data. However, the perception of the companies is on opposite ends of the spectrum, and Snap has its users trust, something Facebook will likely never reacquire. If we apply the MINDSPACE framework here, there are several tactics that can be immediately implanted to further Snap Inc’s trust-based strategy.
| Messengers | Why Trust Matters | Recommendation |
| Messengers | Snap users broadcast to their friends and family. They trust each other. | Snap Talk: Build a tangential product for teenagers to communicate with their parents, so that the coolness of the snap chat app is not diluted. Use influencers to tear down Facebook and it’s poor record on trust. |
| Incentives | Because messages disappear, incentives are aligned to encourage sharing | Snap Ads: Ensure users know advertising is based on their data, but that advertisers can’t use their data for any other platform |
| Salience | Disappearing messages are unique to Snap Inc. | Anchor people on the how Snap can be trusted because messages are deleted, protecting you. |
| Ego | People are far more comfortable being open on Snap Chat | Snap Stories: Encourage people to be themselves and share their lives more. |
Conclusion
Snap Inc is focused on the wrong key activity. Being a camera company is not what its users want. They want a place they can communicate freely, discretely, and clearly. Snap must focus on building out better communication products, whether in voice, video, or text. They must leverage the trust of their users to reorganize all their activities (Appendix 1) (Porter), ultimately charging advertisers a premium for the trust its users have in the business. If they don’t, it’s likely Snap Inc will be enveloped by Facebook or a stronger rival. What is Snap? Snap is a communication company.