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Straight Talk Consumer and Entertainment Services

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It was all going so well for Snapchat, too. The company’s 4Q17 results, reported earlier this month, indicated quarter-on-quarter growth in daily active users – up 5.05%, to 8.9 million, its strongest QoQ growth since 3Q16 – along with year-on-year growth in revenues of 72%, to $285.7m, and a QoQ drop in net losses to $350m, down from $440m in 3Q17. The company’s decision to pay more attention to market segments other than its core user base of US teens was starting to reap rewards. ARPU in the “rest of the world” category (i.e., emerging markets in Latin America and Asia) almost doubled quarter-on-quarter, up from $0.30 to $0.56, as Snapchat improved the performance and the usability of its Android app and partnered with telcos to zero-rate data for Snapchat.

But then Snapchat decided to put a thumb across its own lens, globally rolling out an update that has been hugely unpopular among its users, to say the least. At the time of writing, 1.2 million people had signed an online petition – yes, that’s right, 1.2 million, and counting – asking Snapchat to roll back the update. The key sticking point is that the update created two separate Stories feeds – one for a Snapchat user’s friends, and one for the media content that they follow, for example, media companies, celebrities, and brands. Explaining the change in a blog post, Snapchat CEO Evan Speigel said that the blurring of lines between media and content from friends has contributed to the rise of fake news and made users feel they have to “perform for [their] friends rather than express [themselves].” Separating the two streams of Stories is aimed at addressing these issues.

However, while the update makes it easier for users to distinguish between media content and content from friends, Snapchat users are complaining that the new user interface now seems more cluttered and not as easy to use. But perhaps more importantly, it has seemingly isolated Snapchat users from their favorite media-related Stories.

As with Twitter and Facebook, Snapchat users are fans of actors, musicians, athletes, sports teams, fashion models, and brands, among others. And like with Twitter and Facebook, Snapchat users are used to seeing Stories related to their interests in a continuous stream in their feeds, alongside the Stories of their friends. They are also used to having a conversational and almost personal experience with the figureheads of their interests via their Stories feed. For example, getting a reply from a media personality makes a follower feel special.

The appreciation of this conversation, and the impact of the update’s disruption, goes both ways, with celebrities highly aware that followers see them as more than just brands. Reality TV star Kylie Jenner agreed with fans on Twitter who wanted Snapchat to roll back the changes, while supermodel Chrissy Teigen has also tweeted her displeasure about the update, saying that she was sad that followers no longer felt like they were friends with her. (Perhaps she could ask fellow model Miranda Kerr to have a word in hubby Evan Spiegel’s ear?)

Spiegel states that the update will position Snapchat for future revenue growth, which will come from making the service more appealing to users outside its core teen demographic – i.e., older users – and thus to a wider base of advertisers and publishers. But the company must balance its interests between meeting the dual – and not always complementary – needs of media companies and Snapchat users. The backlash against the update suggests that, in focusing too much on the needs of media companies, it has fallen short of Snapchat users’ expectations, or at least the expectations of its current core users.

The risk for Snapchat is that, having worked hard to diversify its revenue base, the update could negate those gains if too many of Snapchat’s current core users abandon the platform in favor of apps such as Instagram, which has been cloning Snapchat’s features, or reduce their engagement with it; and if Snapchat is not able to compensate for that loss by attracting new, older users, and consequently new advertisers and publishers. Time will tell just how costly Snapchat’s self-inflicted disruption will be for the company and, ultimately, if the pain it’s set itself up to face will deliver the anticipated long-term gains.

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