As Snapchat Grows Up, It Must Retain Its Youth

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It has been quite a week for Snapchat. The young company closed a huge $80 million Series A round at an $800 million pre-money valuation. Young co-founders Evan Spiegel and Bobby Murphy earned a cool $10 million each in a secondary offering. The company even rolled out a service for kids.

Now, the founders will try to keep their heads down and out of the spotlight as they work to grow the product and company.

I first saw Snapchat in the fall of 2011, in my sophomore year at Stanford; a senior, Evan Spiegel, who I vaguely knew through mutual friends (disclosure at the bottom), had made the app and a bunch of my friends were the beta testers and early user base.

All fall and winter, people would send each other silly pictures of alcohol or funny faces or where they were on campus; it was a weird, goofy tool that was uniquely ours–like when kids take Stanford’s introductory CS 106A class and discover they can make something on the Internet, and are fascinated by their own brick breaker. No one thought it was real or saw anything long term for it.

Later that spring, I talked with my new TechCrunch editors about two Stanford apps that were starting to make a bit of noise: Snapchat and Clinkle. People had heard that Snapchat had raised a bit of money and that Spiegel and co-founder Bobby Murphy were going to try to give it a real shot.

By the time school was back in session this past fall, the app was everywhere. Almost overnight it felt like everyone I knew from home had known about and used Snapchat forever. It wasn’t our little app anymore. We would see Evan around campus and knew he was up here for investor meetings seemingly constantly.

In December, Facebook took aim at Snapchat by releasing their own clone, ‘Poke,’ which has largely failed. Now, the company has at least five million daily active users who send 200 million photos per day. My early adopter friends, with their user names as their generic first names, get over 200 snaps per day.

A brief window into your world

Snapchat is all about discovery and quickly and intimately sharing brief moments with friends. Every major feature it’s added (video, replying more easily to friends, etc.) has been another way to privately share brief windows into what you’re doing right now.

Everything the company does moving forward, with the product and with monetizing the app, will have to hold true to this mission. But this private sharing could evolve from simply one-on-one sharing.

“They need to move away from being just a communication tool for my closest friends,” says Josh Miller, the 22 year-old co-founder of Branch and an avid Snapchat fan. Miller argues that while the personal communication is what makes Snapchat so addictive right now, it’s hard to defend from competitors in the long term.

Group messaging seems like an obvious next step for the app; I frequently hear people complain that they can’t create lists to send snaps to en masse (instead of clicking through and selecting the same group of ten friends every time). This could be either just a simpler way to send mass snap friends still in solo communication, or it could lead to more dynamic group interactions.

I remember Spiegel, who doesn’t use any social network regularly, once noted how static the friend lists on many social networks had become as people always added friends but rarely deleted them.

You’ll notice the top friends feature, a simple drop down menu below someone’s name showing the top three people they snap with, on Snapchat is very time sensitive. If Snapchat can find the right blend between ephemeral communication and small, social group interactions, it could fill a need that Path and others have identified but not really fulfilled.

Beyond Banquo

As we learned with Facebook Poke, simply copying the technology and features of Snapchat (actually, improving them), won’t even make a dent in the Snapchat user base, at least in the short term. Poke was technically superior with more features but ultimately it became the Google+ to Snapchat’s Facebook–a ghost town devoid of content.

fb_poke_snapchat

Plus, Snapchat has a patent on its recording technology (one tap takes a photo, holding the record button takes a video) that helps it protect one of its biggest assets: speed.

So, Snapchat’s competition won’t come from a big player copying them, but will likely come from new apps and new features; the company will need to stay out ahead of new entrants as it gains new users and works to retain its core base.

The startup just revamped its UI with version 5, “Banquo,” and new filters and new drawing tools just arrived.

The video feature was a very obvious second step, and has the company really well positioned; it’s riding waves of growth in photo and video capturing, and totally dominating photo and video messaging. Video snaps are 10 second windows into what someone is doing at that very moment; a Vine-like feature would allow people to share longer, more fragmented moments with their friends.

If Snapchat aspires to be a core communications platform, it could explore video chatting; from FaceTime to Airtime, even back to ChatRoulette, there hasn’t yet been a great solution for video chatting. Snapchat connects people in a dynamic way–last week I was snapping back and forth in real time with a friend I haven’t talked to in a couple years. Snapchat’s character counts and video length limits promote more quick sharing, but an option to connect with friends for longer could open it up more.

Or, it can do what’s probably smartest: nothing.

Snapchat can take the Twitter strategy and wage war on its fail whale (there are frequent glitches like phantom notifications that disappear and reappear hours later). It can obsessively improve existing features and the user experience, while growing the user base until it makes a massive, massive dent in text communication.

The company has been so successful by fitting smartphones perfectly–the speed of capturing and sharing a moment, the use of the front facing camera and drawing on the touch screens, and more. It’s perfectly private (I know several people who think that notifying a user when someone takes a screenshot should become the norm for communication) at a time when people are craving more privacy.

But it needs to get in more hands.

Around 80% of Snapchat’s users are in the United States, and many are aged 15-25. While the app has started to tip and gain users in other age brackets, it’s still dominated by a young crowd that’s very similar to most of the company’s employees.

Early Innings

“We feel like this is early innings in a highly competitive marketplace,” Spiegel told AllThingsD.

Snapchat has incredibly impressive stats in terms of photos shared, passing Instagram two months ago and soaring to 200 million photos per month now.

new-new-photo-sharing-apps

What’s interesting, though, is that it’s still significantly behind Instagram in terms of users. Snapchat’s users share far more photos per user than Instagram’s, who are often more interesting in consuming than sharing. So if Snapchat can grow its user base to be even close to Instagram’s, we could see truly mind-boggling photo sharing stats.

Last weekend, Snapchat introduced Snapkidz, a service for users under 13 to be able to take pictures and draw on them and save them locally to the device, but not actually make accounts and interact with other users. While certainly not a core product, Snapkidz could help the main app gain more popularity among parents, or at least shelter it a bit from a young crowd running around sharing snaps.

Snapcash

Along with this explosive growth, the company has been raising cash nearly nonstop since the fall of 2012. Now, with $80 million in the bank, they can grow the team more, scaling the company along with the product.

“We’re looking to hire more awesome people,” Spiegel told TechCrunch on Monday. “We can now afford to hire a bigger team. Before, we were nervous we weren’t able to scale and innovate as rapidly as we wanted to. This will allow us to do that…and pay our brutal server bill.”

I’ve heard that several VCs see Snapchat growing into an independent, large, multi-billion dollar company. Unlike another photo sharing application started by Stanford fraternity brothers with white-hot growth, we likely won’t see a Snapchat acquisition soon. While we know Facebook has been interested in the product for over a year, and many others would likely be interested, Spiegel, Murphy and the rest of the team seem determined not to sell, at least not now and almost certainly not at a price that even a social giant could easily stomach.

But there isn’t simply a multi-billion dollar hole in the messaging and photo space. If Snapchat continues this explosive growth, we can expect to see two major things happen: 1. other photo and video apps will suffer as more content is shared privately and ephemerally, and 2. other messaging apps will suffer as people communicate via photo instead of text.

Pressure

The recent influx of cash and massive valuation have raised significant questions about how Snapchat will monetize.

A source told me earlier this month that the company was hiring a sizable sales force. Since then, Spiegel and others have said that this is not true. Apologies for the bad report.

Now, Spiegel says the company will start monetizing with in-app purchases “in the medium term,” but still remains very interested in native advertising.

“There tends to be pressure on companies to avoid generating revenue in the early stage,” Spiegel told me in May 2012, when the company had only raised $485,000. “One, because people believe that the user growth will decline and, two, because it makes it easier for people to value your company. So, obviously working within the context of that pressure is an interesting thing. But we’ve been really focused on revenue from the beginning. We didn’t think we were ever going to raise venture capital, so we were planning very early on to implement a revenue-generating plan.”

In December 2012, Snapchat was already prototyping monetization features. This isn’t something they will rush; there will be a significant spotlight on them when they roll out the first monetization features, and obviously want to protect their user growth.

It seems that as the company has grown more and more, Spiegel and Murphy have pushed back the timeline for monetization as they prioritize user growth first. This is a smart strategy, and one that has worked for other companies.

In the fall of 2010, Instagram had planned to launch with some filters available for in-app purchase:

“With plenty of funding for the two-man team, they’re not too concerned with that right now, but Systrom said that the app will launch with 7 of their 11 filters for free, and the other 4 will be available for in-app purchase (with more coming).”

Systrom didn’t have much to say about this old plan, merely commenting, “It was the plan at the time, but that was a long time ago.” Instagram, obviously, enjoyed massive user growth and a huge exit to Facebook.

“One thing Ev [Williams] has really pushed on me is that there’s never been a very large internet consumer startup that has shut down because they either run out of money or cant make money,” Miller tells me. “The ones that die, [they] die because people don’t like it anymore and they leave.”

Disclosure: I’m a rising senior at Stanford; as a TechCrunch writer and former Stanford Daily editor, I’ve seen a lot of projects that Stanford students and alums are working on. I get pitched by friends, acquaintances, and total randos. I write about the ones I think are interesting.