Evan Spiegel: Snap’s ad slowdown does not blur vision of augmented reality
Chief executive of social media messaging group sees Spectacles technology as chance for diversification
Despite being one of the smaller social media networks — with around 350mn daily active users — Snap’s messaging services proved so popular during Covid lockdowns that its revenues increased rapidly. By early 2021, chief executive Evan Spiegel was forecasting multiple years of at least 50 per cent annual revenue growth, even without any rise in user or engagement numbers.
But this year’s spike in inflation, and slowing global economy, has hit the company hard. In August, Speigel announced a radical restructuring of Snap, including a 20 per cent reduction of its 6,500-strong workforce and cuts to investment in the augmented reality (AR) technology that had been central to its future strategy. Its share price rallied a little on news of the shake up, but is still down 80 per cent in the past 12 months
Here, the FT’s tech correspondent, Hannah Murphy, asks Spiegel how the economic downturn is affecting Snap’s advertising business model and push into AR hardware and software.
Hannah Murphy: After a pandemic boom, the advertising market now looks pretty bleak. Do you think this marks some sort of turning point or significant moment for advertising?
Evan Spiegel: It’s definitely a turning point, although it’s not just for advertising. It’s definitely more broadly in the economy. We’re seeing persistent and high inflation, and the determination of central banks to reduce the rate of inflation by dramatically, and very rapidly, increasing interest rates, which is having a massive ripple effect through the entire economy. So, advertising is, in many ways, like a proxy for the global economy. It cuts across so many different industries. And as a result, of course, we’re feeling the same challenges that all of our advertising partners are feeling.
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HM: Do you think social media groups or businesses that rely on advertising got too excited during the pandemic? Was there not enough caution?
ES: I think the technology industry is always optimistic. And, usually, over the long term, technology tends to have these transformative impacts. Certainly, technology businesses benefited tremendously from the transition online, whether that was ecommerce or people video chatting more, or — of course — using Snapchat to stay in touch with their friends and family. And some of that is very sticky, and some of it is returning to some more normalised growth levels.
But it hasn’t changed the long-term trajectory here: the way that technology is transforming the way that we live and relate to one another. The exceptional and unusual piece of this was really monetary policy, then technological advancement, which, over the last 10 years, has been massively transformative — with mobile technology and, looking into the future, things like augmented reality.
HM: Are there lessons learned from this latest slowdown? What would you change, with hindsight, in order to protect yourselves from future downturns like this? That over-reliance on ad revenue?
ES: It would certainly help to have a more diversified business in terms of revenue, which is why we’re working on things like our subscription product with Snapchat Plus, which is something that we’re very excited about. But I think the very rapid deceleration in our advertising revenue, is, in some ways, a feature of our customers. They have a lot of flexibility and control over their advertising spend.
So, as the economy started to slow down, people could very easily and quickly adjust their plans. That’s one of the reasons why businesses really value digital advertising. Of course, it’s very measurable, you have enormous reach. But also you have flexibility that is sometimes difficult when you’re buying advertising in other mediums.
That was obviously very challenging through this period of time. As we look to the future, hopefully we begin to see a recovery, [and] digital advertising also playing an important role in that — because people can very easily turn it back on as well.
HM: I’ve been referring to you as a social media company, but you’ve described [the business] as a camera company. I’m assuming that’s still applicable today. Can you talk a bit about what that means, exactly?
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ES: Absolutely. Snap is a camera company. And we make Snapchat, which is a visual messaging app. And one of the reasons why we talk so much about cameras is because of the way it’s transforming how we live and communicate. In the beginning, Snapchat’s core insight was that visual communication was alive; a lot more fun; a lot more fast and more convenient than text messaging and certainly way more expressive.
So Snapchat gave people a way to stay in touch that strengthened their relationships in a way that was very different, you know, when compared to text messaging or email or something like that. It could get people to that same level of convenience of text messaging, being able to communicate quickly.
[Then] as we looked over time, we saw that there were more opportunities for the camera. Not just to change the way that people communicate, but also the way that people express themselves with augmented reality, and learn about the world through AR platforms and associated tools. As we look towards the future, we believe that the camera is going to play an increasingly important role. So, when we talk about being a camera company, it’s really because we believe in the power of the camera to transform the world.
HM: Tell me a bit more about your vision for augmented reality. How does Snap, specifically, fit into that?
ES: When I first started working on augmented reality, we just wanted to empower people to express themselves. So, in the early days of Snapchat, people were sending selfies back and forth and communicating using our camera. AR really lowered the bar because it gave people new creative tools. You could use a lens that gave you dog ears or something like that, and send that to friends and make them laugh and have fun together.
Then, over time, we took those tools that we were using to build augmented reality lenses, and we made them available to our entire community so that developers could build their own AR lenses. Now, there are hundreds of thousands of developers or 250 million people that are engaged with AR every day, on Snapchat. Millions of lenses have been created. And that really started expanding what was possible with augmented reality.
That got us very excited about the long-term potential for AR and so there’s this great opportunity over the next decade or so, for smartphone augmented reality, which is the primary way people are going to use AR for the foreseeable future.
But longer term, we’ve also been evolving our platform, so that it will transition to things like wearable technology, where you can put on augmented reality glasses and overlay computing on the world around you. This has really been a step-by-step journey together with our community who’s using AR every day in their lives. And then, of course, our developer community as well. We’re building all sorts of amazing new AR experiences.
HM: If we think this immersive, wearable AR is the next computing platform, what’s the day to day [experience]? Is it someone with a headset, walking around and having things beamed into their eye? What does that look like?
ES: In computing, shifts have happened and unlocked totally new behaviours, If you think about the way that desktop computing evolved, that really made the internet accessible: you didn’t have to walk to the library or go visit a mainframe computer; you could sit at home and access the world’s information on your desktop. Over time, of course, we saw that transition to mobile computing, and mobile computing gave you access to your friends everywhere all over the world through communication. So smartphones really transformed the way that we communicate and Snapchat has benefited tremendously from that shift.
As we look towards the future, we believe that computing is going to be experiential, and that will be powered by things like AR glasses. It’s just because that makes computing much more immersive . . . For example, we have this very cool lens you can use to learn how to play the piano: you can sit in front of your piano and put on the glasses and it’ll light up the keys, and help you learn how to play. That’s a really exciting new way to play the piano that’s fully experiential, because you’re actually pressing the keys yourself.
And we know from research that experiential learning is a much faster way to learn than reading a book about playing the piano, or reading sheet music, or maybe even watching a video. So we really believe that augmented reality is going to be an important part of the way that people learn and interact with one another.
HM: On the AR glasses side of things. How far out is that? What’s the timeframe? You mentioned a decade, but it feels like we’ve been hearing that for quite some years now.
We’re going to have to miniaturise that technology and find ways to make it more efficient and evolve an AR platform, so people can make more immersive experiences. So it will take a long time before there’s broad adoption throughout the world
ES: The things that I mentioned are already available today on [Snap’s] Spectacles. We’ve been working on AR glasses for about eight years now. They started as camera glasses, first with one camera, then with two cameras so we could better understand the world in three dimensions, now with the display on the latest generation. So, lots of these experiences are already available today on [Snap] Spectacles, which is part of what’s so exciting.
Over time, of course, we’re going to have to miniaturise that technology and find ways to make it more efficient and evolve an AR platform, so people can make more immersive experiences. So it will take a long time before there’s broad adoption throughout the world in the same way that there’s adoption of smartphones today. But what’s so exciting is that the software platform already exists today, and the hardware is available in the form of Spectacles.
HM: Along with rival platforms, you’ve been hit by tough macro economic conditions — the slowdown — and you’ve had to announce a bit of restructuring. As part of that, you said you were narrowing the scope of your investment in Spectacles. What does that mean, exactly?
ES: It means our efforts are going to be much more focused on the fundamental research and development that’s required to make really compelling consumer AR glasses and less focused on scaling up the production of those glasses, where a lot of the cost is. So, as we talk about broad-based consumer adoption being further into the future, that’s consistent with how we’re investing. We’ll be much more focused on fundamental technology, and improvements to our AR developer platform, but not necessarily scaling the production of AR glasses to millions of people. That’s something that could happen far into the future, but not in the near term.
HM: So, essentially, waiting longer to put out something to consumers?
ES: Maybe waiting longer to put something out at a broad-based scale. So, instead of focusing on the developer community, continuing to evolve the software platform, and investing in fundamental R&D.
HM: Rather than putting out semi-finished versions along the way, waiting until you have one that you’re very, very ready to ship?
ES: We will continue to put out new versions of our glasses, it’s really a question of the scale: how many of those glasses do we make; and how do we distribute them? We won’t make a very large volume of them, or distribute a large volume of them, until we’re a bit further along. But, in the meantime, we’ve actually found it’s been quite effective to continue to create new versions of our glasses, because then developers can use them to build all these experiences.
Today, often with new hardware products, there’s a ‘chicken and egg’ problem — because you buy a new piece of hardware, but there aren’t all the interesting software experiences. And there aren’t the AR experiences that you might want to use with the glasses. So we believe this partnership, where we’re giving new versions of our glasses to developers to play with, helps us build lens experiences that people can use on Spectacles, but also on their smartphones, today.
HM: How else have you narrowed your scope, as part of the sort of recent restructuring. Have, you had to rethink your approach due to any unforeseen technological issues?
ES: We’re always iterating. And evolving. A huge part of the innovation process is trying to learn as quickly as you possibly can. What’s so exciting about innovating on AR at Snapchat is the breadth of engagement with AR on our platform today.
And, as we package up our AR technology and camera kit, and provide that to partners, we’ve also been able to unlock new use cases. I don’t know, if you’ve had a chance to check out the Vogue runway app. It’s pretty fun: you can try on the latest looks fresh off the runway, directly in their application. That’s been a really fun partnership for us.
HM: Do you envisage yourself licensing some of your AR software to other companies and to their headsets?
ES: That’s a great question. We certainly architected our software to be able to do that. But that’s a pretty big strategic decision. And we haven’t made the decision to distribute our AR platform to anyone else’s AR glasses yet. But that’s certainly something we might consider and [it] would be aligned with our strategy so far, which is to take our AR technology, and provide it to partners to run in their own applications. So it’s something we certainly have thought about. But we haven’t made the decision to do that yet.
HM: Do you have an idea of what advertising will look like in this long-term vision of yours, which includes AR glasses?
ES: The important thing with advertising is that it always follows engagement. So the key to building a big advertising business is really innovating so that people love using your product and engage with it a lot. If you can do that, then there are plenty of ways to monetise using advertising.
We have an advertising business today inside of Snapchat . . . so we’ll continue to think about new ways to evolve advertising for augmented reality. But we haven’t thought particularly about how that might work. Like the glasses experience, we’re really focused on doing that inside of Snapchat, because — as I mentioned — advertising really has to follow engagement. And 250 million people are engaging with AR everyday on Snapchat, which makes it a good fit for advertising. Our efforts with glasses are still quite nascent.
HM: Who do you consider your rivals in this space? I know I named Meta, Google and Apple, but I don’t know if there are others.
ES: That’s a good start! I’m sure there’ll be more. Since we started building Snapchat, we’ve always had very large competitors. If you think about it, whether it’s Facebook or Instagram, or Twitter or WhatsApp, all of these companies existed before Snapchat did so we were used to an environment with big, well-funded competitors. We’ll continue to just focus on our community which has been our strategy since the very beginning.
If we can make stuff that people really want to use and have fun using with their friends, I think we can be successful over the long term — and none of those companies have to lose in order for us to win. That’s also an important part of the competitive dynamic.
HM: Speaking of competitors, [Meta CEO] Mark Zuckerberg has his vision of an avatar-filled metaverse where we’ll all one day log in, via VR or AR. So AR or VR is the gateway into this world, and headsets and wearables are presumably part of that. Do you agree with that vision?
ES: We’re very focused on augmented reality, because it’s grounded in the real world. And we think people are gonna want to spend most of their time in the real world with their real friends. AR can be a fun way to share activities and experiences together in the real world. That fulfilment that people get from actually being together is something we really want to support.
People are going to want to use things like avatars . . . [they] have created over a billion Bitmoji, an avatar that we work on here at Snapchat. People love trying out new fashion, There was a great new drop of Jordans that were limited edition, for your Bitmoji, that was really popular in the last week or two. People are gonna want to play with things like virtual fashion and express themselves using avatars. But I would say our focus is primarily on augmented reality. For the reasons I mentioned.
HM: Do you think that there will one day be a big space where billions of people log in to socialise, work and meet, either using AR or VR — this idea of an avatar filled metaverse?
ES: Oh, goodness, probably a bit too early to say. But I’ll certainly be following the developments.
HM: Snap was ahead of Mark [Zuckerberg]’s vision with Bitmoji avatars. They’ve been around for years. So do you already think there’s some form of a future metaverse you would want to be a part of?
ES: We’re still trying to figure out what the metaverse is over here. But again, I think what’s more important is to really focus on delivering value for our community. That’s why AR is so exciting. It’s not something that we have to wait for. It’s something that already exists today, that people are using on their smartphones — hundreds of millions of people are engaging with it, developers are building for it.
HM: What are the biggest challenges to this AR vision of yours?
ES: Augmented reality has always taken long-term focus and execution. And that’s critically important. I think Snap is now at a scale where we can invest over the long term. When we were in my Dad’s house, we were just trying to survive until tomorrow. But, today, you know, we’ve got a really talented team that has such a great vision for the future. We’ve got hundreds of millions of people around the world who love using Snapchat every single day. So, between our community and our team and our ability to invest for the long term, hopefully we can overcome whatever the world decides to throw at us. It’s been a pretty interesting past couple of years.
HM: Among the potential challenges, there’s obviously the technological, and the regulatory, and then consumer demand — winning people over to this way of life. I don’t know which of the three is more challenging.
ES: We’re constantly thinking about how to improve our products for our community. Just trying to keep that focus on really building products that people love: that’s what gives you the inspiration to overcome the technological challenges and drive towards a great product experience.
HM: And I have to ask: why did you kill off Pixy — the little flying selfie drone — only a couple of weeks after it was launched? I actually have one!
ES: It’s such a fun product and obviously there was a great reception. But, unfortunately, it is also a low-margin product. So it is not built for this brave new world!
HM: The other big challenger — more to your existing platform rather than AR — is TikTok. You cater to a similar demographic. How much of a threat are they? How can you protect yourself against TikTok eating your lunch?
ES: The most important thing is to focus on the core value that we provide to our community, which is visual messaging. That’s what’s given our business the resilience to navigate tonnes of competitive challenges over the years — whether that’s Facebook and Instagram or YouTube.
There are always going to be new places for people to watch compelling content. Content is a very, very competitive business. So what’s very important is that we have this durable way that people get value from our service by talking to their friends and family. Of course, over time, we’ve taken that communication use case and then diversified it. So people use our AR platform, they use our map to see what their friends are up to. They want stories from their friends, they also watch spotlight content, which highlights some of the most engaging content created by our community.
So, while we’re going to continue to compete with them, when it comes to our content business, the reason people come to Snapchat every day is visual messaging. And that has proven, over time, to be really resilient because — no matter what — people love talking to their friends and their family.