Late last week, Snapchat announced two functional updates that both seem somewhat at odds with the app's wider monetization strategy. And those changes come at a particularly strange time, with Snap Inc. reportedly on the brink of a $25 billion IPO. But despite this, and despite the slow introduction of new advertising tools and revenue generating options to boost the app's bottom-line potential, Snapchat's latest updates have the potential to actively reduce their revenue opportunities.
The first change relates to how content within Snapchat is displayed. Up until now, Snapchat has had their Discover content - paid channels from publishers - featured prominently along the top of the Stories screen.
This gives Discover content increased exposure, boosting the chances of users clicking through - and that's important given that some 43% of Snapchat's revenue currently comes via Discover content and the majority of Discover clicks come from the Stories screen, as opposed to the separate Discover tab.
But despite this, Snapchat's actually demoted Discover content - this is how Discover material is presented in the new and improved Stories screen.
As you can see, the separate Discover tab remains if you swipe across, but on the Stories screen itself - where, again, most Discover clicks come from - the Discover thumbnails have now been moved down to the bottom, with content from accounts you follow given prime placement.
In some respects, the move makes perfect sense - rather than optimize for ad dollars, Snapchat's looking to maximize the user experience, and since more people watch Stories content than those that consume Discover material, giving it higher value screen real estate works to benefit the user, which underlines Snapchat's commitment to their audience and their willingness to change to improve the app, even, potentially, to the detriment of their own revenue.
In the long run, that's the better path, optimizing for engagement is a smarter strategy - but then again, as noted, Snapchat's looking to head into an IPO. Maybe it's smarter to be reducing your revenue potential now as opposed to trying to do so under the weight of shareholder expectation (see: Twitter).
The other change that Snapchat announced is the removal of auto-advance in Stories content. Introduced back in March, auto-advance sees each of the stories from the accounts you follow flow on into each other - when one ends the next one in your queue begins.
But Snapchat's found that auto-advance just hasn't resonated with the user community - as per the official Snap blog:
"Unfortunately, this change made it impossible to individually choose which Story to watch. Sometimes we just want to see what our close friends or family are up to - not all of our friends - and Auto Advance prevented that."
As such, Snapchat's opted to remove it, which, again, is another win for users, but it also removes another ad opportunity, which will no doubt have some level of impact on Snapchat's wider revenue ambitions.
Snapchat has said they'll still show ads between Stories via their new "Playlist" option - the Playlist functionality enables users to select the Stories they want to watch, and the order they'll play in - and post-roll, at the end of a Story you've watched, but neither of those measures is likely to generate anywhere near the exposure that mid-roll ads between Stories could.
As noted, both updates underline Snapchat's dedication to optimizing for user engagement, which is an ethos that's helped them get this far. But with Snapchat's earnings tipped to be reaching close to $1 billion in 2017 they'll need all the revenue generating options they can get.
Understandably, if there's a significant problem with the in-app functionality, now's the time to change it before revenue expectations are set in stone, but the updates do raise questions about the platform's mindset and approach to the next phase of their growth.
In terms of approach, Snapchat recently unveiled their first hardware play, camera-enabled glasses called 'Spectacles', while also re-branding as "Snap.inc" and touting themselves as "a camera company", not a social networking app. Those changes, in combination with the latest in-app tweaks, could mean the company's taking a step back from its accelerated ambitions, and maybe even re-considering whether they should become a listed entity at all. Combine that with increased competition from Facebook (via Instagram Stories and various other Snapchat-esque additions), and a re-think on this front does make some sense.
As is evident in the case of Twitter, social apps will inevitably be compared, unfavorably, to Facebook by the market, so staying private and capitalizing on your niche could be a better way forward.
But then again, it seems more likely that Snapchat has plans underway on how to replace those revenue opportunities with better ones - there have been reports of things like image-recognition-triggered ads, for example, which would enable advertisers to reach people based on objects captured within a Snap, like a store logo or a product within a certain radius of a business (the example provided was a person who's taken a Snap of a cup of coffee is then offered a discount coupon based on that snap).
If that's the case, it'll be interesting to see what kinds of new ad options Snap Inc. comes up with, and the new potential directions those tools steer the wider social marketing sphere. It would also bode well for the future of Snapchat - if they can come up with less intrusive ways to generate just as much revenue, that should help keep their audience growing, while also enabling them to provide better, more responsive ad options.
No doubt there are many challenges facing Snapchat - including Facebook's strategy of launching Snapchat-type functions into regions where Snapchat is yet to gain a foothold - but there is still much to like about the app's approach. And while we can't know what these latest changes might mean, the fact that Snapchat's still willing to roll back potentially revenue-generating tools to optimize for engagement seems a positive sign, backing their innovation to get the job done, as opposed to asking users to take an experience hit for the sake of their financial goals.
And as we move into the next phase of VR and augmented reality, Snapchat also, just quietly, is right in the race. It remains a key platform to watch.