How to Turn Down a Billion Dollars

by Billy Gallagher

  As Zuckerberg set out to copy any feature that Snapchat found success with, Evan focused on experimenting at a rapid pace.

  He doubled down on what had made Snapchat a hit in the first place with messaging, releasing a Chat 2.0 that let users record and send ten-second (or shorter) Audio or Video Notes. These notes played like little messages in chat, with the Video Notes playing in a gif-like loop. Users could also now use Snapchat to call or video chat with each other even if the person they were contacting wasn’t already in the chat; previously, Evan had said he didn’t want Snapchat to be like a phone that rang, preferring instead to focus on having people in chat at the same time. But, as with many issues, he changed his mind and became convinced calling would be useful to users.

  In July 2016, Snapchat released Memories, a way for users to save their photos, videos, and stories in the app and, more importantly, a way for users to upload old photos from Snapchat or even their camera roll to send to friends or post to their story. For the first five years of the company, you couldn’t upload anything—every photo or video had to be shot in Snapchat and immediately shared, focusing everything on the here and now.

  Memories’s permanence was antithetical to Snapchat’s core ethos, but it was released late enough that users’ behaviors and norms were already well established. Had Snapchat released Memories in 2012, it may have been a disaster that cut into Snapchat’s real-time, fleeting nature. But because Snapchat already had hundreds of millions of users snapping for years before it released Memories, it was able to add to the product without changing core behaviors. Memories makes Snapchat’s camera even more useful, as it lets users store photos, videos, their own Snapchat stories in their entirety—indeed, their memories—all on Snapchat’s servers rather than taking up space on their phone. It is another step toward making Snapchat people’s default camera.

  By the time it added Memories, Snapchat had essentially built Facebook in reverse. It started with impermanent picture messaging, added a social feed that stuck around for twenty-four hours rather than ten seconds, then changed the immediate nature of posts.

  Returning to Snapchat’s S-1, we can see Evan’s strategy driving product development:

  We invest heavily in future product innovation and take risks to try to improve our camera platform and drive long-term user engagement. Sometimes this means sacrificing short-term engagement to introduce products, like Stories, that might change the way people use Snapchat. Additionally, our products often use new technologies and require people to change their behavior, such as using a camera to talk with their friends. This means that our products take a lot of time and money to develop, and might have slow adoption rates. While not all of our investments will pay off in the long run, we are willing to take these risks in an attempt to create the best and most differentiated products in the market.

  In March 2016, Snapchat acquired Bitstrips, one of the most intriguing new social products. The company was founded in Toronto in 2007 to help teachers create teachable comics using templates. Teachers could create little cartoons, add in speech bubbles, and put characters in costumes. In 2014, the company hit it big with the idea of simplifying the cartoon strips to single-panel sketches of people with their friends. Using some pretty impressive custom image rendering software behind the scenes, Bitstrips managed to make cartoon avatars—emojis that they called Bitmojis—that looked exactly like users. Users could then use their little cartoon avatar in a variety of situations and expressions to message friends and post on social media.

  Evan loved the company because it blended technology and art in a beautiful way. The rock stars of the company were not the developers but rather the artists. The founders came from animation and media backgrounds. The walls of the office were covered in personalized cartoons, giving it the feel of an art studio rather than a tech startup.

  Later that year, in July, Snapchat announced the deal in a Bitstrips cartoon panel on its website. In a reversal of how they handled previous acquisitions, Snapchat maintained Bitstrips’ flagship Bitmoji as a standalone app, the first step into Snapchat growing beyond its singular identity. The company urged users to download Bitmoji and link it to their Snapchat accounts, where they could use “Friendmoji” cartoons featuring users and their Snapchat friends’ likenesses together. Snapchat’s employee badges quickly displayed their cartoon Bitmoji self in lieu of an actual photograph of them.

  A few days after rolling out the Bitmoji integration, Evan proposed to his girlfriend Miranda Kerr. Kerr said yes and posted a photo on Instagram of her engagement ring with a Bitmoji cartoon laid on top of Evan proposing to her, with big letters below the two of them saying, “Marry Me!”

  The Bitstrips acquisition opened up the possibility of Snapchat as a platform—potentially a very lucrative one. Snapchat could already sell marketers on a wide range of products within its app: Discover ads, Live Stories ads, geofilters, lenses, and e-commerce opportunities like ticketing. Now, the company could begin making money off other apps, whether they were apps like Bitstrips that Snapchat owned or apps the company integrated with from a wider developer community.

  Again returning to the S-1, we can see Snapchat’s strategy behind using its creative products to drive advertising:

  To create effective advertising products that our community might enjoy, we often base our advertising products on existing consumer products and behavior. The same team that designs our consumer products also helps design our advertising products. This means that these formats are engaging and familiar to our users. For example, Taco Bell’s Sponsored Lens campaign that let people turn their head into a taco increased overall engagement on our platform because it provided a fun Creative Tool that people wanted to use and share with their friends.

  In 2015, Snapchat invested in a mobile shopping app called Spring. The Wall Street Journal has been vocal about its desire to sell newspaper subscriptions through Snapchat. Soon after Cosmopolitan editor in chief Joanna Coles joined Snapchat’s board of directors, she told Recode’s Kara Swisher that Snapchat would move into e-commerce soon.

  “Sweet is a channel on Snapchat that Hearst and Snapchat have done together, and the tagline is ‘Love something new every day,’” Coles said. “But at some point that will morph into an e-commerce platform so you will be able to buy from it.”

  Snapchat has also been experimenting with new types of advertising that take advantage of Snapchat’s QR code-scanning technology. Remember the earliest promotion on Snapchat? Frozen yogurt chain 16 Handles messaged its followers a coupon they had to use in the store before the ten-second photo disappeared. Snapchat’s new ads could do that at scale, letting users scan a QR code that unlocks a special time-sensitive deal on an advertiser’s product.

  Once again, Snapchat could look to Asian messaging giant Line, which they had previously studied when exploring early revenue models for Snapchat, and its success with stickers to see a model for Bitstrips. Line made over $200 million in sticker sales in 2015, almost $100 million of which is from third-party sellers who create and sell sticker packs on Line; the company made even more—over $300 million—from sponsored stickers (which are free to users, with Line raking in revenue from advertisers). You could easily claim that sponsored geofilters are already Snapchat’s sponsored stickers. When Snapchat rolled out geofilters, it included cultural icons like Soul Cycle and Disneyland. While those geofilters were not paid advertisements, it’s not hard to imagine sponsored stickers on Snapchat featuring users’ and their friends’ likenesses working out at Soul Cycle, eating at In-N-Out, or sharing Coca-Cola bottles.

  Memories expanded Snapchat’s world of content. Because most Snapchat users let the app know where they are (to unlock features like geofilters), you could be at a restaurant in Madrid you haven’t been to in two years, and a special “Throwback Thursday” option could pop up with your photos and videos from the last time you were there, provided you’d saved them to Snapchat Memories. The company has been fond of making ol
d technologies like QR codes and top friend lists cool again, and could easily resurrect something like Foursquare’s mayor badges (whoever checked in the most at the local burger joint became the mayor of it). Snapchat could award special filters and lenses to the mayor of a given location. There are obvious opportunities for sponsorship and revenue with this location approach as well.

  * * *

  In January 2007, Steve Jobs revealed the iPhone to the world and took a step to reflect the growing ambitions of his company. Apple Computer Inc. would shorten its name to Apple Inc., becoming more than just a computer company. By the fall of 2016, Evan set his sights on growing Snapchat beyond its eponymous app, changing the company name to Snap Inc. and announcing his first attempt to broaden the company: Snapchat Spectacles.

  Vergence Labs, the secretive hardware startup Snapchat purchased in March 2014, had been working for years on a pair of sunglasses that could record video for Snapchat. Evan tested a prototype in early 2015 while hiking with his fiancée Miranda Kerr.

  “It was our first vacation, and we went to Big Sur for a day or two,” Evan later recalled. “We were walking through the woods, stepping over logs, looking up at the beautiful trees. And when I got the footage back and watched it, I could see my own memory, through my own eyes—it was unbelievable. It’s one thing to see images of an experience you had, but it’s another thing to have an experience of the experience. It was the closest I’d ever come to feeling like I was there again.”

  With Spectacles, users can tap a button on the left corner of the sunglasses to start recording a ten-second Snapchat video. The glasses then transfer the video to your phone via Bluetooth or WiFi. Spectacles records video in a 115-degree circular format that is meant to more closely mimic how the human eye sees things.

  One of the biggest problems with Snapchat the app is that it takes you out of the moment. You and your friends are having a silly dance party, or just hiked to a beautiful view, or are surrounded by costumed people running through the streets. So you stop to pull your phone out to Snapchat it, and in doing so you lose the magic. What’s more, because all your friends are snapping too, the awesome moment is now ugly, with half of your friends also recording during your shot. If you and your friends have Spectacles, none of that happens. You can instantly record something, then add filters and effects and send it later. Although this isn’t happening in real time, that’s okay—the cultural norm around Snapchat that its content is curated yet close to live is so ubiquitous that people will continue to post close to real-time content.

  In September 2016, Snapchat teased the Spectacles launch with billboards on Wall Street and elsewhere of Ghostface Chillah, his eyes stylized to appear like the lenses of the sunglasses. The product debuted in the glossy WSJ Magazine, and Evan was photographed wearing Spectacles, along with his classic white v-neck, by fashion icon Karl Lagerfeld.

  Quick to distance the product from the nerdy and invasive Google Glass and to avoid overhyped expectations, Evan characterized Spectacles in interviews as a fun toy. Years before, Evan had noted that Snapchat would not build an app for Google Glass because he found the product “invasive,” like “a gun pointed at you.” To relieve people of the feeling that Spectacles were a social media gun aimed at them, and to address privacy concerns, little lights on the front of the sunglasses illuminate when the user is taking a picture or recording video.

  Growing up, Evan wished he had been part of the PC revolution. He was fortunate enough to be a major part of the mobile revolution. And he has grand aspirations to be an even bigger part of what comes next.

  Dominant tech companies are disrupted when new technologies emerge and platforms shift—from mainframes to PC and PC to mobile. Smart emerging players can ride these platform shifts from a nondominant position to a dominant one; it’s much easier to do this if you play a role in causing that shift. While Spectacles has been positioned as just a toy, it has enormous potential. If Spectacles truly succeeds, it will replace the iPhone as people’s primary camera and most personal device. This would be Evan’s greatest accomplishment, to replace the legendary device that was created by his hero. The same device that gave his company a chance.

  CHAPTER THIRTY-THREE

  SPECTACLES

  DECEMBER 31, 2016

  NEW YORK, NY

  I sat on the train from Philly to New York, absentmindedly Snapchatting. I watched a Snapchat from my friend Chelsea, who was celebrating the New Year with her high school friends in Mammoth Mountain out in California. We had a five-day streak going, which means nothing except that Snapchat puts a fire emoji and the number of days in a row you’ve Snapchatted each other next to your names. High schoolers have dozens of these “streaks” going with friends, many of which are hundreds, if not thousands, of days long.

  I had told myself I would get some writing done on the train, but found myself constantly checking my phone, looking at friends’ snap stories and football highlights on ESPN’s Discover channel. Arriving at Penn Station, I ducked and weaved through the throng of people and onto the subway, popping up at Fifth Avenue.

  As I approached the picturesque glass box of the flagship Apple Store, I saw the Spectacles logo, a black circle inside a white circle with a black border on a yellow background, looming like a big eye behind it. The Spectacles pop-up store was a plain, small storefront with a sign that simply read SPECTACLES.

  Internally at Snap, many felt Spectacles’s rollout was almost more important than the product itself. After announcing Spectacles in late September, Snapchat made it quite difficult to actually buy the sunglasses. The company used a vending machine, called a Snapbot, to sell the first runs of Spectacles. The Snapbot started in Venice and would announce its location twenty-four hours before it touched down. The Snapbot moved around California a lot, in Santa Monica, Pasadena, Brentwood, and Big Sur, but it also appeared in seemingly random places, like Route 66 in Catoosa, Oklahoma, the Grand Canyon, and Florida State University’s campus. Some people waited for hours in line for Spectacles—usually Snapchatting, tweeting, and Instagramming the experience. The artificial scarcity let Snapchat portray Spectacles as a toy, avoid harsh scrutiny about sales numbers, and run one of the most unique marketing campaigns in recent memory.

  The Snapbot avoided Silicon Valley and, for a while, New York. In November, I visited the new Snapchat pop-up shop that had opened in Manhattan, right behind the Apple Store on Fifth Avenue. It was cold, maybe forty degrees, but for New York in December, I’d take it. I had heard of lines as long as hundreds of people and customers receiving wristbands to come back, and I expected a long wait. So I was pleasantly surprised that there was almost no line.

  Inside, TVs lined the walls rotating in a circle to show off Spectacles’s circular recording style. There were three Snapbots in the back of the store; I walked up to one and used the screen to see what each color—black, teal, and coral—would look like on me. I settled on black, swiped my card, and the Snapbot spit out a pair of Spectacles.

  I headed over to meet up with friends in the West Village, eager to show them the somewhat ridiculous purchase I’d just made. We’d be going out to a party and then a bar—a fun night but nothing that would hold a candle to Snapchat’s New Year’s Eve parties of years past. It felt like a lifetime had gone by since we rang in 2013 with Evan and Bobby at their baby blue beachfront house in Venice. It seemed impossible that it had been just four short years.

  Back then, Snapchat had just added video messaging, which was very exciting. Now, there were stories and geofilters and lenses and Live Stories and Discover. Thirty employees had become fifteen hundred. Snapchat had become Snap Inc. In a few short months, Evan and Bobby would ring the bell at the New York Stock Exchange and Snap would be a publicly traded company.

  In just a few weeks, Snap would begin its roadshow for its March IPO. Michael Lynton stepped down from his Sony role to focus on helping Evan with strategy full time, and he was named chairman of Snap’s board in late 2016. Bankers f
or Snap’s IPO would portray Evan, still just twenty-seven years old, as one of Snap’s primary assets and a visionary comparable to Steve Jobs and Mark Zuckerberg.

  It seemed like a fairy-tale ending. But for Snap, the IPO is far from an ending. It’s the beginning of a very difficult new chapter for the company.

  “Five years ago, we came to the realization that the camera can be used for more than capturing memories,” Evan said when Spectacles launched. “We showed it can be used for talking. The dream for us is expanding the camera and what it can do for your life. It has capabilities beyond making memories.”

  Snapchat explores this possibility in its S-1 filing: “In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones. This is because images created by smartphone cameras contain more context and richer information than other forms of input like text entered on a keyboard. This means that we are willing to take risks in an attempt to create innovative and different camera products that are better able to reflect and improve our life experiences.”

  Evan is working to make Snapchat the starting place for an entire generation of internet users, akin to previous generations’ homepages and portals. As billions of people come online in the coming years, their first and primary way of connecting to the internet will be a phone. Everyone will have internet-connected cameras in their hands—although it’s not clear if they will all be able to have Snapchat, as the app is currently blocked in China, for example.

  We should look at Snapchat through the lens of three acts: (1) luck, (2) recording the world, (3) controlling the world. In act one, Snapchat was a simple picture and video sharer that came out at the perfect time and exploded in popularity. In act two, Evan and Bobby brilliantly made Snapchat the must-have app, packed with fun filters and lenses and engaging content with Stories and Live. If they can successfully pull off act three, Snapchat will take another leap, larger than the twenty-fold valuation jump from $800 million to $16 billion that Snapchat took from act one to act two.