Snap, the company formerly known as Snapchat, has finally confirmed it is planning to go public, with an IPO expected sometime in March. If all goes to plan, the company should net somewhere in the realm of $25bn (£20bn) from the public offering, shooting it past Twitter in market cap terms and cementing its position as one of the largest social media companies in the world.
But while it sounds like the typical final evolution of a Silicon Valley titan, Snap has deliberately charted a very different route from its most obvious competitors for much of its history.
Brits got a taste of that distinction early last month, when Snap announced plans to set up its international “hub” in the UK. The UK office, which has grown from six to 75 staff in the last year, will not only be the taxable base for Snap’s British revenue, but also for all revenue made in third countries which do not (yet) have their own local establishment. For the countries where Snap does have its own office – currently France, Australia, Ukraine and Canada – revenue earned there will be booked there.
While Snap was keen to emphasise that the announcement did not constitute launching an “international HQ”, its choice nonetheless represented a stark contrast with the typical approach of US tech companies.
Firms like Apple, Google and Facebook have all taken a more monolithic approach: incorporating an international HQ in a low tax and regulation jurisdiction, such as Ireland or Luxembourg, and booking as much revenue as possible there, while shrinking local outposts to small subsidiary companies which legally do little other than provide “services” to the main, revenue-generating arm of the corporation.
When it announced the change, a Snap spokesperson downplayed the difference, describing it as a common-sense decision to align the company’s structure with its business. But it was just the latest in a long line of choices which reflect the company’s unwavering commitment to not follow the norms of the tech industry.
The first, and most obvious, of those is pure geography: Snap is not based in Silicon Valley. And unlike Uber (based in Oakland) or Twitter (based in San Francisco proper), that’s not San Franciscan nitpicking: Snap is based about 400 miles south, in Venice, Los Angeles.
That original distinction has led to a very different culture inside Snap from its ostensible peers. Take advertising, the core revenue stream for both Snapchat and Facebook. At the latter, the entire pipeline is programmatic: any advertiser, large or small, can visit ads.facebook.com, plug in payment information, and create an advert. Those adverts can be targeted as narrowly or broadly as the advertiser desires, and can be billed in a variety of ways, from paying a flat fee for every thousand views to payments per click, per like, and more.
After a certain scale, Facebook does involve humans in the process, but even then, the actual ad buy remains automatic. That’s very different from Snapchat’s approach: Last year, 100% of the company’s ad revenue – $58.1m, according to research firm emarketer – came from adverts on Discover, the firm’s publishing platform. Those adverts are the digital equivalent of old print display adverts: designed by real people, placed in the system by Snapchat, and overseen before they go live. Snapchat even sold them in the same way as print ads, charging a fixed price for each slot, rather than using an automatic bidding system like the majority of online adverts.
Even last year, when Snapchat’s revenue stream branched out into other products, it was still the case that every dollar it took needed the oversight of a human. On top of Discover adverts – which took $150m in 2016, according to emarketer – Snapchat sold sponsored Live Stores, taking $96m; sponsored lenses, taking $73m, and sponsored geofilters, taking $29m. Of those, only the last can be made with minimal involvement from Snapchat, thanks to the firm’s on-demand geofilter platform. Even then, though, Snapchat still manually inspects every filter before letting it on the platform.
The company is working on adding a bit more automation to its product, with an advertising API available for businesses to “programmatically buy, optimise, and measure advertising campaigns in real time”, according to its S-1 form filed with the US securities and exchange commission. But it has shown no indication, yet, of moving to the fully hands-off approach of competitors.
Part of the reason for that is another massive distinction between Snap and it’s peers: the company doesn’t really care about profiling its users. Speaking in 2015, chief executive Evan Spiegel explained his dislike of data-driven advertising products, saying “I got an ad this morning for something I was thinking about buying yesterday, and it’s really annoying. We care about not being creepy. That’s something that’s really important to us.”
Avoiding the creepiness has played out in a number of ways. For one, it’s meant that Snapchat, unlike Facebook or Twitter, has a motivation to keep its user base fairly concentrated. Its S-1 highlights the fact that its users tend to be in wealthy countries, with good internet connections and powerful mobile devices, as well as skewing young and female. To a traditional advertising-based service, that’s worth expanding on, because every additional user represents more adverts that can be sold. But for Snapchat, the focus means that it can sell ads targeted at a specific demographic, without needing to gather personalised data about its users. You buy an advert on Snapchat, you know roughly who sees it: that’s the sales pitch.
But the question for Snap going forward isn’t whether it is different from the Silicon Valley norm. Instead, it’s whether it can convince investors that that difference is worth preserving. Snap has few users, no profits and an unsteady plan for growth, but it’s being groomed as a potential competitor to Facebook. The pressure from Wall Street will be to head down the path that Zuckerberg laid out five years ago, and it’s up to Evan Spiegel and his team to convince the money that an alternative way is possible – and profitable.