We’ve all heard the phrase “don’t reinvent the wheel” — a metaphor for not wasting time perfecting a perfectly good idea that’s stood the test of time, and for which improvements would add no material value. Wheels, to take the metaphor in its most literal sense, haven’t been reinvented over the last thousands of years — they’re still round — but they have been refined and improved continually.
But that hasn’t stopped innovators from trying.
Remember back in 2013 when someone did, literally, try to reinvent the wheel and make them square? They never got traction — ha ha — proving the metaphor has merit, especially when taken literally.
So I’m here to suggest that the best strategy for payments and commerce innovators may be not to reinvent the wheel — so not to fundamentally change something so much that it is a totally new invention — but to take a look at something much more fundamental and use modern tools and technologies to make it better.
Refine, not reinvent.
And I’d like to use the company founded by Miranda Kerr’s new husband, Evan Spiegel, to make my point.
Snap has been beaten about the head and shoulders ever since it reported its first quarterly earnings a little less than 30 days ago. Following the news that its revenues failed to meet Wall Street’s expectations ($149.6 million versus $159 million), that user growth has slowed (8 million new users representing 36 percent growth versus 52 percent growth) and that it would post a $2.2 billion loss (in part, due to a $750 million payout to Ms. Kerr’s husband), the stock dropped 20 percent.
The company that crushed its first day of trading on March 2, 2017, by closing at a 44 percent premium over its opening share price, has recovered from its post-earnings plunge. While still off its post-IPO high, Snap’s market cap today is $25 billion.
Not bad for a company that’s younger than my border collie , Annie (she’ll be seven next week), and just started selling advertising in 2014.
So, before we write it off, 90 days after its IPO, remember that Facebook hit the skids shortly after its IPO in 2012 — and has recovered — so well that its market cap today is $445 billion.
But I’ll leave the stock market pundits to handicap Snap’s stock performance. My interest in Snap was to dig into the business by looking at its S-1 (isn’t that what all of you guys do on summer weekends?) to observe how innovative companies, like Snap, get off the ground.
I started by asking a few avid Snap users how they would describe Snap — and why they like it.
Nearly all of them said the same thing: Snap is a social network — and I like it because all of my friends use it.
I found that fascinating because that’s not — at all — how Snap describes its business.
In fact, observing how traditional social networks operated is what prompted Snap’s founders to create something different. Yes, Snap is about giving friends a place to share updates about what they are doing. And attracting and scaling a networked user base of friends is critical to monetizing its platform, but Snap doesn’t see itself as a social network in the same way that Facebook does.
Snap, on page one of its S-1 — and quite clearly on their website — describes itself as a “camera company.”
As in “Snap Inc. is a camera company.”
Period. Full stop.
Here’s the rest of Snap’s stated mission.
“We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.
Our products empower people to express themselves, live in the moment, learn about the world and have fun together.”
Yes, they used the word “reinvent” but sit tight for another few hundred words, please.
When I mentioned the camera mission statement to the avid Snap users I spoke with, I got a lot of scrunched up, puzzled faces in response.
Of course, they use Snap to send pictures to their friends — but thinking of Snap as a camera company?
That did not at all compute.
The Camera Part of the Snap Story
The first camera was invented in 1816 by a Frenchman, Nicéphore Niépce, whose wooden box could produce a picture that took a very long time to develop. Snapping pics of people or anything else in those days required hiring a photographer, having him come to a location and get his gear and his subjects ready and then processing those photos for in order to get a single picture.
It would take nearly 100 years for George Kodak to turn the camera into a consumer product that produced a “snapshot” — a picture Kodak described as capturing a spontaneous moment in life. The Brownie camera that he first launched in 1900 — and which remained popular well into the 1960s — put that opportunity into the hands of consumers for the first time.
But as Snap notes in their S-1, taking a picture in the early days of the camera was anything but an opportunity to capture a spontaneous moment.
To do that, the camera needed to be within arm’s reach every minute of every day, loaded and ready for action — which nine times out of 10, it wasn’t. And since capturing moments in pictures was a novelty, people wanted to keep all the pictures they took.
So, they had to be perfect.
That meant that snapshots became a series of highly posed, “say cheese” moments painstakingly staged by moms and dads and aunts and uncles and grandmoms and granddads while on family vacation, at birthday parties, at the holiday dinner table, graduations, first communions, baseball games, weddings and reunions — you name it.
I’m sure you have hundreds of them to prove my point.
Taking those pictures was also pricey. The cost of the camera, the film and developing the film made picture-taking expensive, which also made holding on to all of those pictures a priority.
So, before the smartphone hit the scene, just like the very early days of the camera, photos were taken to record moments worthy of being memorable — moments that were also mostly planned and posed.
The camera, now a standard feature on every smartphone, has become, Snap’s founders say, the starting point for smartphone-centric products, since they can be used to convey much more than the written word. Images provide context, convey emotion and, they say, give friends the best opportunity to share something in the moment. The smartphones that are always with consumers today can finally enable the spontaneity that George Kodak envisioned 117 years ago.
Millennials, more than any other generation, have embraced that notion with both thumbs. It’s been estimated that millennials will take more than 25,000 selfies in their lifetime, and they spend about an hour each week working toward that goal. Snap’s user base — 62 percent of whom are between the ages of 18 and 35 — create 2.5 billion Snaps each day and use a number of creative tools to enhance how those Snaps look before they’re shared with their friends.
So, did Snap reinvent the camera, or how friends use their smartphone cameras to communicate with each other?
The Trusted Communication Part of the Snap Story
Talking face-to-face with friends is an honest and authentic exchange of feelings and emotions between trusted parties — without being judged. Friends feel comfortable saying things to each other that they’d probably never say to strangers or want others to know they’ve said. Friends also trust each other to keep conversations private — knowing that the spoken word once uttered, disappears and can never be recovered.
Snap’s founders, in their S-1, state that today’s social networks have thrown the notion of trusted, private conversations between friends to the wind. They believe that since social networks were founded on the notion of permission-less, viral sharing and creating a permanent record of the words or photos posted that are intended to be shared, they could never be a place for the authentic exchange of feelings between people.
What those networks offer instead, Snap says, is a collection of posts that position people the way they want to be seen. So, instead of authentic posts and expressions, social network users get a carefully curated look at the person who’s posting — or no posts at all.
“Making deletion the default and permanence an option” is how Snap would recast the notion of a place where trusted friends could share their most honest of feelings — and do it using pictures that provide a rich context as a backdrop. Knowing that messages would disappear within seconds of opening them, Snap said, would encourage a free exchange of photos without fear of reprisal, being judged or being perfect, since they were being sent between trusted friends.
At the beginning, Snap’s disappearing message format was seen as a magnet for sexters who would find the disappearing format ideal. But Snap’s founders say theirs was a solution to a problem that consumers didn’t know they had but that they had gleaned after asking 18 to 24-year-olds what they liked and didn’t like about the existing social networks they used.
What they learned was that everyone loved sharing photos, but no one loved the inability to remove a photo of themselves that someone else might post of them that they didn’t want posted.
So Snap set out to get the most self-photographed generation in history on board by creating a trusted place where friends could share their most authentic feelings and thoughts by sharing photos. In other words, replicating how those private exchanges happened in the physical world — but inside of an app and using photos and a couple of words to do it.
But wait a second — how original is this?
Well, it isn’t, as Snap’s founders readily admit. For about 125 years, the main “social network” was the telephone network. People used the phone to communicate with friends. By and large, people expected that their conversations would be private (the big problem was party lines where noisy neighbors could try to listen) and would disappear once they hung up. But, generally, people didn’t worry about being recorded, unless they were caught up in really bad stuff that got a private detective or the government on their case.
And, before the telephone, telegraph messages and private letters were pretty private too.
So Snap took the “old way of doing things,” which everyone seemed pretty happy with, and just made it better. It didn’t reinvent the notion of people communicating privately between friends without a record of that conversation, they just made it better by using new technology and tools that consumers were already using to communicate with each other.
And in doing so, they pointed to a feature of existing social networks originally viewed as a virtue — but that soon became a vice and source of friction: sharing user-generated content without their permission.
The Making Money Part of the Snap Story
Snap admitted when it started that it had no idea how it would make money. So, it did what most consumer-facing, two-sided platforms do — build up a user base. Snap also admitted it was slow going at first, given the newness of their idea. But once Snap got a critical base of users, they began to play around with a number of monetization strategies — something that its latest earnings report shows is obviously still a work in progress.
Snap makes money through advertising, having long abandoned its initial thought of charging users to add “premium” filters to their photos. When presented with that option, consumers simply didn’t use them and also stopped using Snap to send photos to friends. Bad idea when the idea is to create a network of friends.
Today, Snap makes money when publishers pay them to reach their users. That ad revenue comes in many flavors and has evolved over the years. It now includes Sponsored Creative Tools, Stories and Snap Ads, which include a video strategy that was initially met with resistance by advertisers.
But here again Snap decided to adopt something that worked really well in the physical world: television advertising.
TV advertising is really effective. The ads are generally entertaining — that’s the only way to keep people from getting up to raid the fridge — and people hate them a whole lot less than online ads, which have gotten creepy and intrusive.
So, this camera company that’s not a social network has worked to recreate “TV advertising” on mobile devices.
Snap recognized that all eyeballs were shifting away from television and desktop to a mobile-first environment — a shift that was more pronounced in the 18 to 24 demographic, who Nielsen reported spend 35 percent less time watching any television at all in any given month than that same age group did in 2010.
Snap also recognized that consumers — even millennials — liked watching video ads as long as they were funny and creative. That meant that advertisers had a product that consumers, even millennials, liked but didn’t have an audience to show it to despite their massive ad spend in the television segment.
Snap approached advertisers with their story of millennial engagement, and advertisers bought in, but balked at the idea that they’d have to reformat those ads for a vertical format.
Snap held its ground, proving through tests that consumers viewing video in a vertical format meant more consumers watching ads through to the end. Holding a phone vertically is the most natural way to consume content. And it also held its ground on the type of content that it allowed publishers to put on its platform. You’d be hard pressed to find “fake news” on Snap.
But did Snap really reinvent TV advertising? Or simply give advertisers a new place for consumers to consume the ads they were already creating?
The What You Can Learn Part of the Snap Story
Perhaps you think I’m parsing words, and one (wo)man’s reinvent is another (wo)man’s refine — and that investors pay more for companies that reinvent instead of refining.
But call it what you wish.
Snap didn’t invent a new camera — okay, there are those video specs which no one seems too enthusiastic about — but they identified a number of frictions that prevented millennials, most particularly, from engaging with their friends online via existing social networks.
Creating that experience was about replicating the things that friends valued most when communicating face-to-face: privacy, non-permanence and the ability to be authentic and honest in what was said — and use a better wheel, called the mobile device, to make it better.
Doing that allowed them to refine a better wheel for advertisers too — the ability to create entertaining TV-style advertising that consumers always enjoyed watching but just didn’t anymore since they are abandoning television.
Ironically, by doing all of this, they really did reinvent the notion of the modern day social network —turning an online social meeting spot for any “friend” to share content about “friends” into a private place for communicating with those they know and trust, in much the same way as they would if they were together face-to-face.
What can payments and commerce innovators learn from this?
Well, that reinventing something doesn’t always mean that consumers will like it or that it will end up creating the outcome for which you had originally hoped. Sometimes reinvention creates more friction, which may be what happened with social networks, and maybe what happened with mobile payment schemes that were as fast as cards but couldn’t be used at as many places.
Sometimes the best future is starting with the best of the past and making it better. Which is what Snap believes it’s doing with ephemeral communications and TV-like advertising.
At about the same time that George Kodak was showing the world what a camera could do, most of the people who bought those cameras went into their favorite store and bought it from a salesperson who knew their name and just put it on their tab. They walked out, camera in hand, bill to be settled later. They had the nirvana of payments experiences way back then.
Some might have even gone home and called their friends to tell them what they just bought.
Without leaving a trace.