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Snap’s IPO has major challenges, but they have a plan

(BUSINESS NEWS) Snap is losing a whole bunch of money based on their IPO, but don’t worry, they have a plan.

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Trouble ahead?

Uh oh, Snap is losing a bunch of money. Like, a lot a lot. Pro tip for those who also weren’t paying attention: Snap is the company that owns Snapchat. Despite being a compulsive user, I only just learned this. I feel like someone I’ve known as Robert their whole life is now insisting on going by Rob and it just isn’t sticking.

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Unfortunately, I’m kind of worried about them now. Snap’s recently released S-1 has many drawing comparisons to Twitter, but not in a nice way. Like Twitter, Snap is losing leverage and its growth rate is slowing. Chart lover Ben Thompson at Stratechery throws down some comparisons of Snapchat to Facebook and Twitter at the time of their IPOs.

Thompson looks at Daily Active Users in relation to the cost and revenue of each user at the time of each company’s IPO. Unsurprisingly, Facebook, Twitter, and Snapchat’s daily active users have all steadily grown since their onset.

IPO standings


At the time of their IPO, Facebook was winning at the not losing money game. Though the company wasn’t gaining much leverage, it wasn’t losing it either. While Facebook’s total cost per user has increased since their IPO, average revenue per user has has also gone up.

According to the graph, Facebook had to spend a bit more per user, but its profits would continue to grow so long as either average revenue per user or total users increased overall. Lucky for Facebook, both of those things happened.


Twitter also had a flat cost of revenue at the time of its IPO, but its total costs were higher than Facebook. However, Twitter wasn’t able to grow revenue per user or increase the total number of users in a meaningful way.

User growth slowed and costs never flattened. Thompson notes, “had the company simply kept its pre-IPO cost structure it would be in far better shape today.” At the time of their IPO, Twitter and Snap are losing money on users.


For Snapchat, costs per user have surpassed revenue per user. Snapchat now pays more per user than Facebook or Twitter at the time of their IPOs. Snap needs to grow users faster than costs or figure out how to grow revenue per users.

Snap’s S-1 states their strategy is investing in product innovation through their camera platform.

The game plan is to engage users who they can then monetize through advertising. Click To Tweet

Snap’s strategy

Snap points out that as their user base grows, they will incur additional costs.The more people join, the more content is consumed and shared.

Snapchat isn’t fun if there’s no one to send snaps to, so user growth is exponential as new adopters and veteran users convince friends to download the app.

This means additional employees are required, as well as increasing computing infrastructure and development costs.

However, they have a plan: television advertising money. According to the S-1, worldwide advertising is expected to increase by over $1 billion in the next three years. Mobile advertising is predicted to increase nearly three times. Snap notes that people’s focus has shifted from television to mobile screens, particularly in its core demographic of Daily Active Users.

Snap is confident that its concentration in the US and access to high quality ad units make it desirable for advertisers. If Snap captures the best customers by delivering innovative products, even if those innovations are costly, they will profit. That’s banking pretty hard on the idea that TV advertising money can successfully tap into mobile, but we’ll see.

Snapple

Thompson points out that Snap’s focus on innovation is essentially Apple’s go-to strategy. However, Thompson says the problem with this approach is that it didn’t work out for Apple initially. When Apple first took to the market with Mac computers, they didn’t stand a chance against Windows. Microsoft had leverage by playing on already established standards in computing, creating backwards compatible software and tapping into IBM as a sugar daddy.

Likewise, Facebook currently holds queen bee status over Snapchat for the simple fact of its market saturation. While both companies managed to digitize offline relationships, Facebook has a tighter stranglehold on marketing.

However, Snap’s camera company might be what can put them ahead.Snap said they envision the camera screen as a “starting point for most products on smartphones.” In fact, Apple introduced a quick swipe feature allowing users to access their cameras without having to unlock or open up the camera app.

Like Apple, Snap thinks beyond form and function, instead focusing on delivering what the user doesn’t even know they want.

Five years ago I had no idea that my favorite app would be something lets me send out disappearing messages, but here I am preaching to anyone who will listen about the glory of Snapchat.

Snap cares

And bless Snap, because they really do care about all of us selfie addicted kids out there. Their S-1 states, “We believe it’s always worth trying to build something that will empower people to express themselves, live in the moment, learn about the world, and have fun together — even when it’s not clear that what we build will be successful or make money.”

This is why I love Snapchat.

Even though there are bumps in the road–some of those sponsored filters are really obnoxious–at its core, Snapchat believes in communication innovation.

They know they’re working with something revolutionary and are willing to take risks to continue serving their loyal consumers. I’m rooting for Snapchat, and apparently so are investors. They’re valued at $18.5 BILLION dollars, so let’s all cross our fingers and hope for the best.

A special thanks to Ben Thompson for keen analysis and wicked awesome chart skills.

#vivasnap

Lindsay is an editor for The American Genius with a Communication Studies degree and English minor from Southwestern University. Lindsay is interested in social interactions across and through various media, particularly television, and will gladly hyper-analyze cartoons and comics with anyone, cats included.

Business News

Former Budweiser exec says marijuana is the new craft beer

(BUSINESS NEWS) In light of a growing consumer demand and more states decriminalizing and legalizing, “Big Booze” casts sights on burgeoning marijuana market.

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Imagine all the Instagram photos. Imagine all those new hashtags (no pun intended).

A carefully placed pre-rolled joint next to a latte with a heart drawn in the foam, an iridescent glass pipe freshly filled held out at arm’s length with a mountain and a sunset at the horizon, and different strains or arrays of edibles displayed next to their branded packaging.

Weed: “It’s the new craft beer,” according to former marketing exec for Anheuser-Busch, makers of Budweiser beer, Chris Burggraeve.

Since leaving his position as Chief Marketing Officer, Burggraeve has begun investing in the marijuana industry, recently joining the advisory board of greenRush Group, the San Francisco-based startup that aims to be the “Amazon of weed” as the largest technology platform in the cannabis industry.

In addition to greenRush, Burggraeve also co-founded Toast, a company that makes luxury pre-rolled joints.

Research firm Cowen and Company released their findings last year that in legalized states such as Washington, Colorado, and Oregon, people have begun laying off the sauce as beer sales took a noticeable dip below the national average. According to a Gallup poll released last month, 64 percent of the U.S. population now wants to lift the federal ban on marijuana.

It was only a matter of time before those in the alcohol industry began to take notice. Just last month, Constellation Brands, the beer distributor who owns Corona and Svedka vodka, bought a 9.9 percent stake in Canopy Growth Corporation, an acquisition in anticipation of nationwide legalization of marijuana in the U.S.

Big companies like Amazon, however, have shied away from taking such leaps in the industry due to the current federal ban.

“This is one of the fastest-growing categories globally,” Burggraeve told Bloomberg. “When consumers want something, you ignore it at your peril,” also noting that in order for booze companies to stay relevant in some fashion, they will have to conform to cannabis, whether they want to or not.

“The same way that craft beer started and, for the longest time, was ignored and then exploded, there’s no reason why the same thing wouldn’t happen in this space,” Burggraeve added, also noting that his colleagues should follow suit lest be left in the dust. “There will be part supplementing and part complementing. The jury is out on how and where that will happen.”

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Business News

FCC nixed a 40+ year old rule blocking broadcast media mergers

(BUSINESS NEWS) The FCC is on a tear this month, this time dismantling a decades-old rule that supporters and critics are butting heads over.

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In a 3-to-2 vote last week, the Federal Communication Commission (FCC) rolled back media merger rules that have been around since the 1970s. These 42-year-old regulations prevented a handful of companies from owning the majority of media outlets in a market.

One now defunct rule stipulated TV stations in the same market couldn’t merge if the combo would mean there were fewer than eight independently owned stations as a result. Another rule prohibited a single company in a market from simultaneously owning a TV station and a daily newspaper.

Additionally, the original stipulations restricted how many TV and radio stations a company could own in a single media market. The FCC also approved Next Gen TV, a new broadcast standard expected to improve targeted ads as well as higher quality video and audio for on-air television.

Further easing media creation, last month, the FCC voted to nix a rule that required broadcasters to have a physical studio in their licensed market.

FCC Chairman Ajit Pai says these long-standing rules have made it difficult for smaller outlets like websites, blogs, and podcasts to thrive in a media landscape vastly different from the one that originated the regulations.

“Few of the FCC’s rules are staler than our broadcast ownership regulations,” Pai said. By eliminating them, he said, “this agency finally drags its broadcast ownership rules to the digital age.”

The National Association of Broadcasters agreed with Pai, welcoming the changes. In a statement they noted the old rules “weakened the newspaper industry, cost journalism jobs and forced local broadcast stations onto unequal footing with our national pay-TV and radio competitors.”

However, opponents argue this change will lead to media monoliths, with even fewer companies controlling most media outlets. “Instead of engaging in thoughtful reform,” said Democratic FCC Commissioner Jessica Rosenworcel, “this agency sets its most basic values on fire.”

Predictably, shortly after the vote, Comcast hit up 21st Century Fox all like, “Hey let us buy those parts of your company Disney wanted earlier this year but now we can have it because the FCC said so, I hope.” Previously Fox was talking about selling most of the company to Disney but keeping sports and news. Although the talks aren’t ongoing, apparently there may still be a Disney/Fox deal on the table. Verizon also noted interest in acquiring portions of Fox as well to provide mobile streaming content.

Senate Democrats called on the FCC inspector general to launch a probe regarding impartiality of the vote.

They cited concerns about how the deregulation may benefit conservative broadcasting company Sinclair, who expressed interest in buying Tribune Media for $3.9 billion dollars. This purchase could now be possible without Sinclair selling off their other stations to receive FCC approval.

“This merger would never have been possible without a series of actions to overturn decades-long, settled legal precedent by Chairman Pai,” wrote 14 lawmakers in a letter. Sinclair declined to comment, while Pai merely assured these changes “will open the door to pro-competitive combinations that will strengthen local voices.”

Guess we’ll just have to see how things go when Disney and like three other companies own everything.

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Business News

Apple under fire for alleged patent infringement

(BUSINESS NEWS) Apple is again under fire for patent infringement, this one appearing to be less patent-trolly than some other claims.

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Apple is once again being investigated by the U.S. International Trade Commission (USITC) for a possible patent infringement.

The investigation is looking into a complaint from Aqua Connect Inc and its subsidiary, Strategic Technology Partners. They are Nevada-based companies with headquarters in Orange, California, filing their complaint with the US District Court for the Central District of California.

Apple is already being investigated by USITC because Qualcomm claims that the company is using in violation of its patent by using Qualcomm’s modems to power devices like iPhones.

Earlier this month, Apple was also sued by an Israeli company, Corephotonics, which claims that the tech giant has used its patented designs in the dual lens cameras on iPhone 7 Plus and iPhone 8 Plus.

Likewise, Aqua Connect and Strategic Technology Partners claim that the company is using their patented technology without consent for features like screen-sharing and remote desktop on some MAC computers, iPhones, iPads, iPods, and Apple TVs.

It appears that the USITC investigation will look into these claims, but may take a broader view and look into other possible patent infringements.

“Initially, our product had Apple’s full support. But years later, [they] built our technology into its macOS and iOS operating systems without our permission,” says Ronnie Exley, CEO of Aqua Connect.

Apparently, Aqua Connect created the first remote desktop for Mac computers in 2008, but later they incorporated that technology into new products without permission from Aqua Connect. “These lawsuits seek to stop Apple from continuing to use our technology in their macOS and iOS operating systems,” said Exley in a statement.

Because the USITC has the power to ban the sale of products in the U.S., most companies choose to settle out of court rather than risk such a ban. It remains to be seen how Apple will ultimately respond.

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