Feb 16, 2017 · 7 minutes

It’s a good thing Snap is calling itself a “camera” company not a communications company.

Because something about its IPO talking points appears to be getting lost in Wall Street translation.  And that could be part of the reason why it has priced at the low end of the hoped for range, after much criticism on Snap’s numbers, declining growth, and lack of any vote new shareholders will get.

Before Snap’s S1 came out I heard from bankers that the company was explicitly positioning itself as the anti-Facebook. Not a Facebook alternative, but something that would never be and didn’t aspire to be Facebook. A company that would not and was not trying to gain 1 billion users, major international reach, or a broad demographic.

It was a brilliant strategy. Dick Costolo has told me many times one of his biggest challenges as Twitter’s CEO was simply trying to build any company with Facebook as a comp. Snap may have it worse, because it’s got Facebook as one comp… and Twitter as the cautionary tale. Distancing itself from either narrative loudly and clearly from day one was essential to Snap being able to run its own race as a public company. Similarly to how LinkedIn did, because it had a different strategy that wasn’t about getting to one billion users.

And then Snap either fucked that messaging up, or those receiving it “got it” about as little as they get Snap’s core product.

Sure, the S1 talks about the benefits of its users being in more developed Western ad markets and the reason brands will pay more to reach them is that youth demographic that comes to the site so obsessively. But the mixed message comes when Snap demands a multiple that compares almost exactly with Twitter and Facebook, and demands even more extreme control in its terms.

That invites every news outlet and every analyst and every potential buyer of this IPO to present charts like these from Goodwater Capital…

That report is called: “Understanding Snapchat: the Next Facebook or another Twitter?”

A recent Journal piece was dubbed “The Next Facebook? Wall Street Sizes Up Snap’s IPO.” In that piece, potential investors honed in on that question as critical to whether or not they wanted to own the stock.  This was exactly what Snap’s bankers initially sought to avoid.  

This may have been inevitable by the greedy terms it sought with declining numbers. How do you justify the multiple? Look at Twitter and Facebook. Snap’s ask demanded the comparison by its actions if not its words.

And that’s weighed on the IPO so far, if news reports and a pricing in the low end of its range are any indication. Because Snap’s user growth is declining, the comparison has increasingly tilted more towards Twitter than Facebook. Even if Snap pops -- which I would guess it will, bankers are good at orchestrating these things -- that will likely fuel more comparisons to Twitter, which started life stronger than Facebook as a public company.

But even if Snap had delivered this message better to everyone-- we will never go for mass, we are going for lucrative youth only-- they also seem to have flubbed explaining what that means.

Snap is at once saying its success will almost entirely depend on user growth and engagement from the 18-34 set. Its S1 emphasizes that it will require ongoing innovation to keep them hooked. But then, at the same time, this from outlets like the Journal: "Snap [has] to persuade investors they wouldn’t be buying into a fad."

Let’s be clear what any entertainment or product business aimed at the 18-34 set is: A business that accurately predicts and delivers new fads. Apple isn’t still selling the first generation iPod. Disney still sells Snow White and Cinderella gear but that’s not all it sells nor are they the best sellers. If you turn on Fox you aren’t still seeing ads for “Married with Children.” No successful businesses that cater to youth culture produce one product and assume it will continue to be used obsessively. It’s not merely that this age group tires on things that they obsess about quickly. It’s that the age group gets older and you need to constantly appeal to the ones coming up.

Ben Thompson articulated this well when he described Snap’s strategy as “The Gingerbread Strategy”:

Most companies use their S-1 to explain how they are building a sustainable competitive advantage — a moat, if you will. Snap is declaring that moats no longer exist; all it has is the Gingerbread Man strategy:

Run, run, run as fast as you can.

You’ll never catch me, I’m the gingerbread man…

...The payoff, though, at least in Snap’s telling, is a big opportunity to dramatically increase the average revenue per user by capturing technology’s white whale — television advertising money

If this is Snap’s business, it is absolutely in the fad business, just like Apple is, like Disney is, like Nickelodeon is. Like MySpace was. Like every aspirational brand aimed at the youth is. The bet isn’t that Snapchat-- the product as it is now-- isn’t a fad. The bet is that it can continue to produce new fads that resonate with the audience.

Oddly enough, Facebook-- the anti-Snap in many ways-- has weathered this challenge better than anyone online. It too started as a college thing, and well before its IPO, Mark Zuckerberg assiduously worked to broaden what Facebook was and who used it. So when teens left Facebook, the platform itself still had value, and meantime, he accurately predicted the next fad and “overpaid” for Instagram. And made a similar bet on a global user with WhatsApp. Whether or not he did the same with Oculus or it nevers goes mainstream, it was still a smart bet. As was trying to buy Snapchat for billions of dollars, as was copying every single thing Snap does relentlessly and obsessively. There’s a common joke in the Valley that Facebook has more people working on Snapchat than Snap does.

Tellingly Zuckerberg kept all these properties as distinct franchises from the core Facebook platform. Teens can dismiss Facebook as something their parents are on, but still flock to Instagram.

There is plenty for people to be bearish about in Snap’s actual S1. Three things not explicitly in the S1 would worry me more.

The first is what has long concerned me about Snap: A refusal to be a broad platform, and a love of catering obsessively to a youth culture. That puts you only in the fad business. Even Facebook still had the breadth of the core, desktop asset to fall back on while Instagram and other hotter businesses grew.

The second is that Snap doesn’t seem to grasp what it is and what makes it distinct clearly enough to get that message across to investors. Calling itself a “camera company” is cute, but that reads hardware. And certainly, Snap doesn’t want that baggage any more than it wants to be a Facebook comp. Notice how clear Facebook has been never, ever under any circumstances to call itself a “media” company, because of the baggage that has on Wall Street.

The third is that even if Snap is in the youth culture business, it doesn’t seem to realize that Facebook is better positioned to win there too. Let’s go back to an analogy like a movie studio or a music label or a fashion house: Disney’s genius is as much in continuing to make money off its existing cannon as it is churning out new hits.

And given how hard Facebook is pushing at replacing TV dollars, it is not only racing hard at what Snap does now, it is racing hard at where Snap says it needs to go in the future to make its model work. As Om Malik writes in the New Yorker, this whole “camera company” thing could position Snap as a leader in augmented reality, just as Facebook has already bet heavily on virtual reality. The more Snap tries to pull away, the more it seems to get pulled into Facebook’s gravity.

And that shouldn’t be a shock given companies as once disparate as Amazon and Netflix are locked in battle. Google and Facebook are fighting over video. Uber and Google and Apple and Tesla are fighting over transportation. To get a valuation like the one Snap seeks, this is the game. Titan on titan.

For all the early care Snap took not to fall into the same trap Twitter did at its IPO, it has failed. Like it or not: It’s the new Facebook comp. Good luck with that.