"We have committed to spend $2 billion with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google, some of which do not have an alternative in the market."
There's some numbers for you that Google wouldn't have provided (as far as I have seen).
This, and related topics, always makes me laugh a bit. Mostly because people and companies will defend either move, with terms such as "focusing on the core business" or, opposite that statement, as "vertical integration".
From my mostly uninformed POV, a company can do whatever they want with respect to this and be on good ground, making it an arbitrary decision with little basis in actual objectivity.
Things scale differently in different markets and products... It might be trivial to spin up extra cloud capacity within Google's system and benefit from all the robustness and redundancy they've already designed out. Meanwhile, Amazon is building their own UPS competitor because their infrastructure needs in the real world are specialized enough to be able to benefit.
Each case is different and the details drive the decision.
TLDR (for my comment) : Amazon are building their own UPS because they can. Any othe arguments in favor of it be it efficiency or costs are secondary.
Longer version:
Not sure how Amazon deliveries by UPS are in the US but in the U.K. there are carriers which offered far better delivery service than what is known as Amazon Logistics here in the U.K. Once Amazon started using Amazon Logistics, the level of service dropped significantly. False deivery attempts were common and Prime Next Day were not happening next day 3 out of 5 times. I cancelled my Prime membership.
After about a couple of years I have resubscribed to Prime since it is now much better value AND Amazon Logistics have noticably improved. Next day and even Same day deliveries are indeed happening.
They didn't need to setup Amazon Logistics and suffer poor service quality. There were near perfect couriers (for e.g. DPD they even offer tracking your courier driver on a map in near real time).
That wouldn't be surprising at all. Alibaba has long been building its own logistics for Taobao in China as well. It's quite a natural development of affairs I guess.
> Things scale differently in different markets and products.
This is vague.
Running on the cloud is always more expensive than running your own infrastructure past a certain size and always provides less predictable performance.
That doesn't seem obviously true. If you operate a service and I operate a service and their loads are out of phase the cloud provider can serve us both with one set of hardware, halving the price. If I own my hardware, and I'm not a cloud computing provider, I pay the full cost 24x7.
That both directions can seem like a good idea to a speculating outsider doesn't mean the decision is an arbitrary one. It means the deciding factors aren't something we're privy to.
It's actually about whether or not it would cost more, over the long term, for a company to develop such capabilities themselves, or to outsource it.
Generally, due to economies of scale, a big, established provider will be able to provide such a service much cheaper than it would cost you to run an equivalent service.
However, it depends on how much that provider is charging you, on top of their cost of sales. It's pretty basic in that if it costs more to do it yourself, it's easier to let someone else do it. Especially when you take into account the considerable R&D costs that it would take to provide an equivalent service. Google's services would, I'm sure, be highly developed. This statement says as much, in that it claims Google has services offered by no other company.
Expert on Cloud Computing here. Short answer is "No". Here is why. Google Cloud has infrastructure that scales to petabytes of data and millions of users. Google primary uses this infrastructure for storing, processing and communicating the Internet. Add the services like Pub/Sub, Dataflow, BigQuery, TensorFlow & CloudML and things like security, communication backbone, ... its near impossible to build Google Cloud or even few critical components like the ones mentioned above with 2 billion dollars. Also, if they focus on building infrastructure, it might slow them down significantly. They are better off building their chat platform rather than building the infrastructure.
Hmm. Cloud computing expert here, too. I partially disagree.
I would simply say "it depends". For companies with specific use cases, e.g. Dropbox, it makes A LOT of sense to build at least 60-70% private, and the rest on AWS or GCP. Snapchat looks like a special case to me.
If you are doing just one or two things at a massive scale (Dropbox storing files), it makes sense. But, we are talking about Snap Inc, the infrastructure, and services it needs. A single high-speed intercontinental fiber cable costs 400 Million $ (https://techcrunch.com/2016/10/12/google-and-facebook-are-bu...). To build a service like CLoudML (Hosted TensorFlow), you need to write software (TensorFlow), build the ASIC Chips by manufacturing / by partnering with a chip manufacturing company like Intel / Samsung / Qualcomm, you need custom networking software and hardware to scale massively for data workloads (Andromeda), years of research to build these tools, you need to create your own programming language (Go and Dart) to be able to scale your development to these levels, you need to build data centers in multiple regions, you need to build DeeLearning models for cooling your data centers (https://deepmind.com/blog/deepmind-ai-reduces-google-data-ce...), ...
> if they focus on building infrastructure, it might slow them down
I always found this issue of "focus" a bit strange. Two billion can buy a lot of focus. For example, say there was a separate company smaller than Google that snap outsourced their infrastructure to, allowing them to focus, then they bought that company - it comes out to the same.
The amount of money on the table isn't 2 billion dollars. The amount at stake is the difference between 2 billion dollars over 5 years, and the theoretical best case operating costs of your own infrastructure, which very well might be higher than Google's because Google's scale is bigger. Snap might say to themselves that they don't want to be paying Google's margins, so they invest a billion dollars in development for infrastructure with identical performance costing only 350 million a year instead of 400 million. Is that worth it?
By "cloud computing expert", do you mean Amazon sales shill? It's weird enough that someone on HN would just use that vague credential of "expert" in the first place, but this thread is ridiculous ('round here, usually we recognize experts when they say something along the lines of "Hi, I'm the guy discussed in the article...", or "Hi, I actually wrote that software 15 years ago...").
You know that Snap can hire more than 3 people, right? They can have people working on the infrastructure at the same time that someone else works on "the product" they want to build. That's what happened at Google, and as a side effect, they now have a cloud platform they can rent out.
There are some benefits to using cloud services in some cases. It's rare that 100% cloud is a wise deployment move, especially for companies that operate at Snap-scale.
That's the point I'm trying to make. Snap has, say, 100 employees + $2b. The 100 employees are working on features. The $2b can now go to Google, or to purchase "focus" for in-house infrastructure, there is no slow down in developing features. Now if they can't technologically duplicate what they need using $2b is a different story which I have no opinion on.
They don't just have to build it though; they have to build it fast enough to handle their growth. $2B might not be enough (or it might not even be possible for any amount) to build what they need fast enough to not hamper growth.
Also, by buying from Google, they hedge against lower than expected growth too. If growth doesn't meet expectations, while they're still obligated to spend the $2B, they can re-sell the services for likely close to cost, given they'll be getting a discount.
Of course it's damn possible to build that with $2 billion. Will it be robust as google's infrastructure? No. Will it have (unlimited) scale as Google has? No. Will it have network connectivity and geographical distribution as Google has? No.
So, if you set scope on expectations and dedicate time and resources, it's definitely possible. Reasonable? Probably not.
It doesn't matter the amount of money you have, it's basically impossible.
Everything at Google is an internal Google secret made by Google for Google. ALL the software and ALL the hardware that's running it.
Services rely on lower-level services. If you want to copy the high level service yourself and executes it at the same level Google does, you'd need to have everything it depends on. Too bad for you, each piece is a multi billion dollar projects itself, with its own dependencies...
Let's imagine for a minute that there was a service that is somewhat standalone-ish. You may consider poaching the handful of people who can make it, for $1M a head. But that won't work well because money is not everything and you can't help it. Whenever there are ONLY 50 people in the world who can deliver what you need and you need almost all of them, you're fucked.
In short, the castle is out of reach, even the building bricks are out of reach ;)
That's really the thing with Google. They have this huge empire and they build on top of their other work. This is why Apple Maps could never come close to competing with Google Maps. This is why Google Home at launch already did a far better job at understanding queries than Alexa which has been out for 2 years.
They're so well situated, with a years worth of technology and tools, so it's really hard for a new comer to compete.
Not a businessman but who says its all about the infra. buy vs. build. It allies them with Google. It gives arguably the most powerful co. in the world a stake in Snap' growth and success.
It might be possible, but Snap could be constrained by engineering resources. Google has some super smart engineers and while Snap might be able to build something cheaper, that might mean pivoting your entire primary business to essentially compete with Google.
Maybe it is, but this is a path-dependent phenomenon. GAE allowed Snap to reach this point in their growth. If they had earlier focused on internalizing their operations they might have failed to get here. Now that they are here, it apparently makes sense for them to commit to GAE for at least several more years.
If there's an adequate supplier, why take the risk and time to develop second-mover competition to them rather than just buying from them and building your core business?
It is absolutely possible to build a stellar internal alternative to Google's offerings in 5 years with 2 billion dollars.
edit: I should point out that this doesn't account for ramp-up. It would obviously take awhile before things would be to a point where it would be even comparable.
Just to clarify your answer, here is another thing Google won't tell you: once you build yourself in their cloud you will have to find something else to do with all the time you used to spend on latency.
What I can't figure out is why Oracle didn't start down this road 10-20 years ago. They more than anyone should have some ideas about scaling infrastructure for databases.
sales led, not strategic, and it would have cannibalised their existing money printing machine. imagine if they started offering their customers PAYG elastic accounts rather than multi year mega provisioning deals - their numbers would have been destroyed
Two options. Companies can focus on cutting costs (roll their own infrastructure), or focus on expanding revenue. Snap clearly should and is in expanding revenue mode.
In my opinion, it's highly unlikely that you could match Google's hardware for $2 billion ever, much less in 5 years.
Keep in mind that Google's revenue in 2015 was $75 billion. Their hardware and software know-how is fundamental to their ability to make this kind of revenue, so you better believe they're investing more than a measly $400M per year (Snap's $2 billion over 5 years) back into their hardware. This Snap commitment is a drop in their revenue ocean, at 0.5%.
From a non-fiscal perspective, there's a lot of other great reasons to think so. For one, they've been building custom hardware for a decade at least to support the needs of running at the scale they do. Worth checking out this paper [1] and this video [2] if you're interested in some of what they've been doing purely on the networking side. In mid-2015 their newest data centers were pushing 1 petabit per second of cross-sectional bandwidth. [3] That's mind-blowing capacity.
So their internal data center networking is at or near top of class. In addition to this, they've also invested heavily in inter-DC and backbone capacity [4. Again, this is something that you presumably benefit from when, say, distributing your content across the world for faster access.
In addition to that, you get access to all their class-leading scheduling software and state management software that they've developed, refined, and redeveloped over the last 15 years. They know how to take a pool of compute and storage and turn it into solid distributed systems like only a few organizations do. I'm sure they get a good amount of advising from Google's experts somewhere in that $2B, not to mention services like BigTable, Kubernetes, etc. that you can find on their growing products page [5].
So though I can't back my prediction up with solid data, since I'm not a Google exec, I think it's pretty obvious that even $2B is not going to get you anywhere close to Google's existing infrastructure. Definitely not in 5 years.
Key point: You dont have to match all of their hardware nor all of their software - just what you are utilizing and some of that could be done from existing open source projects - Snap certainly does not utilize every piece of hardware in existence for Google Cloud Platform
First, the open source world is a pile of crap that doesn't work and doesn't stick together. It's not remotely comparable to any of the offering from AWS or Google, let alone their combination of offerings put together.
Second, they definitely use EVERY piece of software and hardware. Just like anyone who has over 100m daily users.
You don't need to match their hardware. You need to match the subset of features and functionality their hardware provides to you. That is a much smaller footprint and smaller/specialized engineering problem.
You seem to be assuming that all of googles revenue is going back into hardware/backend investments, and that somebody using Google cloud offerings is getting full access to everything they are investing in.
Of course it is. But you need to operate the service while you're building the replacement. What that says to me is that there is an order of magnitude improvement in their operational costs available to them. Depending on how long it takes to build their own infrastructure, that could imply a big boost to margins 1, 2 or maybe 3 years down the road.
The cost of moving software that relies on app engine frameworks is probably the bigger unstated one. Unless you can port those frameworks to your shiny new datacenter with automated deploys, etc, you'd be running two versions of the same code for a while.
Most likely not. My understanding is that Google also has their own long-haul ocean fiber, and those things cost hundreds of millions of dollars by themselves.
Why take the chance when you're about to have a lot of IPO cash? Go with Google for a few years until you (hopefully) become FB. Right now they'll focus on features, signing advertisers and users.
I imagine they had a very strong bargaining position willing to commit this much, for this long. Even if Snapchat wasn't a valuable brand for Google to brag about, this amounts to ~10% of the yearly earnings [1] of Google's cloud business (SaaS and IaaS, of which I suspect SaaS like Apps for Work is the lion's share)
I'm sure they're getting a good deal, and can focus on features and getting their platform profitable, as you said.
for infrastructure on that scale smart money would be on Lambda or some other FaaS to leverage huge price savings and create a barrier to entry for competitors
http://fortune.com/2016/10/28/google-cloud-business-2/ states their "other revenue" was $2.543 billion for its third quarter. A chunk of that is from Cloud. So it is definitely the largest share but not sure if it is quite 80%.
Just to clarify, Snap's S-1 says they're committing $2B over the next five years (specifically, $400M per year) - the number you've provided for Google's "other revenue" is $2.543B just in Q3. Ergo, it's nowhere near 80%. :)
$400 million annually represents a monthly cost per user of $0.21 at 158 million daily active users. Which seems high at scale when looking at storage + bandwidth alone, I would think, but I'm also not a big Snapchat user so I'm not sure what is going on in terms of long term storage of video on an account level.
I would also assume they have factored in some growth over the next 5 years... If they don't have many multiples of 158M DAU by 2022 they are screwed regardless of their hosting bill.
Interesting detail from the Google license exhibit:
Encryption Technologies. Google makes HTTPS encryption (also referred to as SSL or TLS connection) available. Google servers support ephemeral elliptic curve Diffie-Hellman cryptographic key exchange signed with RSA and ECDSA. These perfect forward secrecy (PFS) methods help protect traffic and minimize the impact of a compromised key, or a cryptographic breakthrough.
Isn't that's just a description of all TLS? ECDHE/DHE key exchange is essentially employed on any non-poorly configured modern https site, TLS 1.0-1.3draft.
It's a mistake to just compare Google with AWS, thinking in terms of basic storage and computing. That's boring and obviously there are tons of alternatives, including Snap Inc. building it themselves, for the amount of money cited.
When it comes to cutting edge AI and related, Google's offerings clearly stand out among other cloud services.
Are these sorts of things latency-sensitive enough that they couldn't use them with EC2 and similar? Or are the bandwidth needs so large that bandwidth charges cancel out any compute savings?
If you're already tied into GAE, Google's other offerings in cloud become really easy to tie in, from adding buckets in GCS to adding extra stuff in GCE. With the soonish coming of Google Pub/Sub, it takes a lot of effort to switch to AWS.
> Is there really anything which AWS does not have the GCE does?
Firebase is the killer here. AWS and Azure don't have it or anything comparable for realtime data. If they do, please tell me about it because I'd love to know about it!
I'm particularly interested in this because I'm building a product supported by Firebase and will have the same lock-in described in this filing.
GCE is incapable of doing the most recent cloud setup I've built on AWS, which uses g2 instances extensively (although Azure could).
I need the actual GPU—graphics, OpenGL, etc.—part, not just CUDA, in addition to the hardware H.264 encoders that come with nVidia's GRID CPUs. GCE has no equivalent.
We're also using Amazon's Elastic File System, and I don't think Google has an alternative—though that's something I could handle differently if I had to, at higher cost.
Interesting, I'll keep any eye out. The main renderer we use (Hydra, part of Pixar's USD[0] project) would need to be ported to run on the AMD GPU, but it's designed to be backend agnostic to a degree so it should be possible.
I'm pretty sure AMD also has the ability to H.264 encode the screen at 60fps (with low latency) which is really important to us—our "workstation" is entirely in the cloud, with a Pi 3 running the display/keyboard/mouse.
There isn't an alternative inasmuch as there isn't a drop-in replacement. Thus, there are switching costs, which thus represent financial (and counterparty!) risks.
Compare this situation to Dell v. Lenovo v. HP commodity x86 servers: if one goes out of business, you can go to the others (and proactively use this as leverage when negotiating). EDIT: Or more realistically, you don't need to do much/any work to run your service on a Dell v. an IBM.
Is anyone else seeing these numbers? How are they pushing for such a high valuation with those kind of losses?
I suspect that Snap is merely capitalizing on traditional advertising metrics (engagement, CTR) which don't translate over on their app, and the advertisers just haven't caught on yet. People play with filters because they're funny/amusing, but those impressions don't convert into purchases in the same way other types of ads would.
Earlier last year Snapchat temporarily featured X-Men filters exclusively ahead of the movie release - I interacted with those for the novelty (and mainly because they disabled all the other filters so there were no other options) but I did not see the movie.
Again, I'm not sure if they follow something similar to a CPC model or what, but I bet it's expensive. If the advertisers decide it's ineffective their newfound revenue growth certainly won't be sustainable.
> To generate excitement for X-Men: Apocalypse, 20th Century Fox ran a Sponsored Lens campaign that let users turn themselves into the iconic characters in the upcoming movie. In one day, people spent a collective 56 years playing with the Sponsored Lenses, which also featured the mutants’ powers. They also incorporated the Sponsored Lens into Snaps they shared with their friends, which yielded over 298 million views for the campaign and greatly amplified awareness and anticipation for the movie. The campaign resulted in a 13 percentage point increase in brand awareness, 7x the mobile norm, as measured by Millward Brown. More importantly, the Sponsored Lens also drove a 25% lift in theater-watch intent, over 3x the mobile norm.
Maybe the X-Men filters didn't get you to watch the film, but it certainly worked on others.
How many people actually care about Rotten Tomatoes ratings though?
I know of plenty of movies that have terrible ratings from professional critics, but got great box office earnings and all my friends who watched it really enjoyed. There's also plenty of movies with great ratings that I disliked.
Outside of your programmer/hacker/related friends, how many actually look at at the Rotten Tomatoes/Metacritic ratings before deciding to view a movie. I know I don't for theater movies.
Take the new Jack Reacher movie, it has mediocre at best ratings, but I really enjoyed it (I must admit I watched it at the cinema for free, and had nothing better to do).
I think that for the average person, exposure is a very effective method of advertising films.
I would disagree about the value they are offering to advertisers. Offering a platform where targeted users actually engage with the ad is huge. I'm no advertiser, but that sounds kind of like the holy grail - the user is not only engaging with the ad, they are then sharing that ad + engagement with their friends.
agree this reeks of ca 2000 burstage... so you have a bunch of eyeballs you sell ads to. Big f'in deal, that's not a $25B business unless you can continue to scale 10x (profitably). The rest is simply tech-fad novelty junk.
I'd still buy into the IPO and ride it up a bit though.
This is the #1 myth of social media startups - that you can be in the red at this phase and easily turn it all around. People forget that Facebook was ~$50m in the black before they even took a series A.
As previously commented, their advertising, at least in some circumstances, is highly effective.
The growth rate of revenue, how much more advertisers can spend on the platform before it's saturated, and how much Snap can jack up the price per metric, would also play a big role.
> We had 158 million Daily Active Users on average in the quarter ended December 31, 2016, and we view Daily Active Users as a critical measure of our user engagement.
> We anticipate that our Daily Active Users growth rate will decline over time if the size of our active user base increases or we achieve higher market penetration rates. If our Daily Active Users growth rate slows, our financial performance will increasingly depend on our ability to elevate user engagement or increase our monetization of users.
> In addition, because our products typically require high bandwidth data capabilities, the majority of our users live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas. We therefore do not expect to experience rapid user growth or engagement in countries with low smartphone penetration even if such countries have well-established and high bandwidth capacity cellular networks. We may also not experience rapid user growth or engagement in countries where, even though smartphone penetration is high, due to the lack of sufficient cellular based data networks, consumers rely heavily on Wi-Fi and may not access our products regularly.
> Snapchat is free and easy to join, the barrier to entry for new entrants is low, and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old.
> This demographic may be less brand loyal and more likely to follow trends than other demographics.
> For example, users 25 and older visited Snapchat approximately 12 times and spent approximately 20 minutes on Snapchat every day on average in the quarter ended December 31, 2016, while users younger than 25 visited Snapchat over 20 times and spent over 30 minutes on Snapchat every day on average during the same period.
> Our Daily Active Users may not continue to grow. For example, although Daily Active Users grew by 7% from 143 million Daily Active Users for the quarter ended June 30, 2016 to 153 million Daily Active Users for the quarter ended September 30, 2016, the growth in Daily Active Users was relatively flat in the latter part of the quarter ended September 30, 2016.
Worse still, Instagram is on a collision course with SnapChat [1].
> Mark Zuckerberg talked about the long-term strategy for Instagram’s growth, and the fact that in a few months, the company created a new product identical to Snapchat’s Stories that already has more than the 110 million users as Snapchat’s entire app is reported to have:
>> Over the next five years, we’re going to keep building ecosystems around our apps that a lot of people are already using. Growth and engagement on Instagram have been strong. We announced in December that Instagram now has over 600 million monthly actives and recently passed 400 million daily actives. Instagram Stories reached 150 million daily actives just five months after the launch, and we’ve added new features like Boomerang and Live into Stories and I’m excited to see that continue to grow.
While the numbers are impressive, it seems they may already have plateaued. Nothing wrong with that--if the addressable market is limited, it limits them too. However, the problem with a plateau is that everyone starts eating into your stagnant market share. Adding premium services results in higher churn. Adding advertising results in higher churn.
Remains to be seen if they can double down with the IPO capital injection but so far we haven't seen much beyond the gimmicky SnapChat Spectacles.
Wasn't twitter also measuring success in number of users and growth, marginalizing their losses?
For now it seems like they're still only a picture-sharing app that's popular right now. Obviously they're doing a lot to secure this position, but I wonder if they'll be able to maintain user's engagement for a longer period of time.
Very interesting to see what they think of their competition:
> We face significant competition in almost every aspect of our business both domestically and internationally. This includes larger, more established companies such as Apple, Facebook (including Instagram and WhatsApp), Google (including YouTube), Twitter, Kakao, LINE, Naver (including Snow), and Tencent, which provide their users with a variety of products, services, content, and online advertising offerings, and smaller companies that offer products and services that may compete with specific Snapchat features.
> For example, Instagram, a subsidiary of Facebook, recently introduced a “stories” feature that largely mimics our Stories feature and may be directly competitive. We may also lose users to small companies that offer products and services that compete with specific Snapchat features because of the low cost for our users to switch to a different product or service.
> Many of our current and potential competitors have significantly greater resources and broader global recognition and occupy better competitive positions in certain markets than we do. These factors may allow our competitors to respond to new or emerging technologies and changes in market requirements better than we can.
> Our competitors may also develop products, features, or services that are similar to ours or that achieve greater market acceptance. These products, features, and services may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies.
Someone correct me if I'm wrong, but aren't they legally required to disclose this kind of information? Couldn't it could be considered misleading investors otherwise?
> Although other U.S.-based companies have publicly traded classes of non-voting stock, to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange. We cannot predict whether this structure and the concentrated control it affords Mr. Spiegel and Mr. Murphy will result in a lower trading price or greater fluctuations in the trading price of our Class A common stock as compared to the trading price if the Class A common stock had voting rights. Nor can we predict whether this structure will result in adverse publicity or other adverse consequences.
How does this differ from what Facebook and Google did? Did they offer stock that technically had voting power but in practice was massively outweighed by the founders' voting power? Whereas Snapchat is dispensing with such technicalities and just outright stating the founders control it?
When Facebook IPOed it had two classes of voting stock. Normal and super voting. They only offered the normal voting stock.
Facebook and Google both later offered non-voting stock, but not when they IPOed. Not sure if it really makes a difference overall, but unlike Facebook and Google there is no public Snap Inc. voting stock.
SNAP is coming out immediately and saying you are not going to have ANY say in how SNAP is being ran.
Facebook, Google and others have shown that general investing public does not care about having voting rights.
Why anyone would pay a similar price for non-voting stock versue a regular stock/super voting stock is something that I have trouble understanding.
I understand buying bonds, preferred shares, but this apparent anomaly in non-voting share pricing is beyond me.
In my view when you buy a share with diluted or non-existing voting power you are getting the worst of all worlds, no real say in the company and still you are the last in the line should something go bad with the company.
Basically you are placing infinite faith in those with the voting stock without any recourse. (Build a ten billion campus, sure, build a new base on the moon, build a mega dungeon, sure, etc etc)
Is there a good book out or coming out on the rise of non-voting stock?
My takeaway was that Snap has 1,859 employees... huh?
Why does a company with a single product, which is a mobile app (so what is that these days, three platforms?) need almost two thousand employees - am I missing something? No wonder they lost $514mil in 2016, that's an absurd amount of overhead for a company with a single, not very cumbersome product.
For comparison, Facebook had 3500 employees at the time of their IPO, and it's "just a website." Snapchat is many products: video ad platform, augmented reality selfie app, broadcast platform via sunglasses, photo uploading app, and messaging app.
According to the Forbes story [1][2] on WhatsApp's beginnings, the founders didn't focus on marketing. The app's features alone sold it plenty -- and the fact that the app was sold for real money helped them pay the bills. Furthermore, they intentionally limited the product's early memberbase to avoid scaling too fast for their resources. In other words, if the story is to be believed, they ran a pretty tight shop.
I'd imagine that someone like Facebook, Twitter, Snapchat, etc, who makes the product at available $0 and has to devise a monetization scheme later will need to employ a fair amount of "soft skills" staff who can forge relationships with, say, advertisers, and gobs of staff to work on features, stability, capacity to achieve a point where their platforms attract and retain eyeballs. These are the sort of companies where an injection of VC money to rapidly scale is beneficial such that the product can achieve monetizable critical mass, to fill out the part between "2. ???" and "3. PROFIT!"
Whatsapp was also never profitable either. They almost didn't even bother to make money (the subscription thing is a misnomer since they waived it left and right).
And by their own admission, they intentionally tried to slow user growth.
Since both of you assume that, we'll assume it's true for the moment. In that case, in order to scale their sales, they have to do it by an industry benchmark unless proven otherwise. The industry benchmark is about linear scaling of a sales force.
Actually, a more accurate calculation is much more complex. It's also almost impossible to figure out accurately unless they release certain data - which I guess they won't do.
This is also my gripe with Twitter. I just don't understand the necessity of having so many employees as software businesses allow you to build tools to reduce the number of employees you need in a way other businesses can't.
I know it's a very poor parallel, but WhatsApp's sub 50 employee group around the time of acquisition was just so impressive in comparison with the size of some of these businesses. It was just orders of magnitude different. That being said - I agree with ohstopitu - I'd love to see a breakdown of who goes where...
I've never spoken to anyone at Facebook on a phone - but have spent a substantial amount of cash on the platform. On Twitter when we setup - there was onboarding, performance checkins etc - the biggest difference though we couldn't get an ROI from the platform (This was 2 years ago though so things may of changed?).
Expanding business without an actual person doing it (inbound marketing) is cheap, but very slow going. Twitter probably has people making deals, helping bigger accounts work on their presence, and things like that.
At least 2 EEs, another couple EE techs to fix prototype up boards that come in and prepare development boards for the software work.
You will have a couple people doing just regulatory work. Sign off on BT, USB, batteries, etc.
At least 1 ME, at least 1 industrial designer as well. 1 person in charge of optics.
1 software person to do board bring up, another person who specializes in Bluetooth because Bluetooth is a nightmare and you will have to work around different bugs on iOS and Android. Finally someone to do the actual firmware. You may get away with just 2 people, or you may need more, depending.
Someone had to design the box they come in.
The vending machines likely had a team behind them as well.
Then there is the marketing of the product, the glasses went viral fast, there was a team of people responsible for that.
And once all that is done, now you need a manufacturing team.
If the team was incredibly agile and efficient, maybe 20 people at the bare minimum.
If there was an article like this about those companies, I would absolutely expect this exact "what do all those employees do??" comment. This just seems to be a meme on HN in general at the moment.
It's honestly naive and lazy to view Snap as "just an app company". It uses the same flawed logic as "Facebook is just a website".
Snap is a media platform that comes with all of the overhead of running a global, culturally sensitive media business. There's user generated content at the center, but there are also a lot of partnerships, curation, etc going on too.
That's $10 million per employee (at a $20B valuation). That's not a lot of when you consider they're building a product that will book billions of dollars in advertising revenue.
$400 million USD total revenue in 2016 (from the article) is not exactly "billions of dollars".
But, in general, yes, I think the sales force required to engage advertisers should not be discounted when the first thing going through the head is "but it's just an app!".
> We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
Also having only 158 million daily active users up from 150 million in June is definitely interesting and a lot smaller growth jump than I had expected.
Revenue up from $58MM in 2015 to $405MM despite a loss of $515MM last year. Wishing them best of luck, but I wonder how much their competition is hurting their growth (Instagram stories for example)?
Also:
> We are not aware of any other company that has completed an initial public offering of non-voting stock on a U.S. stock exchange. We therefore cannot predict the impact our capital structure and the concentrated control by our founders may have on our stock price or our business.
158M DAU is not bad, but I would guess they are to some extent limited by the amount of iOS and Android devices in circulation? How are they going to get that number to 300M, or 500M? My best guess is they won't, ever.
There are a lot of reasons that Snapchat might not grow. Lack of people with smartphones isn't one of them. I don't think you have a good understanding of just how ubiquitous iOS and Android devices are.
I once bought a $5 candy bar style feature phone with what appeared to be a 128x128 pixel LCD display, and it came out of the box with Facebook. Facebook is not limited by the number of ultra-high-end smartphones in circulation.
The iPhone 4 is the newest iPhone to not get iOS 8. That's going all the way back to a phone released in 2010, nearly 7 years ago. There are definitely a few out there but I'm not sure it'd be more than half running <= iOS 7, especially when you consider how strong Apple's update numbers are.
In fact, according to a marketing company, as of March last year, only 37% of globally active iPhones were even as old as a 5S [1]. Even the iPhone 4S, which did get iOS 8, was on just 5%.
Even if that data is skewed towards newer phones due to the type of sites they market on, it's unlikely that anywhere near half of active devices are running a software version over three years old.
Also, the App Store offers you the last compatible version of the app if your device isn't up to date, and it's possible that that version of Snapchat is still capable of showing ads, although I don't have one around to test it.
Yeah I'm not so surprised by that, as much as I'm surprised by the 8MM user growth from June to now. That's what's seems weird to me. Is that not indicative of a plateau?
I didn't actually read that part. If they only added 8MM DAU from June -> now, then it deserves to tank on its first trading day. Sounds like a decent short actually, once it cools down.
Why would it tank based on numbers available BEFORE it IPO's? I know there are idiots out there but surely the big investors are going to take figures available in the filing into account.
Well, it could go the Facebook route. Remember when FB was going to IPO at $33 a share and then it went up to $38 - it had a P/E ratio of like 100. People could just get excited about Snapchat being the next Facebook, it could go up with initial excitement (not saying all people, but markets are fickle). I guess we'll see what the price per share is.
Also quite expensive in terms of trailing sales multiple.
> Twitter went public at valuation around 30x trailing year sales and 15x forward year sales. At $25 billion, Snap would be valued at a huge 62x trailing sales.
> Assuming they could reach $1 billion of revenue in 2017, the 25x multiple would still be steep relative to the two predecessors.
I think their losses can be at least partly explained by their somewhat inexplicable number of employees, which happen to number 1859 at the end of 2016.
Don't understand why a company with a mobile app as their sole product need that many employees. I was expecting that number to be more like 100.
I'm always a little surprised about how naive HNers are about corporate sales (and BD).
We can bikeshed all day how many engineers they "really" need, but for $400m in annual revenue (plus that growth) they probably need a 400 person sales org minimum.
I'm wondering where the loss is coming from. I'm skeptical that it's all coming out of the cost of infrastructure and workforce. I know they've had some company acquisitions in the past, so I wonder how that is coming into play.
Well, they do have 1859 employees. If you say on average they're paid $50k each (totally made up estimate, would love for someone to give me a better one), that would be almost $100mil a year in base salary alone.
Keep in mind it's highly unlikely that all of those employees are engineers, probably lots of sales/marketing/customer service people. Still, with benefits and stuff I'd estimate maybe 100k per on the low end.
I'm surprised by the number of comments about how much money they've been losing. Their finances right now are completely irrelevant to their eventual success or failure. All that matters is getting a huge number of highly engaged users.
The attention of many hundreds of millions or billions of people is a very valuable resources that they will have no problem selling. Keep in mind that there is a limited amount of human attention in the world, and it's a zero-sum game to control it. As Facebook has discovered, owning a huge amount of attention gives you a ton of leverage over advertisers who want to buy it. Being in the long tail of smaller attention-holders gives you much less.
So Snap will either grow to compete with TV and Facebook as one of the top attention-holders, or else they'll fizzle out into irrelevance, burning through gobs of cash along the way.
I mean, sure, they could aim to be a nice $500 million company that builds a product that makes people happy and makes their employees comfortably upper middle class. But that's clearly not their ambition so there's no point in discussing their finances as if it were.
"When Spiegel travels between his company's scattered outposts, he normally has a Range Rover with a private driver transport him from building to building. The former employee described it like the president arriving: a black car would pull up and Spiegel would hurriedly pop out with his security detail."
Johnny Depp spends "Over $150,000/month on full-time security for his children" according to current revelations. So $900K/year for someone who's not very famous isn't unreasonable I suppose.
It's easy to work out the cost of full time security. Lets say you need 2 people on rotation, they do 12 hours per day each (doable because they get to relax while client is at home etc.) then multiply by a reasonable salary for skilled labor like 70k then you get to 140k per year per person easily.
Lots of Venice Beach locals are not happy that Snap is buying up prime property / increasing rents / bringing in yuppies etc. I wouldn't be surprised if he's received threats and is most focused on security while in and around the office.
If Snap Inc. IPOs at their expected 25B value, Spiegel will be valued at nearly 5 billion (21% ownership), so ~1 million in security per year is not too far-fetched.
Interesting DAU-growth plateau around the 150M user mark mid-2016. Maybe there is truth to the theories that Instagram is successfully slowing the drain of users to Snapchat?
Anecdotally I have seen a lot of people AND brands/public figures stop using Snapchat in favour of Instagram stories. Stories on each platform don't cross-post well (Snapchat for example puts a massive white border around posts from the camera roll) so it makes sense to commit to one.
Personally the thing that makes me use Snapchat less is the 'discover' stuff. 9/10 the stuff their promoting to me is top 10 type articles for teenage girls. I enjoy the Economist story but apart from that the rest is garbage. They could have a really nice media consumption platform their but they seem to be wasting it.
Which people and brands have you seen stop using Snapchat in favor of Instagram? Since you said you've seen a lot I'm expecting a list of at least 10. Thanks.
Could be equilibrium reached - market saturation. All those who will use it are now on it, and the only way to go is down as the Primary Users, err, grow up and their time and interests are spent elsewhere. I mean, it might sound terribly reductive but I kind of figure there's only so many teenagers at any one given moment, and growing rapidly into a dominant market share is wonderful until it isn't.
So why not short the stock? You will likely have to wait until after the IPO and may pay an arm and a leg for the privilege with limited initial float, but it's entirely up to your discretion. Even more appealing if snapchat does well on the first day of trading.
If you are as confident as you sound you may want to pay the 10 % annualized to short some shares, especially if it pops after the IPO.
I tend to get annoyed when people have extremely overconfident predictions yet don't act on them. Just responding to your parent comment, it's hard to tell how bullish your actually are on SNAP from a brief paragraph. I'm bullish also but won't touch the thing unless it gets into territory similar to GPRO.
Not bullish at all on SNAP at current valuations. It needs to drop significantly (i.e. more like an $7-13bn valuation, with good growth, and preferably $700MM-1bn in revenue) before I will consider buying in.
There are plenty of stocks out there with sufficient potential upside that I don't need to use leverage (either by borrowing at high interest on margin, or by borrowing and shorting expensive shares). Borrowing at low interest rates I will consider, but probably only for stable dividend shares.
I'm 90% certain that this won't be a killer IPO, if you look back 2 years after it floats. But there are sufficient interesting companies out there for me not to care about how it does, either way. Just putting it on my 'to watch' list.
Predicting the future is hard. If they raise enough money, they might figure out how to make profit better than twitter did. Frankly, I can't predict anything anymore, if anything, I'll say they will do well. The opposite of my gut feelings. I've been 100% wrong in all the startups I tried to predict, the last 5 presidential elections, my favorite NFL team prospects for playoffs. I'm just bad. I agree with you, but I'll invest if I had the funds. You might be logically rational, but there is a large part of the world that is not.
Question here is whether you'd buy them because they're a good company, or because you'd want to play the other chumps that believe they're a good company.
Twitter had a nice pop after IPO and while they're a fraction now of their IPO price, if you played the market well rather than the company, you could have come out well.
I think you might be right. I've long been bullish on Snap, but seeing their user numbers plateau this year has me reconsidering. 2016 was a year when they should have seen exploding growth among new user groups.
Perhaps, a bit like Twitter, there are only so many people out there who want the unique functionality that Snapchat offers.
That said, there are a lot of smart people at Snap, and they seem to have a culture that encourages imagining, and shipping, big changes to their core product. So they may be able to get things back on track.
But if they can't restart the growth engine soon I'll seriously consider shorting their stock.
Didn't downvote, but Twitter stagnated and there isn't any reason to believe Snap will too.
Social Media is about adapting to the changing trends, and for a while Twitter's strategy was to stay as close to it's core product as possible. Periscope is great but it came a little too late.
Their revenue ($400MM) is impressive for a messaging app, but honestly, the valuation it carries at this point is nuts. It's just an app and I personally don't believe it has a sufficient economic moat to justify that. Where's the ecosystem? How can we bolt on value from having that audience? Unlike Facebook, we won't have a billion people using Snapchat any time soon.
Then again, I didn't believe Instagram was worth $1bn when acquired either, and looking back, was wrong on that. But there's a massive disconnect between the current valuation of Snapchat, and the valuation of Instagram (when it was acquired).
You're right. I converted the Line Corp yen revenue number to USD, but looks like I missed a zero. Line has a market cap of $7bn, and does $1bn in revenue.
Insane is right. They lose that much money, and don't have a plan for profitability. If you lose money on each customer and scale the business...well, uh, losses scale too.
I guess I'm just old fashioned, here I thought the point of businesses was to make money, at least eventually.
This quote is a killer: "We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability." haha
All of the same criticisms could be applied to YouTube, Facebook, Instagram, etc while they were at that stage. Some turn out to make pallet-fulls of money, some (Twitter) never quite crest.
The quote at the end is just boiler plate language they need to include in their S1 so they aren't sued by shareholders in 10 years.
Pretty sure those other companies declared an intention to make a profit. Saying the opposite is indeed news.
And sure, the company might turn the corner. But seriously why would investors pay $3 billion with a pitch like this? I guess they're just playing other investors in the end. There seems neither money making capacity here nor the promise of it by their own admission.
Are you saying we should ignore their clear words on this topic and decide the management is wrong and they'll probably end up profitable?
I use snapchat every single day. I know my friends who've moved off facebook and Instagram use it extensively too. Its the facebook for young people. No one I know who is under 20 uses facebook anymore. Mostly because their parents are on facebook. Snapchatters post a lot more stuff that they won't usually post on public social media. After 24 hours it goes poof.
I expect a dip after IPO and then a nice rise like facebook once they figure out how to advertise to the teens.
Worth a wait and then buy once all the adults think its worthless.
interesting statement from a company that just released their first camera (Spectacles) few months ago. i'm not sure if their users see them as a camera company.
Maybe it has to do with how investors view hardware vs. software companies. Social networks are much more volatile than hardware products and hardware companies are more stable.
Of course, labelling themselves as camera company isn't going to fool HN, but it might be viewed in a different light by investors.
This line was included to convince investors they have product vision considering that until Spectacles they were completely locked into Apple and Google's mobile platforms. Presumably some type of light sensing device will always exist. Will they become a product company that makes per unit margins? Maybe not.
I don't know though - they have strongly differentiated camera software and you see recognisably Snapchat pictures all over social media. Along the same lines, compare Faceboook's idea of what a camera in their app should be and you'll see a blatant copy.
It's more that there are no upsides (saying "hope to" doesn't sound very certain, so no one is going to increase the price they'll pay for your IPO shares) and there are downsides if you don't become profitable within a year, once you've said you hope / intend to. So, the bottom-line incentives are not to say it.
It's great to see both founders ( Evan and Bobby ) ended out with equal shares, both at 21.8% of Common A Stock. The history is pretty interesting, and as always there is a possible 3rd founder. https://techcrunch.com/2013/07/31/spiegel-murphy-say-alleged...
> For the year ended December 31, 2016, we recorded revenue of $404.5 million... For the year ended December 31, 2016, we incurred a net loss of $514.6 million
> We have three classes of common stock: Class A, Class B, and Class C. Holders of our Class A common stock—the only class of stock being sold in this offering—are entitled to no vote on matters submitted to our stockholders
Small question, but is it normal to leave the numbers blank when it comes to share-percentage or number of shares rewarded to the founders in the Risks section[0]?
OK, their dirty laundry is about what I would expect it to be. They are required to list these things at this point to avoid being accused of hiding information later.
Given all this, are you buying? If you owned stock day 1 would you sell it?
Personally, I'd sell immediately. I don't trust tech stocks; they're consumer discretionaries (or media stocks?) but more volatile, and any one of them could suffer the fate of Sun or Iomega at any time. If you gamble and win, you can make a fortune, but if you gamble you're more likely to lose; there are more reliable profits to be made elsewhere.
(But I don't short any tech stocks, even though they don't normally pay dividends; all you have to do is short the next Microsoft once, and then you're selling your house a decade down the line. I prefer to let other people do the gambling, in both directions, while I look for safer things. Similarly, I have no exposure to biotech, the other gambling part of the market.)
> We rely on Google Cloud for the vast majority of our computing, storage, bandwidth, and other services. Any disruption of or interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our business.
Over-under on how much of their cost of revenue goes to Google App Engine?
"The launch of Spectacles, which has not generated significant revenue for us, is a good example. There is no guarantee that investing in new lines of business, new products, and other initiatives will succeed. If we do not successfully develop new approaches to monetization, we may not be able to maintain or grow our revenue as anticipated or recover any associated development costs, and our business could be seriously harmed."
I don't think anyone expected Spectacles to be a cash cow, but I still would have expected a more positive outlook on them.
What's up with the massive negative gross margins? Will wall street glance over those? Is there any precedent for a company going public with such upside down financials (putting growth aside)?
Serious question: how does Snapchat spend so much money on infrastructure? How could the app run up a $2b Google Cloud tab? Would anyone care to break it down?
video transcoding wouldn't it be better on FPGA or some DSP? and storage - compression? I mean are all those images that different from each other? Different people make photos and videos of basically the same stuff.
At that scale (160M active users [0]) I guess they could easily develop and run their own infrastructure. $2bn just screams 'inefficient implementation' to me... I could be wrong though.
If I am the May 2016 investor, I'm thrilled that I got to see how the company grew for a year and a half, while still paying the same price as the Feb 2015 investor. Snap might have provided other incentives to investors early in the Series F round, or they were just happy to get invited to the party.
It doesnt make sense that it would be worth more than twitter or even instagram. Even if ads are more effective, there's 5x the interest to advertise on those platforms than snap
(https://www.google.com/trends/explore?q=snapchat%20ads,twitt...). I say its worth more like ~3B market cap
Part of this can be explained by Snapchat not having a self serve product (AFAIK) so a lot of the search results might be individuals/smaller businesses looking for help/advice to get started. I know the major brands are spending fairly significantly on Snapchat and doubt they contribute much to the Google trends data.
The S-1 is for the roadshow to create the underwriters and syndicate. They want to study our reactions and other people's reactions to see how they can price the shares.
It is all about perception at this point. Share value number should go up.
> For the year ended December 31, 2016, we incurred a net loss of $514.6 million, as compared to a net loss of $372.9 million for the year ended December 31, 2015.
Some serious progress there. Great. Let's IPO O_o
Net loss about 500 million at the end of 2016 which is about 100 million more than the year prior. Yikes. Still they'll likely make the case that they can turn a profit in the not-to-distant future.
There's some numbers for you that Google wouldn't have provided (as far as I have seen).