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Snapchat Surviving, Not Thriving

Although plenty has been written about the growth and innovation of Snapchat social media platform, most recent coverage has been on the topic of its inevitable demise. Indeed, Snapchat still manages to bleed money, including a “staggering $443 million” loss in Q3 2017, and growth rates have continually declined, especially since the launch of Facebook’s parallel Instagram Stories platform. Their CEO, Evan Spiegel, has also been vocal about making large changes to their android app and file system to increase performance, suggesting that poor user experience may have led to further declines in Snapchat usage. Previous students have also pointed out the advantage which Instagram, as Snapchat’s competitor, retains, due to the extremely large userbase of Facebook and the prevalence of social media influencers on Instagram already.

Yet for a platform which is ostensibly dying, Snapchat still managed to grow its userbase over the previous months. In North America especially, growth rates have continued, suggesting the power of network effects. Since North America is Snap’s largest market, it makes sense that the network effects are largest there, since the population using Snapchat is the densest. So, the perceived value of using Snapchat remains high regardless of the presence of new alternatives, and whereas the effects in Europe appears to be less strong, and even less so in the rest of the world. This may be an indicator that the strong network effects of social media may cause Snapchat’s growth to continue to decline in populations outside of North America, as the percentage of people using the platform decreases, while growing in North America as teenagers continue to copy the behavior of their friends.

Online surveys of teenagers also point to a more engaged group of 12-17-year-olds utilizing Snapchat in nearly the same amount as prior to Instagram stories, while usage of Facebook among the same age group in the US is declining. This suggests another interesting effect which may be occurring, in which the network effect (represented as F(z) in class), appears to be much stronger for adolescents than for other age groups, but may also incur a negative network effect, in which the perceived value of a good actually decreases when too many people are using it, particularly from a group of people not considered to be “in” with another group of users. If true, there is also an upper bound on the percentage of the population which is going to Snapchat, and their shift in strategy toward courting an older crowd many ultimately backfire. Only time will tell.

Snapchat share price craters on weak revenue and user growth in Q3 2017

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