Shunning Silicon Valley's open-office style, founder guards
information
By Betsy Morris and Georgia Wells
Mark Zuckerberg says he created Facebook Inc. to make the world
more open and connected. Twitter Inc. says it wants to give
everyone the power to share ideas instantly.
Snap Inc., which this week could become the biggest technology
public offering in years, is the unsocial social-media company. Not
only does its app feature messages that disappear, the company
defiantly operates unlike most Silicon Valley outfits, where
collaboration and wide-open office spaces are prized.
Former employees say often the only way they knew co-founder and
CEO Evan Spiegel was at work was by seeing his chauffeured SUV. He
avoids holding companywide meetings and prefers to dispense
information to individuals or small groups, they say.
In contrast to the big, open campuses of Facebook and Alphabet
Inc.'s Google, designed for employee collaboration, Snap doesn't
have a headquarters. Its main offices are scattered around Venice,
Calif., keeping employees siloed and making communication
difficult, the former employees say. The company in its IPO filing
listed the lack of a headquarters as a risk factor that could hurt
morale, prevent adequate oversight and cost talent.
So far, Snapchat has won legions of teenage users, who like that
what they share now won't define them permanently -- and that it
keeps their parents out of their business. And it has attracted
advertisers who want to reach a young audience, setting the stage
for Snap's initial public offering. The listing on the New York
Stock Exchange is expected to take place this week and could value
the company at as much as $22 billion, which would make it the
biggest U.S. tech IPO in years.
A Snap spokeswoman declined to comment or make Mr. Spiegel
available for this article, citing the company's quiet period ahead
of the public offering.
The question is whether this management style and focus on
privacy will help the company compete with television networks and
challenge the Facebook juggernaut. Mr. Spiegel's approach at times
has left staff in the dark about important initiatives, the former
employees say. And it has made the company resist giving
advertisers the ability to narrowly target users based on their
behavior and preferences, a strategy that has enabled Facebook,
Google and others to mint enormous profits.
'Doesn't talk much'
"Evan doesn't talk much," says Hemant Taneja, managing director
at venture-capital firm General Catalyst, an early Snap investor,
saying confusion can stem from the fact that Mr. Spiegel doesn't
always feel compelled to explain his concepts to the public.
In September, he surprised potential investors when he began
publicly calling Snap "a camera company" instead of a social-media
company. Some investors wondered if Snap was suddenly becoming a
hardware company, but Mr. Taneja says the camera concept wasn't
new.
Rapid growth and increasingly intense competition are putting
Mr. Spiegel's management style to the test. Snap's full-time
workforce tripled during last year to 1,859 as it expanded
internationally.
It is competing head-to-head with the global social-media
giants, especially Facebook, whose Instagram unit already has
emulated Snap's features with some success, such as the Stories
feature it rolled out over the summer. Snap in its public filing
attributed part of its slowing user growth to increased
competition.
Part of the competition is about the race to hook users first.
Instagram is more popular than Snap internationally, and people
could be inclined to stick with Instagram if they are already using
Facebook, or with Snap if they landed there first. "You aren't
going to switch if you are satisfied with what you are using," says
Wedbush Securities analyst Michael Pachter.
Snap is also vying with traditional television networks to woo
young viewers and advertising. Young people have been drifting away
from television to their smartphone screen, where hours of videos
from friends can be played.
Meanwhile, Snap must continue to generate unusual and
captivating content -- much of which has been meticulously managed
by Mr. Spiegel, former employees and business partners say.
Like many tech executives, Mr. Spiegel attended Stanford
University. But that is about where the comparisons end. He was
more social than secretive when he arrived at college in 2008,
friends recall, even though his high-profile lawyer-parents had had
a rancorous and public divorce when he was in high school in Los
Angeles. Far from geek, he was the life of the party, they say, and
his style was more hipster than hoodie: skinny jeans, V-neck
T-shirts, flip flops.
These days, Mr. Spiegel, who is more of a product designer than
a computer scientist, eschews many of the tech industry's habits,
preferring to be away from what he has described as the bubblelike
culture of Silicon Valley.
As he got to college, Facebook was taking off. In just four
years since its launch in 2004, the social network had gained 58
million active users (it now has 1.9 billion monthly active users).
In February 2009 -- during Mr. Spiegel's freshman year -- it added
the Like button. From the start, Mr. Spiegel wasn't a fan, friends
recall. He would come to see it as a form of social pressure, where
people create falsely perfect worlds in the quest to rack up
likes.
Mr. Spiegel said Snapchat was much more, a place for spontaneous
interaction that evaporates in the same way a real conversation
would. It was also about creativity and fun: Photos and video could
be animated in whimsical and ridiculous ways using its functions to
make selfies that vomit rainbows, sport puppy and bunny ears, and
wear banana faces.
In most cases, photos and videos that users send in messages
disappear after they are viewed, and other content disappears after
24 hours, although some items can be saved.
In the recent company video, created for its IPO, Mr. Spiegel
says the ephemerality is "why people love creating Snaps. Because
there isn't pressure to feel pretty or perfect. Self-expression
isn't a contest, it's not about how well you can express yourself,
it's about being able to communicate how you feel, and doing that
in the moment."
Conceived for mobile
Also key to Snap's success, and unlike incumbents such as
Facebook and Twitter: Its design and concept is mobile-only.
Content is presented vertically, to fill a smartphone screen;
location-based tags and filters are popular; and bite-size content
is swipeable.
As Facebook was trying to transition to mobile in 2012, Snapchat
sped out of the gate, catching the bigger company by surprise. Mr.
Spiegel saw the smartphone as the new movie screen. When Mr.
Zuckerberg offered $3 billion to buy Snapchat in 2013, Mr. Spiegel
turned him down.
Mr. Spiegel's talent combining a Hollywood approach to content
with a keen business sense is admired by many who know him.
"For someone of his age, he operates with much more wisdom than
anyone else I have seen. I find him to be a very, very clear
thinker," Eric Schmidt, executive chairman of Alphabet, said in an
email. When faced with critical decisions on issues like funding
and partnering and selling, Mr. Schmidt says, "he gets it right
every time."
He says Mr. Spiegel, a former student of his at Stanford, is now
a friend and customer. Snap has a five-year, $2 billion contract
for Google to provide cloud-data storage.
Other people note Mr. Spiegel's timing on the dominance of
mobile, getting ahead of Facebook and the recognition that social
media was getting boring.
Revenue is generated by brands placing short video
advertisements and simple location-linked overlays called
"geofilters," plus more elaborate "Lenses" -- Taco Bell made a Lens
that turned faces into tacos being doused with hot sauce.
More than two dozen media and entertainment outlets, including
The Wall Street Journal, also provide news, sports, fashion and
features. Advertisements are sold to place in the content the media
companies produce.
Snap's revenue last year jumped more than 500% to $404.5
million. Its net loss widened to $514.6 million, and its user
growth slowed somewhat, rising 48% to 158 million in the fourth
quarter from the same period a year earlier.
That revenue is a fraction of the $27.6 billion last year at
Facebook, which also booked $10.2 billion in profit.
Mr. Spiegel has been wary of advertising from the start,
worrying that it would feel intrusive. As his business marketing
team was crafting presentations for prospective advertisers and
business partners, Mr. Spiegel didn't want to explain the app to
them, said one of the former employees. He preferred that CEOs
learn it -- not from a presentation but from their children. It was
"difficult for a salesperson to run that one up the flagpole," the
former employee recalls. A product demonstration is now part of the
meetings.
When Snapchat's first ads made their debut in October 2014 --
Facebook was already generating $12.5 billion in annual revenue by
that year -- Mr. Spiegel's ambivalence was evident in a company
blog post. It told users if they didn't want to watch the ads,
which were in a different section, "No Biggie." The company
wouldn't place ads in personal communiqués because that would be
"totally rude." It wanted Snapchat advertising to be "the way ads
used to be, before they got creepy and targeted."
In the past, he has resisted efforts to collect and share
information that would enable advertisers to target the app's
individual users. Lately, he has made concessions. In January, for
example, Snap signed a deal with Oracle Corp. to help marketers use
data from offline purchases, such as supermarket loyalty cards, to
target Snapchat users with more relevant ads.
Ad targeting
Snap is still far away from the more aggressive approaches of
Facebook and Google, which have used precise ad targeting to make
billions in profits. As a result, the giants can outspend Snap on
talent and fresh content, and bankroll development of potentially
expensive new products, such as hardware that taps into augmented
reality, or tech that blends computer images onto a user's real
view of the world.
Because of Snap's vision of ads as less intrusive than most
digital advertising -- more like old-fashioned television spots
made for a broader audience -- Snap ads must have a wider appeal,
with high production values, and be spliced into the rest of the
app in an interesting way. During the Super Bowl, for example,
users could choose to adorn their selfies with either Falcons' or
Patriots' football helmets or cascade gushers of colorful Gatorade
over their heads.
Snap's requirements set a high bar for its partners. The small
group of media and entertainment outlets that appear on Snapchat
have tough targets to meet, according to a person familiar with the
process. If Snap isn't happy, it suggests changes to the content,
and if the material doesn't get enough traffic, the providers fear
they could be booted off the app, according to a current and a
former editor of content for Snapchat Discover, the section of the
app where publishers post content.
Until lately, a lot of Snap's advertising has come directly from
brands like Coca-Cola Co. and Yum Brands Inc.'s Taco Bell. It has
been slow to woo Madison Avenue's big ad agencies, which have
bigger budgets and can commit to longer contracts, and to form
partnerships that would enable advertisers to measure the
effectiveness of their campaigns. Last summer, Snap hired Viacom's
Jeff Lucas to help court big deals .
As the IPO has neared, Snap has signed deals with Oracle Data
Cloud, Nielsen and others to ramp up its use of metrics that will
dispel some of the mystery that has enshrouded the effectiveness of
advertising on the app.
The stock-exchange listing will force more transparency about
the business, including regular updates on user and engagement
data. Even so, Mr. Spiegel will continue to keep a tight grip on
the company after it goes public. Snap is selling to the public
only shares that have no voting power. Afterward, Mr. Spiegel and
co-founder and chief technologist Bobby Murphy will retain more
than 90% of the voting shares.
Write to Betsy Morris at betsy.morris@wsj.com and Georgia Wells
at Georgia.Wells@wsj.com
(END) Dow Jones Newswires
February 28, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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