SNAP INC.

Strategic Management Report

Prepared for:

Mohammad Hannah Miah (MHM)

Course Instructor : Strategic Management (MGT 489)
School of Business
North South University

Prepared By:
Md. Kamrul Islam Khan - 1511061030
Jameus Siam 1510873030
Nargis Sultana 1511052030
Tanjina Islam - 1420691030
Sudipta Debnath - 1512019030
MD. Mohtasim Neaz - 1330381630

North South University, School of Business

Dept. of Management
July 15, 2018

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 Table of Content

Topic Page No.

1. Introduction…………………………………………………………………………04

2. Internal Analysis……………………………………………………………………05

3. Resources

4. Capabilities

5. External Analysis……………………………………………………………...........07

6. Industry Identification

7. Competitive Forces Model

8. Industry Life Cycle Analysis

9. PESTLE Analysis

10. SWOT Analysis…………………………………………………………………….11

11. Snap Inc.’s Business………………………………………………………….........13

12. Distinctive Competency…………………………………………………………....14

13. Financial Analysis………………………………………………………………….15

14. Competitive Advantage……………………………………………………….........16

15. Value Chain Analysis………………………………………………………………17

16. Business Model…………………………………………………………………….18

17. References………………………………………………………………………….19

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Introduction

Snap Inc is a well-known camera company. Their executive office is situated at 63 Market Street,

Venice, California 90291. The company’s flagship product is Snapchat, a camera application that

avails people to communicate through videos and images. Roughly 150 million people use this

application every day, and they consume around 800 hours of video per second.

History, Growth and Development

On September 16, 2011, Snap Inc. started its journey and re-launched initially of Picaboo as

Snapchat. On December 31, 2013, the application was hacked and the information of 4.6 million

users were leaked to the internet. In the same year on December, the high-profile executive who

had been with Facebook, Google and Instragram were hired as COO. On January 2014, this

corporation refused an acquisition offer of $3B of Facebook (Fiegerman, 2014). In May, the

company acquired the software Company ADDLive and in December they acquired Vengeance

Lab for $15M. In September 2015, the company acquired Looksery to develop lenses for its mobile

app. By 2016, the company acquired Bitstrips for $100M and Verb for $100M and focus on

spectacles (Etherington, 2016). In September of the same year, the company officially named itself

as Snap Inc. and unveiled Spectacles. In December, the company opened R&D in Shenzhen and

acquired advertising and tech company Flite. In March 2017, the company first went public and

raised almost $30B in market cap in the first day trading.

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INTERNAL ANALYSIS

Resources: The tangible and intangible resources of Snapchat Inc. corporation are as follows:

▪ Patents & Copyrights: Snap Inc’s. patents and copyrights fall under intangible resources.

They license content, trademarks, technology, and other intellectual property from our

partners. As of December 31, 2016, Snap Inc. had issued 328 patents and filed roughly 220

patent applications in the United States and foreign countries to protect their camera platform

and other innovations. Their issued patents will be ceased between 2017 and 2035.

▪ Acquired Users: The company has declared that approximately 158 million people use its

App daily, sending 2.5 billion Snaps on the platform. The average user spends in the region of

30 minutes a day on the platform. It therefore appears that a large portion of the market of

millennials, entrenched within this platform, a segment of the market that many competitors

have struggled to capture. These users attract the advertisers and a segment of these users also

help the company with content creation.

▪ Acquired Technology: Recently made public Snap Inc. has been searching for deals in

software and hardware that can help to revamp snapchat further or strengthen its engineering

team. They have pursued Kickstarter projects, developing applications and battling start-ups.

Their Previous purchases incorporate augmented reality headset maker Vergence Labs,

personalized cartoon app Bitstrips and things-to-do search app Vurb. Snap also secured Placed,

a startup that helps to track the offline success of digital ad campaigns and Zenly, a Startup

that creates social maps that allow users to see where their friends are located. Recently, they

acquired 3D gaming engine PlayCanvas in hope of entering the augmented and virtual reality

gaming. The corporate development team has earned great reputation for its thoughtful and

reasonable acquisitions.

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▪ Database: Snap Inc. has successfully created a large information database accumulated from

offering services to their customers and continuously upgrading their software and developing

new filters from time to time. This gathered information gives them a competitive edge over

their competitors.

▪ Facilities: Snap Inc.’s headquarter is located in and around Venice, California/ and the have

about 305,000 squares across several locations. As of December 31, 2016, their global facilities

totaled an aggregate of approximately 591,000 square feet of office space, approximately

582,500 of which was leased and 8,500 of which was owned. For approximately 77,000 square

feet of our leased office space, they also have offices in multiple locations in the United States

and internationally in Europe, Asia, and Australia.

▪ Capital: According to TechCrunch, $1.8 billion money was added to the organization, in light

of a present valuation in the scope of $18 billion to $20 billion.. This monetary backing gives

Snapchat Inc. a firm foothold in the respective competitive social media industry.

Capabilities: The organizational structure, culture, hiring process and overall process are as

follows:

▪ Snap Inc. has over 3500 employees worldwide. It encourages diversity in its working staff

wherein individual talents, creativity, innovativeness, education, teamwork, collaboration with

others, hands-on approach towards problems, leadership and so on is preferred. These

employees are well equipped and capable enough to bring expected results for the company.

▪ Snap Inc.’s R&D division is filled with creative and capable employees who always work side

by side with the marketing division to bring out the best product their consumers wants.

▪ All the acquisitions of Kickstarter projects, emerging apps and start-ups done by the corporate

development team of the company is going to help Snap Inc. in enriching and expanding their

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 business in future. The technology it possesses now shows their capabilities in compete with

other giants of the industry like Facebook, Apple, Google etc.

▪ The founders and their VC partners raised much more money than they are spending. Thus,

they have lots of free cash flow in the company which can be used in a more productive way

such as for product development, acquisitions of properties and equipment, goodwill creation,

marketing, hiring suitable employees, expansion, innovation etc.

External Analysis

I. Industry Identification: Snap Inc. a worldwide popular technology and camera company

established in U.S. This company belongs to ‘Social Media technology’ industry. The company

offers 4 products; Snapchat, Spectacles, Bitmoji, and Zenly where each of these are separately

operated under Snap Inc. Snapchat, Zenly, Bitmoji belong to social media industry as these

companies develop multimedia messaging, and location sharing applications for their users.

On the other hand, ‘Spectacles’ a smart-glass is a hardware that complements the social media

app Snapchat. So, from the research it was found out that Snap Inc. competes in both ‘social

media technology industry. Their main competitors are Apple, Facebook and Google.

II. Competitive Forces Analysis: For competitive forces analysis, we have used Porter’s Five

Forces model to draw a clear picture of the degree of competitiveness in the industry. They

are:

1. Risk of Entry by Potential Competitors: Threat of entry in the industry is moderate. With

ever-evolving social media and mobile landscape, it’s comparatively easier to create new and

unique apps. Moreover, copycat companies are emerging because of minimal technological

protection. However, massive amount of resources such as expert app developers, app

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 developing and marketing costs are needed to build a successful company. Thus, the barriers

to entry by potential competitors increase by some extent.

2. Threat of Substitutes: Social media industry is highly competitive. Due to lack of protecting

from the law, not a single feature can be distinctive to a company for long. Other competitors

are always copying the best features from their competitors and trying to become the best

substitute. Thus, the threat of substitutes is substantially high in this industry.

3. Industry Rivalry: Social media apps are all about creating a platform that brings all the people

of the world under the same roof and giving opportunity to the businesses to do their

promotions online. Numerous well-established social media sites like Facebook, Instagram and

Twitter offers a similar service. Companies tend to look for a cheaper medium with

comparatively higher reach to promote their products and services. Whenever one of

competitors try to get an advantage over others, others tend to take that same path almost

instantly and gives no room for that company to utilize that. Lots of new social media apps are

also coming in the market with next generation social media services and making the

competition tougher. Thus, industry rivalry is high.

4. The bargaining Power of Suppliers: Providers of servers, storage, power, software, data

center and office equipment, technology etc. represent suppliers for social media industry.

Supply is an issue in terms of knowledge and experience which faces bottleneck. As this

industry is already seen as highly competitive and risky, losing market share due to the

inexperience of the supplier is going to be costly for the companies. Since there are not many

dependable technological firms capable enough to provide such service, there may be a

moderate amount of bargaining power from the suppliers.

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 5. The bargaining Power of Customers: As there is increasing threat of substitutes available

that provides almost similar kind of services to the customers and switching cost for the

consumers is low, bargaining power of the customers tends to be high.

III. Industry Life Cycle Analysis: Based on our analysis, social media industry is currently at the

shakeout stage for the following reasons:

❖ Demand for social media sites is increasing at a decreasing rate. From 2010 to 2011 social

media user’s growth was 24 % and expected growth rate for the year 2021 is 13%

(statista,2018).

❖ Rivalry between existing companies are getting intense. Companies like Facebook,

Instagram, Snapchat, Twitter etc. are fighting hard to take away share from its competitors.

❖ Demand is on the verge of reaching saturation level as fewer potential first time users

remain to be tapped.

❖ The demand of one service is sometimes replaced with another. For example: people have

started to choose one, Instagram or snapchat over one another. But there are still lots people

who uses both. But the market is reaching a point where majority of the users will prefer

using only one social media site or app for online social interaction.

PESTLE Analysis

Political and Legal: As the Intellectual property law is improved, the property violation is

decreased. Countries, like China, Saudi Arabia, Iran where Government surveillance is known to

infringe upon the basic civil rights of it owns people, where Freedom of Rights and Freedom of

Expression of a human being is subdued, which in many cases can cause violence, could come as

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an obstacle for a company like Snap, where their Snapchat platform can be used as a tool for

political movement. So, political and legal forces are negatively affecting the industry because of

Government Censorship.

Social: Now-a-days our lifestyle has changed drastically. We like to share our daily life activities,

our thoughts and opinions with our friends over social media only because it makes us feel good

about ourselves. We also tend to show a growing interest in others’ lives. Our concern for our

privacy has increased too. We want to keep our footprint in the social media and yet want to feel

secure there. These newly developed social norms are affecting the industry positively and again

privacy concerns are making users have second thoughts.

Technological: Around 2.53 billion people in the world uses smartphones currently and it’s

expected that by 2022, half of the total world population will have smartphones in their hand.

Availability of fast paced internet connection such as 4g and 5g has made it even easier for the

users to communicate with each other which positively affects the social media industry. Users are

becoming more inclined to communicating with images and videos. The very same reason is

attracting different businesses to use social media platform for promotional purposes. These

technological factors (Chaffey, 2018)

Demographic: There are substantial differences in social media use by age. Some 88% of 18 to

29 years old indicate that they use any form of social media (ANDERSON, 2018). It’s quite evident

that most of the users of social media sites are younger generation. Older people are less interested

in social media offerings.

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SWOT Analysis

Strengths:

1. Over the years Snap Inc. has invested in building a strong brand portfolio that will be

extremely useful for business expansion.

2. They have a highly skilled, talented and innovative workforce.

3. Snap Inc. has strong free cash flows within the company that can be used for the benefit of the

company.

4. Successful track record of integrating complimentary firms through mergers & acquisition. It

has successfully integrated number of technology companies in the past few years to streamline

its operations which strengthens its capability to achieve more.

5. Successful track record of developing new innovative products.

6. They have a strong user base, known to be more active and engaging compared to the

competitors, which attracts partners, investors and advertisers.

Weaknesses:

1. They maintain poor communication with their consumers.

2. Financial planning is not done properly and efficiently. The current asset ratio and liquid asset

ratios indicate that the organization can utilize the money more proficiently than what it is

doing currently.

3. They are failing to monetize effectively from their existing businesses.

4. They don’t have manufacturing capabilities. Rather, they depend on single contract

manufacturers.

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5. Their geographically dispersed office structure prevents them from overseeing employees and

business functions properly.

6. They are continuously failing to protect their intellectual properties from their competitors.

7. Snap Inc has lots of free cash flow lying within the company which indicates that the

management is failing to use this cash effectively and efficiently.

Opportunities:

1. Free cash flow within the company gives them opportunity to expand into new projects and

invest in their business functions.

2. Growth of the mobile advertising market has increased substantially over the past few years.

3. Our user base is also quickly expanding into older demographics.

4. Their recent acquisitions give them opportunities to expand in new businesses and develop

their existing ones.

5. Advertisers look for more personal mediums to reach their target market and Snap Inc’s way

of reaching consumers fits the code. Thus, more advertisers are getting attracted to use it for

their promotional purpose.

6. Consumer’s expenditure online has increased significantly.

Threats:

1. They are dependent on Google Cloud for majority of their computing, storage, bandwidth, and

other services. Any interference with their utilization of the Google Cloud activities would

negatively influence their operations and significantly harm their business

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2. They generate almost all of their revenue from advertising. The inability to draw in new

advertisers, the loss of advertisers, or a cutback in how much they can expend, could seriously

harm our business.

3. Their business is highly competitive which is expected to intensify as the time advances. If

they can’t maintain or improve their market share, their business will suffer.

4. Snap Inc’s business depends on mobile operating systems, hardware, networks, regulations,

and standards that is out of their control. Changes in their products or to those operating

systems, hardware, networks, regulations, or standards may substantially harm their user

growth, retention, and engagement.

5. If they fail to monetize from their businesses, they may end up being bankrupt.

6. Insufficient protection of intellectual property in developing countries.

7. Products are imitable. Existing and potential competitors tend to copy each other’s product to

take away the competitive advantage from others.

Define Snap Inc.’s Business

Customer group

People who are using smart phone, they are the customer group of Snap Inc. Snap Inc. provides

snapchat camera application, spectacles, bitmoji to their customer. The young generation is

basically using Snap Inc.’s product. Every day about 150 million people are using Snap Inc.’s

flagship product Snapchat. According to the Wall Street Journal, mainly 12-34-year-old

demographic is their targeted customer.

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Customer need

Snap Inc. is a camera company and it doesn’t want to be known as an app startup any longer. This

company is repositioning itself as a “camera company”. The company acknowledges that they

believe the camera screen will be the starting point for more products on smartphones and this is

because the images created by smartphone cameras contain more information and context than

other form.

They believe they are young person’s network and the company said that the company wants to

create more camera products to improve customer’s lifestyle. So, it can be said that they are

focusing on the camera features that a customer will want. They include it in their mission

statement that their customers want innovative camera product so that they can live and

communicate in a better way. This purpose can be seen on launching the first physical product

‘Spectacles’. This product is a camera-based sunglass which connects directly to the customer’s

Snapchat account. (Tsukayama, 2017)

Distinctive Competency

After analyzing the company’s internal resources and capabilities it’s safe to declare that Snap

Inc’s distinctive competency mainly lies in its R&D and marketing division. The marketing

division does extensive market research and successfully finds out the value their consumers seek

and communicate those values properly to the R&D division. Then, R&D division comes up with

the products and services that differentiates the company from its competitors.

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Financial Performance

Snap Inc.’s Financial performance

Year 2015 2016 2017

Current Ratio 4.43 7.53 6.75

Net Profit Margin -6.36 -1.27 -4.48

ROI -0.22 -0.34 -1.15

Facebook Inc.’s Financial performance

Year 2015 2016 2017

Current Ratio 11.24 11.97 12.93

Net Profit Margin 0.20 0.37 0.32

In terms of analyzing the financial performance of Snap Inc. first we calculated the current ratio

of past 3 years. Current Ratio helps to measure a company’s ability to pay off its current liabilities

by using its current assets. Over the past three years we can see the current ratio is increasing year

by year that means Snap Inc. has more current assets to pay off their current liability. But in

compare with its immediate competitor Facebook, its performance is poor and that means they are

not using their current assets efficiently and have more liability compare to their competitor.

Next, we calculated their net profit margin to analyze their profitability. As they are having net

loss over the past 3 years their net profit margin showed negative results but in 2016 it was better

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and again it fell but was better than 2015.Again, if we compare their performance with Facebook,

then we can see their performance is too poor compared to the competitor and they must have

some fault in their strategy which is resulting in the negative result in net profit.

And finally, we calculate the Return on Invested Capital to estimate whether they are earning

enough return on their investment. In terms of this ratio they are not doing good because of their

net loss in every year.

Competitive Advantages

Snap Inc. doesn't have any competitive advantage over its competitors. After analyzing four

building block, we see that Snap Inc. is doing well in terms of innovation but their efficiency,

quality and consumer responsiveness are pretty low compared to others (facebook, instagrm) and

from the financial analysis we found out that the company is incurring significant loss in the past

3 years that means it's not being able to use its distinctive competencies properly and devise proper

strategies that would give them any competitive advantage.

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 Value Chain Analysis

Company Infrastructure

Information Systems Material Management Human Resources

Google’s cloud System • Collecting and analyzing • Recruiting, training, employee

consumer data in cloud relations, performance

storage management, employee

• Sharing consumer data with engagement, talent management

R&D Production advertisers and Marketing
third partiesand Sales and development,
Customer Service
compensation

and benefits

• Keeps customers
Focuses on • Software and • Advertising
updated with news and
product App • Sale of
events via snaps sent
development, Development Spectacle
directly to user
advertising • Smartglass through online
inboxes, its blog and
technology, and called retail outlets twitter account.
large-scale ‘Spectacle’ • Collaboration • Website community
Business model
infrastructure production with celebrities, section with user

guidelines, safety tips

media houses,
and technical support
broadcast
guides
Primary Activities
networks, News
• Answers to FAQs are
outlets etc.
provided in the website

• Licensed Ad partners

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to facilitate advertisers.
Business Model & Canvas
Partner Network
Media Houses, Broadcast
networks, tech companies,
News outlets and publishing
houses, Investor
Core capability
Activity Configuration
Innovation of camera
features and connecting Provide a platform for users
people in better way to communicate and tell
stories through pictures and
videos, production of
spectacle smart glasses
Cost Structure
Research and development,
maintenance of IT
infrastructure, production,
utility
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Customer
Value Proposition
Relationship
Commitment to privacy
Always listen to
Reinventing the camera users, Provide
guideline to user,
Improve the way people keeps customer
updated with news Target Audience
live and communicate
and events.
Smart phone users
Empowering people to
Distribution Channel
express themselves
Play store and Apple
store, customer,
advertisers, ad
partners, e-
commerce site
Revenue Streams
Advertising,
purchase of
Spectacle by snap
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