Pando

THIS is why you donā€™t build $30 billion companies aimed at just one generation

By Sarah Lacy , written on February 14, 2018

From The "You know, for kids" Desk

I have been #longLA since before it was a hashtag, and definitely since before LA had its own consumer Internet decacorn. One of Pando’s first hires was Michael Carney to focus on the LA ecosystem. And he was so good at it, he got poached away to be a VC.

I was also long Snapchat way back when everyone else was dismissing it as a sexting app. And yet, I’m not sure the relationship between Snap and LA’s tech cred is as Hollywood ending as it may seem.

Don’t get me wrong: Even if Snap fades into being a new Twitter, it has been good for LA. It will pole-vault LA into one of the most desirable tech ecosystems, with talent, thousands of rich angel investors, and most of all a proof point that you can build one of the largest consumer Internet companies of the mobile messaging era in LA.

But one could argue that LA wasn’t all that good for Snap...

As I wrote years ago, Snap CEO Evan Spiegel seemed to believe that media was the bigger play than building a utility, and he got lulled by what LA is good at: Fashion. Telling a story in a way that resonates broadly throughout mainstream American youth. Rather than a blockbuster, Snap did it in app form.

The red flags were all there. Naming media executives-- not people experienced building scalable $30 billion companies -- to their board. Embracing being a media platform, as opposed to Facebook’s constant resistance of it, and in particular embracing being a media platform only for millennials. Arguing on its roadshow that it’s goal wasn’t to get to 1 billion users, it was to monetize its smaller, cooler, hipper, younger base of users better. Arguing in its S1 that it was less a tech platform and more of a factory for continually churning out amazing stuff that would delight and excite those young, cool users.

In a development that should surprise no one, a company entirely catered to hip, youth has not been a recipe to build a sustainable technology business worth tens of billions of dollars. The obvious reasons were there: The fickleness of that audience, for one. But the bigger problem is size. We live in a digital advertising world where two companies-- Facebook and Google-- own more than 85% of the marketing spend. And they’ve got YouTube and Instagram respectively, two pretty hip brands that have also managed to be mainstream at the same time.

Having cottoned to this way too late, Snap did an aggressive redesign aimed at appealing to the people it spent years alienating via its “HEY MAKE A BROWNIE IN A MUG!!!!!” content platform and “PUT A TACO ON YOUR FACE!” ad campaigns.

Predictably the youth are pissed.

A week of discontent has now turned into a Change.org petition, with nearly 800,000 signatures. What Snap does next will be pivotal. How do you tell the difference between an angry, vocal minority and your core audience? When Digg had its first angry user revolt, it caved to the mob. When Facebook faced the same at the time it launched the Newsfeed it didn’t.

Of course a big difference between those two wasn’t just the reaction: It was the the companies in question. Digg was more of a media company that catered to a certain type of user. Facebook started out as a site for college kids and steadily worked on broadening step-by-step-by-step. Facebook wanted its “core” to be 1 billion people. And Facebook faced that do-or-die choice early in its lifecycle, well before it was a public company with the weight of disappointment pressing down on it.

When Snap went public, Ben Thompson referred to its strategy as the Steve Jobs method of company building. It was a brilliant way of distinguishing the strategy from the obvious comps. And yet, the comparison doesn’t quite do Apple enough credit. First off, Apple had Steve Jobs. It’s unclear that Spiegel has those product chops-- which isn’t a knock on Spiegel. Steve Jobs wasn’t just a dude who came up with a great app, he was a man who re-invented several industries over the course of his lifetime. Before that, it was Jack Dorsey who was called the “new Steve Jobs” and he’s hardly lived up to it either. When someone says invest in this guy, because of what Steve Jobs (or Elon Musk) did-- run.

It also doesn’t do credit to the assets that Apple had when Jobs returned to the company. This was a company on the ropes, but it had a loyal fan base. It perhaps made shitty hardware, but it had a supply chain set up to make and market hardware. There were assets and a brand already there.

Go back and look at the Jobsian ad campaigns: He didn’t aim at youth culture. His personal musical aesthetic was of a bygone era. He frequently made old images, music and vibes new again. In doing so, he made Apple an aspirational brand across generations.

Sure, fanboys would line up to get devices. Sure, the kids had to have an iPod. But so did the olds. Even when Apple dwelled in the under 10% market share range, it wasn’t based on age. It was based on creativity.

Snap’s playbook was less the Steve Jobs method of company building. It was more the Hollywood playbook of creating blockbusters. Look at the roll out of Spectacles: Absolutely flawlessly brilliant from a marketing point of view. And like a hit movie, the excitement was gone in a few months time. Only unlike a movie studio, Snap had warehouses full of the things and had to take a write off. And unlike a movie studio, there weren’t dozens of other “Spectacles” waiting to be released should this one not work.

Movies-- even the more enduring movie franchises-- are designed to burn hot, burn wide, and burn bright. You don’t do a beta of a movie, and then growth hack from there. You get that shit in every megaplex at once, you max out the marketing blitz, and if the reviews are shit, well…. That’s why you want the big opening weekend.

The only thing Snap didn’t get from Hollywood that might have helped is its penchant for catering to international audiences. Because another knock on the product is just how un-international its appeal has been.

I am still long on LA. I haven’t been long on Snap for years now. But for LA consumer tech to live up to its potential, it needs to build sustainable platforms that appeal broadly or appeal narrowly with a subscription business model. White, hot flashes don’t make sustainable publicly traded billion dollar companies.