After Snap’s latest quarter, you have to wonder just what in the world its CEO, Evan Spiegel, is thinking.
The company’s decision to release a new version of its Spectacles product last week seemed questionable by itself. After all, it was fewer than six months ago that the company acknowledged that the first version of its smart sunglasses was a costly failure.
But the decision to get back into the hardware game looks even more suspect now. Because the company made clear Tuesday that its Snapchat app is stumbling badly after a widely panned redesign. Meanwhile, the company is continuing to post big losses and to bleed cash.
You might think that before dabbling in the hardware market again, Snap would want to get Snapchat right. It does provide basically all of the company’s revenue, after all.
Obviously, though, Spiegel had other ideas.
Spiegel is focusing on the AR future while Snapchat burns
In an interview with Wired last week, Spiegel gave some indications of his thought process. The company believes augmented reality — the technology that layers virtual images over views of the real world — is its future. The company thinks it needs to be able to offer both software and hardware that takes advantage of the technology, but because AR devices are taking much longer to perfect than the software, it’s developing them separately. On the hardware side, it’s starting with relatively simple products that it hopes will evolve over time.
“Over the next decade or so, the way that these pieces fit together will probably be what defines our company,” Spiegel told Wired.
That’s a fine vision for the company’s future. But Snap has big problems in the here and now. If it wants to survive long enough to see Spiegel’s vision through, it needs to fix Snapchat right away. And it can’t afford to be dragged down by another hardware bust.
Snap’s quarterly report told the story of just how much trouble the company is in. Its revenues for the first quarter were far below analysts’ estimates, and Snap is expecting the growth in its ad business to slow down markedly in the second quarter.
Fixing Snapchat will be a big task for Snap
Meanwhile, Snapchat added fewer users in the period than it had in any quarter since it became a public company. And following the redesign, its total users actually declined.
While the number of Snapchat users on iPhones is showing “early signs of stabilization,” Spiegel indicated the company is still struggling to retain users on Android.
On that call, Spiegel and his fellow executives seemed to understand the task ahead of them with regard to fixing Snapchat. They suggested repeatedly that they are focused addressing the problems in the app while trying to build long-term value for users and advertisers.
“We should have made a lot changes faster in our engineering organization and put Android first,” Spiegel acknowledged on the conference call.
That’s great, but the launch of the new Spectacles last week suggests that Snap’s not entirely focused on its main business. Company officials had to have had a pretty good idea then that the past quarter turned out so poorly and that they needed to focus on Snapchat.
Snapchat was faltering even as Snap prepared to launch the new Spectacles
Heck, they likely knew much earlier than that, because there were indications as early as February that Snap might be in trouble.
The redesign it launched that month was roundly criticized by users and the press. Most notably, the new look was knocked by celebrity Kylie Jenner, who indicated she wasn’t using Snapchat anymore because of it. Thanks to her comments alone, Snap lost $1.3 billion in value.
Soon after the launch of the new design, Snap was already rolling back some of the new tweaks. If people on the outside could see that Snap was struggling, the folks on the inside — who have access to daily data on app usage and revenue — had to have an even better picture.
Yet despite that, Spiegel and company decided to roll out the new Spectacles anyway.
It’s anyone’s guess why Snap decided to go forward with the new product given what was happening with Snapchat. The company didn’t mention the new Spectacles in any of its earnings-related materials Tuesday and company officials didn’t discuss the smart sunglasses on the conference call.
Selling Spectacles is a distraction from fixing Snapchat
That decision might have been justified if the first versions had been a hit. But they weren’t. Snap reportedly only sold 220,000 pairs, a relatively small number for a consumer electronics product. It obviously planned to sell a lot more; it ended up taking a $40 million charge for unsold inventory of the glasses.
Reviewers have generally praised the new version of Spectacles for improving on the first model. But Snap still has little experience, marketing, selling or distributing hardware, and it’s unclear whether it will do any better this time around. Consumer electronics is a tough business and even experienced companies can struggle to make money at it.
Even if this version of Spectacles does better than the first, Snap would almost certainly be better off focusing on fixing Snapchat first rather than trying to peddle smart sunglasses at the same time.
Focusing on Snapchat might not be as cool as building smart sunglasses, but for now, it’s likely to be a whole lot more important.
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