Is Snapchat a True Competitor of Facebook? Not Yet

To beat Facebook, Snapchat has to steal some plays from Facebook’s playbook.

From time to time I hear the argument that Facebook is losing teens to Snapchat. Cnet wrote that Facebook was “overrun by parents”, driving teens to Snapchat. CNN chimed in with a similar theme, noting that teens didn’t feel like they could “be themselves” on Facebook. And there are numerous surveys that support these stories, showing that more teens use Snapchat (or Instagram) than they do Facebook.

So should Facebook be shaking in their boots? I don’t think so, for two reasons. First, as I have argued in the past, the fact that teens prefer Snapchat over Facebook is to me less of a trend than it is a statement about the social media needs of teens.

Snapchat is a great tool for sharing mindless snippets of information with a small group of people that you see all the time. As teens graduate from high school and college however, their social networks expand – high school, college, work, neighborhood, family, etc. – which creates a need for a network like Facebook. So my prediction is that today’s Snapchat users will be tomorrow’s Facebook users.

This is a problem for Snapchat, for two reasons. First, no social network wants to lose users as they grow up. Second, teens are notoriously fickle – expecting new generations of teens to use the app that the last generation used is risky. So if you can’t “grow up” with your users, you are in trouble. And this is one thing that Facebook has proven is can do and Snapchat as yet has not.

Remember that Facebook started as a college network (specifically a network for Harvard). It has since expanded to reach billions of users of all ages and nationalities around the world. Facebook continually refines its feature sets and make acquisitions to expand its relevancy. The jury is still out as to whether Snapchat will be able to do the same.

Here’s the other challenge for Snapchat that Facebook has already solved: monetization. Facebook has developed an advertising platform that is highly profitable for Facebook, effective for advertisers, and relevant to users. This has primarily been achieved through sponsored posts on mobile phones combined with custom audiences and lookalike functionality to advertisers. Facebook continues to grow its monthly active users and time spend on their sites while also making more revenue per user (ARPU). They’ve made this look easy even though it is far from it.

Snapchat, on the other hand, is in the very early stages of figuring out revenue. A report last month suggested that the company was closing in on a “$100 million annualized run rate.” If true, this works out to about $.50 ARPU, which pales in comparison to Facebook’s worldwide ARPU of $2.97 and U.S./Canada ARPU of $10.49.

Granted, Snapchat is still in the early days of launching their advertising platform, so it’s likely that ARPU will increase over time. Of course, Twitter has been around for some time and is still struggling to top $1.50 ARPU. And let’s not forget that Snapchat is operating off a smaller user base, which I assume are going to be among the most active users – as the MAUs grow, usage per user (and thus ARPU) should decline (which is why Facebook’s ARPU growth is so impressive).

Snapchat may turn out to be a massive success and worthy competitor to Facebook. I’m not saying that that won’t happen. I do believe, however, that Snapchat – in its current format, with its current users, and its current advertising strategies – will not get to that point. To beat Facebook, Snapchat has to steal some plays from Facebook’s playbook – changing its functionality to increase appeal beyond teenagers and creating ad units and ad functionality that enables relevant, highly profitable advertisements. Facebook has made this look easy, which it is clearly not.

David Rodnitzky is the CEO of 3Q Digital.