SNAP Could Still Become a Trillion-dollar Company

TL;DR

The future of SNAP is VR, not Spectacles. The road to a trillion dollar SNAP, inc. is by becoming THE social VR platform. Facebook has been copying their features, Evan might as well copy their VR strategy. SNAP already has the product/engineering bones in-house with their augmented reality acquisitions/development.

Investors Are Desperate for a Facebook Crushing Strategy

There really isn’t much to say beyond that. SNAP is now very much under the gun to grow ARPU (average revenue per user), gross users, as well as enunciate a roadmap for growing into their world-beating platform expectations. After 1Q 2017 earning, an immediate 25% drop in share prices shows shareholders weren’t exactly enthused with the current state of growth and vision.

VR Isn’t That…Yet

Let’s start with the extrinsic threats to building the ultimate social VR platform. First, virtual reality still has a very long way to go before it’s truly consumer-grade. The cost per unit is way too high. The current pool of daily active users is tiny. But, the root of something incredible is there.

VR costs, fully loaded (Computer + Rig), will need to find a sweet-spot entry point just above a premium smartphone. From 2011 until today, we’ve seen a roughly 60% drop in the average selling price of smartphones (nominal dollars). If we assume similar trends with respect VR, something like the $1600 Oculus + Asus bundle, will hit a reasonable “mass market” price point in ~5-7 years.

The next big hurdle is the operability of VR platforms. SteamVR has done a good job in general, but there’s still a lot of room for a smart organization to “Steve-Jobs-ify” the experience. The average Steam user is far more of an enthusiast than most PC users. In “Crossing the Chasm” terms, we’re looking out over the canyon from early-adopter-land. The sheer number of packages, tweaks, and apps required to optimize VR experience is insane. We’re 3 product cycles before platforms like the Vive and Oculus will mature enough to provide a comparably frictionless experience to most mass-market gaming platforms (Playstation, X-Box, Wii, etc.)
Hardware constraints are yet another large bottleneck to broad-base adoption. VR kits are still looking for affordable retina scale displays (4k or so). Which means we’ll need affordable GPUs that can power two 4k resolution screens at 90 frames per second. NVDA’s Titan X still can’t do that. So, we’re probably at least 2 GPU releases until NDVA’s top GPU can handle that workload and another 3 releases after that until it’s affordable for the non-enthusiast market.
Last, if we looking at underlying business fundamentals, it’s equally damning. You can’t build a mega-company on top of VR yet. The pool of users is just too small. ARPU would need to be in the millions. Sure, there will be several billion dollar valuations in 5-7 years, but there will be a lot of market development risk that won’t be properly accounted for. Any major investment now will be intensely speculative. There are dozens of “must go right” gates before VR reaches escape velocity.
All of that accounted for, the market opportunity for the right players is absolutely enormous.

The Paradigm already Exists

Many science fiction authors have already explored this model, for example, both “Snow Crash”  and “Ready Player One” revolve around MMO platforms where users effectively conduct all important parts of their lives on a VR platform. What makes these stories so compelling is how naturally they extend on current-day user behaviors. It’s an entirely another blog post to be written about our desire to present a “curated self,” etc.  The crux of it is, we’re vain. We like things that make us feel special. VR can do that exceptionally well.  The popularity of Snap’s AR filters is a nascent expression of this behavior. AR and VR provide an accessible and immediately gratifying outlet for the desire to curate our personas.

Battling with Zuck

A wise man doesn’t battle with Zuck. However, Facebook is making the absolute wrong play with Oculus’s “walled garden approach.” They’re vastly overvaluing the future revenues of the game marketplace and hardware sales.
The major value will arrive in a broad platform that’s equal parts Facebook, World of Warcraft, Amazon, and Google. Whoever ends up owning the “last mile” between VR and the users will be the ultimate winner in the VR world.
The peripherals aren’t going to be that.
Valve’s Steam platform, on the other hand, is making all the right moves. But, Valve doesn’t have the skills nor culture to really connect with non-gamer. SNAP has really captured “fun” into their products and apps, there’s a wonderful symbiosis between SNAP and Valve.

 

A social platform that focuses on democratizing VR hardware, ecosystem integrations, and developer enablement is the next biggest thing. 

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