Can Snapchat Survive If Facebook Copies All Its Best Features? – Harvard Business Review


Executive Summary

When Snap CEO Evan Spiegel was asked about Instagram copying its features on Snap’s first earnings call, he replied that “Just because Yahoo has a search box, it doesn’t mean it’s Google.” That’s true, but it doesn’t necessarily imply what Spiegel needs it to. In fact, Snap’s response to Facebook’s attempts to copy it reflects a decades-old debate over what strategy is, one that’s being re-litigated in the digital age. The debate over how sustainable “operational advantages” are continues to this day. But even if one grants that certain capabilities can be hard to imitate, Spiegel needs to explain why Snap’s capabilities qualify.

To be successful, a company needs to provide something customers want. It must be able to do so for less than they’re willing to pay. And there must be some reason why competitors can’t just copy it when it succeeds. In management terms, it needs a value proposition, a business model, and a strategy.

Snap is doing well on the first two. It has a product that lots of people like, and there’s at least the prospect of Snap eventually becoming very profitable, its first earnings report notwithstanding. But it’s struggling with the third (strategy) because Instagram has been copying its most popular features.

When Snap CEO Evan Spiegel was asked about Facebook, Instagram’s parent company, on Snap’s first earnings call, he quipped: “Just because Yahoo has a search box, it doesn’t mean they’re Google.” That’s true, but it doesn’t necessarily imply what Spiegel needs it to.

In fact, his response reflects a decades-old debate over what strategy is, one that’s being relitigated in the digital age.

In Snap’s S-1, the company says:

Our strategy is to invest in product innovation and take risks to improve our camera platform…. In a world where anyone can distribute products instantly and provide them for free, the best way to compete is by innovating to create the most engaging products.

Raffaella Sadun, a professor at Harvard Business School, says the challenge for Snap is that “great product is different from great strategy.” As Ben Thompson noted, “Most companies use their S-1 to explain how they are building a sustainable competitive advantage — a moat, if you will. Snap is declaring that moats no longer exist.”

One reason why it’s so hard for Snap to articulate a traditional strategy is that, arguably, the best one is already taken by Facebook. The way you make money with a social network is through network effects. The more users you have, the more valuable the platform becomes for all your users; hence scale becomes a powerful competitive advantage. But if that’s where the value is, Facebook will beat Snap every time. For instance, Instagram launched Stories, a feature seemingly derivative of Snapchat, in August 2016. Just seven months later, Instagram Stories had more daily users than Snapchat.

So, Spiegel needs to articulate a theory of why Facebook can’t copy Snap’s product innovations and then use them to capture even more value through its larger network. To date, his answer has been innovation. That puts him firmly on one side of the long-running strategy debate. Is it sufficient to develop capabilities that seem hard for competitors to imitate, like building camera-based social applications? Or does sustainable strategy require more?

The debate over how sustainable “operational advantages” are continues to this day. But even if one grants that certain capabilities can be hard to imitate, Spiegel needs to explain why Snap’s are.

In a recent paper, economists Joshua Gans and Scott Stern argue that execution can form the basis of sustainable advantage for entrepreneurs, but only under certain conditions. In their model, execution-focused strategies help startups get to market quickly and start learning from customers, “allowing the firm to ‘get ahead, stay ahead.’” It’s not clear that this applies to Snap, which came to market later than Facebook and so has had less chance to learn from users.

“Anyone can say they are executing but actually doing it is another matter,” Gans wrote about Snap on his blog in February. “Snapchat hasn’t proven itself out yet.”

And it doesn’t help that Spiegel seems to be misinterpreting Google’s success in relation to Yahoo. Google didn’t get where it is by only building great products. It built great products and then fended off competitors by acquiring them or by using its huge user base and massive data trove to improve its products in ways that rivals couldn’t. Google had a strategy.

Thompson has compared Snap favorably to Apple, an extremely successful company known for its hard-to-imitate product expertise. But Apple has benefited from controlling key ecosystems, like iTunes and iOS. And it has benefited from focusing on a particularly lucrative part of the hardware market: high-end, high-margin devices aimed at wealthier customers. It’s not clear what the equivalent is in Snap’s case.

None of this is to say that Snap can’t succeed. Sadun notes that Snap’s success will depend on whether advertisers see it as a complement to Facebook or a substitute, as well as whether Snap can capture a segment of valuable users and find a way to keep them from switching to Instagram.

Earlier this week the New York Times asked readers which of the big five tech companies they could most easily cut ties with. As of this writing, Facebook was by far the most popular choice. So while Facebook’s network effects are certainly powerful, they’re not necessarily insurmountable.

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