Snapchat's Spiegel shifts focus to AI after reviving ad business

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(Bloomberg) – Snap Inc. CEO Evan Spiegel is bringing artificial intelligence and machine learning to Snapchat in his next big shift after spending years overhauling its advertising business. He said he is investing more aggressively to make it more interesting for users.

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“There was a recognition that we were behind the curve in terms of machine learning, and to some extent that was reflected in our results,” Spiegel said in an interview. “We needed to improve on that and bring together some of our most senior machine learning people to talk about what it looks like to take cutting-edge technology and actually invest in it.”

It's a hard-earned win for Spiegel, which now has more time to spend on fun improvements like making the content of the Snapchat app more personalized and building artificial reality filters and software. His company has been working on big changes in how people use social media apps and what kinds of digital ads marketers want to buy on social media apps. He has spent much of the last few years overseeing a shakeup of Snapchat's money-making advertising business, making big changes that are finally starting to pay off.

The 2021 Snapchat experience revolved around camera filters that spice up messages, stories, and posts from friends. For advertisers, telling an emotional brand story was the main focus, and campaigns that encouraged immediate purchase were less important. Snap needed to evolve its app to fit both of these important groups, and that change required new technology, expensive infrastructure, and organizational restructuring.

The company is currently pouring money into building machine learning, AI and augmented reality capabilities around Snap's advertising business and user feeds. Rather than building everything in-house like its Alphabet Inc. and Meta Platforms Inc. peers, Snap has formed cloud partnerships with big technology partners like Amazon.com Inc. and Alphabet's Google to build its products. You have the freedom to innovate and develop new products. Snapchat experience.

Still, Snap expects to continue to invest about 84 cents per daily user per quarter in infrastructure alone. That equates to about $1.5 billion a year, or just over half of its estimated annual operating costs, according to Bloomberg calculations.

direct advertising

It's an investment strategy made possible by the necessary but self-inflicted pain of overhauling the company's advertising business. Snap is moving from a focus on brand advertising to expanding into direct response campaigns that drive more immediate purchases and app downloads, ads that are technically more difficult to build but more profitable. did.

Overhaul comes at a price. Although Snap's stock price has fallen more than 70% from its pandemic highs, the company has delivered on the improvements Spiegel promised. Despite revenue declines in the first two quarters of 2023, Snap's new ad service is gaining popularity. Snap is back to double-digit growth, with analysts predicting record sales. Following last month's strong earnings report, the stock price is up more than 71% year-over-year.

“We're just trying to be very realistic about our operating environment, but we still have great faith in our team and our ability to get through it and execute,” Spiegel said on stage at the Bloomberg Tech Summit earlier this month. “There is,” he said. “It helps me stay positive, which I think is so important during uncertain times like this.”

Analysts are also paying attention.

“Years of hard work are starting to bear fruit for Snap's advertising business,” Max Willens, senior analyst at eMarketer, said after the latest earnings report. “Snap seems to be building some credibility as a platform that can deliver.”

build again

As ad revenue rises again, Snapchat plans to expand its content offerings and augmented reality experiences, an area Spiegel plans to devote more personal time to. He also drives new product experiences. Snap wants to improve its recommendation algorithm for Spotlight, a short-form video feature that competes with Stories and TikTok. Snapchat's next big move is to integrate these two products. “I think this will be very beneficial to how people discover content on our service, so it's a big priority,” Spiegel said.

The need to catch up is a unique position for Spiegel, which has built a reputation for being ahead of its competitors when it comes to identifying trends in the social media industry. There are also positive cases, such as stories and face filters, in-app AI chatbots and the success of social media subscriptions.

Other trends Spiegel found were even more difficult to accept. He sounded the alarm early on the drop in marketing spending post-pandemic and was among the first at Snap to initiate large-scale layoffs and other cost cuts, canceling projects and refocusing business on lower priorities. Ta.

As for the future of computing, Snap is hoping that Spiegel's product instincts will pay off once again. The CEO initially invested in augmented reality, but the company's main competitor, Meta, was focused entirely on virtual reality. While Snap was developing glasses and filters that changed the world around you when captured with a camera, Meta was developing large headsets that transported users into virtual worlds. Since then, Meta has spent more time and resources on smart glasses, most recently launching camera-equipped Ray-Ban sunglasses that are similar to Snap's own Spectacles camera glasses that launched in 2016.

Snap hasn't released a new line of its glasses in over three years, but it's still building and developing technology behind the scenes. Users can choose from eerily realistic filters that show what they look like in a 1990s style, and filters that work live at LA Rams football games and change the faces of fans on the Jumbotron. We've already seen the work inside Snapchat.

For Spiegel, augmented reality is promising because it “can be integrated into the world and shared together,” he says. “A lot of the things we focus on are not possible with today's technology. Whether it's a VR headset, a computer, or a cell phone, people are very much enabled by the technology products they use today. We want to see a future where people play, learn and work together in the same physical shared environment, and this is made possible by augmented reality. Become.”

This is similar to how the company views Snapchat's user base, which uses the app primarily for messaging but also allows users to post and scroll content. “What we're finding is that people keep coming back to the service to talk to their closest friends and family,” Spiegel said. “When we see disengagement, it's often because we're not connecting people with the people that matter most to them.”

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