Strategic Challenges and Options Faced by Snap Inc.

Introduction

In 2021, Snap Inc., the parent company of Snapchat, was entrenched in a fiercely competitive battleground against two formidable opponents: Facebook and the fast-emerging TikTok. This case considers the strategic dilemma facing Snap’s chief executive officer (CEO), Evan Spiegel, within a competitive and network-based environment. Meanwhile, Snap is the forerunner and innovator in ephemeral messaging but has to remain relevant and competitive in the face of Facebook’s leadership. And Tiktok disruptor. Snaps’ strategic dilemma revolves around how the company will respond to TikTok’s emergence and win over Facebook as a competitor, especially Instagram. This raises questions about what strategies are still available, e.g., diversification of demographics, different business models, use of augmented reality, or increased privacy, all taking place in a world where it has been shown how powerful network effects work and who are the fierce competitors. This means that the company has to develop a strategy that will not only distinguish Snap but also drive it to sustainable success, given this highly competitive business environment. This report will provide an in-depth internal and external analysis of Snap based on the case of the social media war in 2021 and provide options for addressing the challenge.

 Internal Analysis based on the VRIO tool

What the firm does

Innovation

Snapchat emphasized innovation, especially in augmented reality (AR), and innovation has been a cornerstone of its strategy in differentiating itself from competitors like TikTok and Facebook (Yoffie & Fisher, 2021). By consistently introducing novel AR experiences, Snapchat has managed to carve out a unique space in the social media landscape. Snap’s AR innovations have allowed users to engage with the platform in ways that go beyond traditional photo and video sharing. Features like AR filters, lenses, and interactive elements have attracted users and created a distinct user experience that sets Snapchat apart from other platforms. For instance, the introduction of AR lenses that overlay playful animations onto users’ faces was a significant hit, sparking widespread user engagement and social sharing. The company’s focus on AR hasn’t been just about entertainment; it has also ventured into practical applications, as evident by the development of a scan platform (Yoffie & Fisher, 2021). Snapchat’s AR technology has been utilized for various purposes, from gaming experiences to product try-ons for brands, demonstrating the versatility of their innovation and potential commercial applications. Snap’s dedication to AR showcases a commitment to staying at the forefront of technological advancements. This commitment has helped retain existing users and attracted a demographic interested in cutting-edge experiences despite copying its features from other players like Facebook. As a result, Snap has established a reputation for being an innovative platform, attracting users willing to pay or engage more actively due to its unique features. Moreover, while competitors might replicate certain features, Snapchat’s consistent stream of new AR experiences has made it challenging for rivals to catch up entirely.

Exclusive content

Despite the demographic expansion, the Snapchat company strives to ensure it has a large market share in the domestic and international markets to win the stiff competition in the market through diversifying and offering content based on consumer preferences and interests (Yoffie & Fisher, 2021). It achieves this through understanding individuals’ cultural preferences and nuances in different regions and adjusting accordingly. For example, when the company tapped into the Indian market, it competed successfully through releasing content tailored to cater to Indian consumers’ needs and requirements. As a result, Snapchat increased its position in the Indian market, which Facebook and TikTok previously dominated. Also, the company strives to advance its features and content from time to time to retain its customers and attract more potential customers. Targeting old consumers enables the company to focus on its content to ensure it resonates with all its target consumers. Its diversification plays a key role in influencing consumers. This is because it engages the consumers more and creates more value.

Resources and capabilities

Talent and effective leadership

Talent and leadership capability (particularly that of CEO Evan Spiegel) influence the direction of Snap’s strategy (Yoffie & Fisher, 2021). Spiegel’s vision enabled the development of features such as messages disappearing after being read once and augmented reality. Moreover, Snap’s pool of skilled employees is central to its innovative strategies beyond Spiegel’s influence. This platform has been appealing due to its contributions to the development of technology and content production. The technology is well harnessed in Snapchat’s innovative AR, such as lenses and filters. This also forms a talented pool within Snap that allows it to respond quickly to changes in the market. For instance, the company’s ability to develop new ideas and features tailored to its existing situation was evident when TikTok emerged as a formidable competitor (Yoffie & Fisher, 2021). Overall, with the competitive landscape against Facebook and TikTok, leveraging this pool of talent has further added to the company’s strengths and supported the company in navigating these tough times. It enables Snap to move fast, devise customized schemes, as well as preserve its uniqueness while grappling with stiff competition.

Financial resources

Although Snapchat has encountered significant challenges, it has maintained its financial stability. Robust marketing strategies are executed due to Snap’s financial stability. It helps the company market its system to obtain new customers and interact with the current ones. The company needs to put much effort into marketing to help it stand out against rival apps and keep users engaged (Yoffie & Fisher, 2021). Snap’s financial sustainability has enabled it to undertake crucial investment ventures or mergers despite the obstacles to profitability. The changes could target improving its capacity, obtaining new technologies, or enhancing its users’ network through mergers or joint ventures. In return, financial stability gives Snap the chance to have a long-term view. The company can withstand short-term setbacks as it strives towards expanding into new markets, diversifying the products offered, and improving user experience.

External Analysis

Competitive Arena

In this case, the competitive arena is centered on the social media space, focusing on battles among Snap (Snapchat), Facebook (including Instagram), and TikTok. These companies struggle to compete for user attention, engagement, and domination in social networks and content-sharing space.

Macro environment

Shift of preferences and behaviours of users

Significant changes have occurred regarding how individuals engage with social media, for example, immense preferences for short-form video content. The main driving force behind TikTok’s success was short, funny videos that were easy to absorb (Yoffie & Fisher, 2021). People naturally moved towards this format, choosing it over conventional information posted on Facebook or even Snapchat. This shift changed how social media users consumed and interacted with their social media content. Short-from video content created chaos as far as social media engagement is concerned. It posed a severe threat to large platform providers that depended on longer formats, forcing them to adapt to changing circumstances and remain relevant. This disrupted platforms such as Snapchat, requiring them to reconsider their content delivery mechanism. Therefore, users made their content consumption fit into the trend of short-form videos. It affected the time spent on other platforms and users’ engagement on the Snapchat platform.

Moreover, it forced Snapchat to pivot its content to cope with the growing demand in the market (Yoffie & Fisher, 2021). It faced challenges of preserving its unique features and identity while satisfying the demand for short-form videos. However, the change in users’ preferences accelerated innovation in Snapchat as it strived to prevent its loyal users from gravitating to other platforms, such as TikTok, which was gaining immense popularity.

Data privacy concerns and regulatory Scrutiny

Regulatory changes contributed to setting rules to protect users’ data while ensuring transparency and allowing individuals greater power of control over their personal information, leading to social media having to adjust their ways of practice. Data privacy and security were among the factors that led to increased awareness among users, which became critical factors in determining the choice of platforms preferred by users (Yoffie & Fisher, 2021). This resulted in users moving towards platforms that showed clear dedication to keeping them safe and valuing their data privacy rights. Social media had to comply with strict data protection laws and respond to users’ demand for better privacy and transparency provisions. This called for modification of the policies for data collection, storage, and use and enhanced transparency concerning user data utilization for advertisement purposes, among others. These issues brought forth effective platforms, which depended on the trust between them and the users. Companies focused on security and user privacy would stand out among the numerous competitors. This triggered Snapchat to emphasize privacy-focused initiatives to improve its user experiences and acquire a competitive advantage.

 Competitive arena attractiveness

In this case, the competitive arena of the firm is influenced by competitive barriers of technological innovations, expanded networks, and user base. The emergence of TikTok challenged Snapchat because it offered an innovative platform for users to share videos (Yoffie & Fisher, 2021). This attracted a broad-based young demographic. Snap encountered barriers to adjusting its platform to compete successfully. It aimed to achieve this by differentiating itself through features such as augmented reality. Facebook dominated the market with strong network effects, creating a barrier for Snap to easily retain and attract users (Yoffie & Fisher, 2021). Snap strives to explore new demographics to increase its consumer base and acquire a high-growth potential. However, due to the nature of competition in the market, Snap needed a more substantial differentiation to adapt quickly.

TikTok and Facebook captured the value due to their power in control of the user data. They relied on user insights and targeted advertising to present themselves in the market and appeal to the consumers. For example, TikTok had more unique features that attracted a younger audience globally (Yoffie & Fisher, 2021). Also, its aspect of user engagement captured increased value. On the other hand, Facebook dominated the advertising space, thus increasing bargaining power. It attracted increased advertisers, and this is attributed to its extensive reach.

Implications to the firm

Based on the external analysis, Snap has an opportunity to diversify its demographics and capture a broad market. Doing this will enable the company to understand users’ needs, preferences, and behaviors in different markets and thus target them effectively. Also, it has an opportunity to design new competitive business models that are best suited to compete in the highly competitive landscape. Also, it can prioritize differentiation by introducing new ideas that cater to diverse cultures and values. However, based on the competitive nature of social media, the switching costs are low, and users are likely to transfer easily to other platforms offering better services. Also, the company will likely face challenges in converting user engagement into sustainable revenue streams.

Options/ Alternatives

SWOT Analysis and Strategic Options

The internal and external analysis provides strengths that the business can use to leverage effectively to align with the demands in the marketplace and maintain sustained success. Also, it has provided potential opportunities that can assist the company in continuing to be competitive through improving its existing services and adapting to the ever-evolving and dynamic market. The analysis provides weaknesses that show the most critical areas of improvement within the company. They provide the basis for strategic planning and course of action. The threats identified through the analysis assist the company to understand the potential risks and plan for proactive risk assessment.

These factors can be addressed by first responding to competitors by examining the effectiveness of strategies implemented to counter their weaknesses and threats to derive suitable strategies. Second, consider market expansion to emerging markets and specific professional niches by exploring demographics and areas it has not yet tapped. Third, AR development to enhance future growth and differentiation. This can be achieved through increased research and development and attention to technology trends.

Evaluation/ Discussion

Option 1 (Respond to competitors)

Given the firm’s value creation logic and key success factors, Snap can respond to competitors by adopting different business models with higher growth potential than the existing models for the company and its primary competitors. Snapchat’s primary revenue source has been ads for a long time. However, depending only on advertising has potential vulnerability due to factors such as fluctuations and competition (Dwivedi et al., 2021). the company can assess different revenue models, for example, WeChat’s multiple-faceted business model. Snap could be more stable and grow more if it diversified its revenue sources away from advertising (Yoffie & Fisher, 2021). For instance, Snap could consider integrating some e-commerce functions, resulting in earnings through alliances, transactions, and even commissions. Such an option would include integrating payment services for Snap wherein users could transact or send money within the application, and Snap would generate revenues from transaction charges. Snapchat may also add an aspect where influencers or creators can make money through the platform by splitting revenue or introducing subscription-based content for an extra cost. Doing this addresses the challenge by slowing down competition, allowing the company to pursue initiatives that keep it ahead of the competition (Brown, 2021). Based on the case study, Snap has a history of experience and adapting its platform to new features; therefore, it has the resources, time, and ability to initiate the development of new business models (Yoffie & Fisher, 2021). however, it will need intensive research and development to make it acceptable to key stakeholders. The risk involved in this option is diluting core user experiences; therefore, it should aim to engage new and existing demographics without losing its users.

Option 2 (consider market expansion to emerging markets and specific professional niches)

Additionally, based on the current situation and the strategic challenge of Snap, it can consider expanding its market, especially to emerging markets and specific professional niches that are untapped by its competitors. In the past, Snap would have concentrated on the young population, but it might require a shift to broaden its user base (Yoffie & Fisher, 2021). Due to financial stability, as evidenced by the uptrend in its revenue information over time, the company can expand to other markets without financial constraints. However, this is costly because it entails the localization of products, understanding cultural differences, and changing market conditions. It also takes time to penetrate new markets; hence, time is one of the factors. This dependability of Snap is determined by speed and readiness to invest. This option is based on the assumption that potential markets can offer Snap an opportunity to increase its operations and efficiency, especially emerging markets associated with high growth potential.

Option 3 (AR Development)

Given the current situation and the strategic challenge, AR development can represent exclusive experiences for snap users, allowing it to outpace its competitors. With AR, Snap can have more differentiated services outside of communication and social media (Porter & Heppelmann, 2017). The expansion would also assist Snap in reaching the untapped demographics and revenue channels. Snap has demonstrated its allegiance to AR through its spectacles and numerous AR features embedded in Snapchat itself (Yoffie & Fisher, 2021). Therefore, pursuing AR development is possible, and it is likely to engage and excite a broad base of users. However, developing it fully would also take time and a lot of talent in its research and development. The risk involved is that competitors are already out-performing Snap concerning knowledge of AR technology. This factor can make it difficult for the company to constantly surpass bigger contenders like Facebook in AR innovation. AR technology is rapidly evolving, and plans for Snap could be affected by assumptions about the rate of technology development and user adoption.

Implications of the options to the firm

Recommendation and conclusion

The way forward is to invest in innovation to enable the company to identify the features that can enhance user experiences while adopting the suggested option. Also, it should form partnerships and collaborations. This will assist the company in partnering with brands, developers, and content creators to foster a community-driven ecosystem to achieve the objectives of the recommended options and maintain continuous innovation due to insights acquired from these collaborations. These options suit the firm as they will offer a Unique value proposition. For example, Snapchat is widely known because its AR features, such as lenses and filters, have become popular among the public. Therefore, expanding on this permits it to apply its competencies even more to AR, providing its users with an additional intriguing and virtual dimension that may be difficult for others to imitate, such as Facebook. Also, these options provide monetization potential and offer sustained user engagement. For effective implementation, the company must optimize the app for easy affordability and accessibility. In the era of technological advancement, it should implement the changes quickly and strive to ensure continuous innovation by embracing trends in technology and the general business world. It should allocate resources to the most critical areas, which include cultural adaptation and localization, market analysis and research, technological infrastructure, user services and support, growth, and scalability. Channeling adequate resources into these areas will enable the company to navigate the complexities involved in its strategic challenges, thus fostering sustainable growth.

References

Brown, S. (2021) The case for New Social Media Business Models, MIT Sloan. Available at: https://mitsloan.mit.edu/ideas-made-to-matter/case-new-social-media-business-models

Dwivedi, Y. et al. (2021) Setting the future of digital and social media marketing research: Perspectives and research propositions, Redirecting. Available at: https://doi.org/10.1016/j.ijinfomgt.2020.102168

Porter, M. and Heppelmann, J. (2017) Why every organization needs an augmented reality strategy, Harvard Business Review. Available at: https://hbr.org/2017/11/why-every-organization-needs-an-augmented-reality-strategy

Yoffie, D.B. and Fisher, D.W. (2021) Social Media War 2021: Snap vs. Facebook vs. TikTok, Social Media War 2021: Snap vs. Facebook vs. TikTok – Case – Faculty & Research – Harvard Business School. Available at: https://www.hbs.edu/faculty/Pages/item.aspx?num=59905