Snapchat Inc. the startup famous for delivering social media content that self-deletes has recently raised more than $1.8 billion from an investment round that took more than 12 months to complete. Several new investors, including Sequoia Capital, Spark Capital, Meritech Capital Partners and Dragoneer Investment Group participated in the funding, which values Snapchat at close to $18 billion.
According to the Wall Street Journal venture firms such as Sequoia and Spark rarely make an initial investment in a tech company so highly valued, a sign that they believe Snapchat could over time rival social-networking giant Facebook Inc., which has a market capitalization of roughly $342 billion.
Snapchat’s willingness to extend the latest funding round at the same share price could reflect the cooler funding environment over the past year, a period in which many startups have seen investors mark down the value of their shares. It also could reflect an effort by Snapchat to temper expectations while growing its nascent advertising business.
Snapchat expects revenue of $250 million to $300 million this year, more than four times as much as last year’s $60 million. The company has worked with publishers to add “disappearing” news articles and videos to its app and agreed deals with Viacom Inc. and ad tracker Nielsen to attract more advertising clients.
Why are investors pumping money into an app that generated less than $60m in revenue last year? To start with, Snapchat is extremely popular among young Americans. Having recently surpassed Instagram, it caters to a new generation of users for whom Facebook and Twitter are the social media channels preferred by Baby Boomers.
According to sources close to the company the number of people using Snapchat every day grew by around 50 percent in each quarter last year. By the end of 2015, Snapchat had 110 million daily active users who combined to generate an impressive 10 billion video views per day.
But don’t be misled into believing Snapchat is an app used primarily by teenagers to send each other racy pictures, Frederic Cumenal, CEO of Tiffany & Co, revealed that Tiffany has created a Snapchat “filter” which allows would-be purchasers to virtually “try on” Tiffany diamond rings, without ever having to visit a Tiffany stores. One of the reasons companies such as Tiffany are creating Snapchat filters is that they are keen to catch the cyber buzz — and appeal to Millennials.
The luxury sector is struggling at the moment, partly because of world economic fortunes but perhaps more importantly because the perception of luxury is changing. Indeed Tiffany has seen its share price tumble by almost one-third in the past year.
According to Sarah Quinlan, a MasterCard executive who analyzes spending data, there is a fundamental shift in terms of how wealthy and not-so-wealthy people are spending their money.
Although overall consumer spending is growing this growth is in upscale dining, hotels, travel and vacations. As a report by Deloitte consultants notes: “All consumers, but especially millennials, value experiences . . . spend by people travelling accounts for 40 per cent of the personal luxury markets.”
Today’s Millennials often live in cities, not suburbs as a result they have less physical space in which to store possessions, they value concepts such as “sustainability” and “community” which are in conflict with some luxury items such as vehicles. In the cyber age, luxury physical goods do not have the cachet they once had.
Experiences however remain exclusive, precisely because these cannot be commoditized and purchased online. One of the most powerful forms of conspicuous consumption today is not the accumulation of stuff but the curation of memories — and unique personal stories.
These changes do not signal the end of luxury goods what it does mean is that luxury goods companies are mixing experiences with goods to create prestigious occasions and precious memories. Whether it is exclusive music events or visiting your favorite distillery.
First published by Adrian G Stewart at OOKII.Company
Adrian G Stewart
