Facebook – Coffin nails

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Instagram hammers two more nails into Snap.

• Instagram has passed 1bn monthly active users (MaUs) which combined with the launch of an offering for creators that enables longer form video content, leaves Snapchat in an increasingly unwinnable position.
• This has gone hand in hand with poor performance by Snap Inc’s stock as the market increasingly realises exactly how problematic Snap Inc’s position is.
• Instagram held an event in San Francisco where it launched IGTV which allows creators to post longer form video content of up to 60 minutes in length.
• This takes Instagram directly into YouTube territory but critically it also brings it into the areas where Snapchat is desperately trying to break in.
• Furthermore, to compound matters, Instagram has further increased its user base by 20% while Snapchat is struggling to stand still.
• This means that over the last 8 months Instagram’s relative size to Snapchat has increased significantly.
• This is crucial as both Instagram and Snapchat are networks where their value and utility are governed by Metcalfe’s law of networking.
• This states that the utility or value of a network increases by the square of the number of devices that are attached to it.
• This means that when Instagram increases its size relative to Snapchat, the scale advantage that it has also increases but does so exponentially.
• Hence, Snapchat’s ability to compete against Instagram is rapidly declining leaving it increasingly fighting for relevance.
• Furthermore, with Instagram increasingly pushing into video, Snapchat’s efforts to also expand in that direction are also likely to become increasingly difficult.
• Creators will look at Snapchat, and then at IGTV with its giant audience and it will not be difficult to work out where to post one’s video.
• I think that there is very little chance that IGTV will make much of a dent on YouTube, but it could rapidly become the most viable alternative for creators as it is already a huge platform and IGTV has been specifically designed with creators in mind.
• This will also cause problems for Vimeo, Vine and so on as it IGTV becomes the No. 2 choice for any rational creator.
• Unfortunately, this will push Snapchat even further down the pecking order decreasing the relevance of its offering as well as its chances of breaking into and monetising the Digital Life segment: Media Consumption.
• Like Twitter, it desperately needs to get a foothold here so it can continue to grow its relevance beyond just instant messaging which RFM calculates would allow revenues to keep growing for a few years
• However, this outlook now appears increasingly challenging, confirming my opinion that Snap’s days as an independent company are numbered.
• However, I cant see acquirors appearing before the share price dips below $10, so I don’t see acquisition related support for the shares yet.
• Hence, there remains no time like the present to exit.