Quality over quantity.
That short phrase may best describe the business strategy that Snap CEO Evan Spiegel outlined to Wall Street yesterday afternoon after the company delivered its first earnings report since its IPO, a report that sent the stock down more than 23 percent, barely above its $17 IPO price.
Spiegel and his top lieutenants were asked over and over again about Snapchat’s user base, which isn’t growing as quickly as it was a year ago, and Snapchat’s business, which isn’t as big as analysts had anticipated.
Throughout the hour-long call, Spiegel spoke confidently — very confidently in some instances — about a recurring theme: Snapchat won’t succeed because of massive growth numbers, like Facebook. It will succeed because it offers more quality than others, like Facebook.
That’s why Spiegel got philosophical about how Snapchat planned to grow its user base. He dismissed typical consumer app practices, which he called “growth hacks,” like excessive push notifications or prompts for users to connect with everyone in their address book.
“We don't think that those sorts of techniques are very sustainable over the long term,” he said.
Instead, Spiegel talked about adding users through product improvements — and making it more fun to share.
“The way that we try to help people understand how we think about daily active user growth is really through the lens of creativity and creation,” he said, before mentioning the app’s lenses product that lets users change their appearance for selfies.
“People enjoy looking like a puppy and things like that,” he explained.
When Spiegel talked about growing internationally, he didn’t talk about getting Snapchat into emerging markets, the kinds of places where people are coming to the internet for the first time on mobile devices. People in those places don’t have the kind of internet connectivity or smartphones needed to enjoy Snapchat.
The quality argument was made yet again when Spiegel talked about Snapchat Shows, the made-for-Snapchat video series publishers are creating for the app’s users. Those videos aren’t “repurposed from TV or repurposed from the internet,” Spiegel explained. Translation: They’re better quality, at least for Snapchat.
All of this is to say that Snap thinks it can differentiate itself in a way that isn’t reliant on big user numbers, a strategy that Facebook definitely employs.
And that’s smart, because Snapchat’s audience is nowhere near Facebook’s size; constantly comparing the two won’t win Snapchat any favors (just ask Twitter).
Partly to underscore this idea, Snap emphasized ARPU, or how much revenue it generates per user. In Q1, that number was 90 cents per user, almost three times what it was a year ago, though Snap's ARPU was smaller than it was in Q4, marking the company's first quarter-over-quarter decline.
It’s a legitimate metric, so it’s also what will be used to measure the company’s future performance — a way to hold Spiegel to account on his quality thesis.
Quality is also a keyword phrase for big, brand advertisers, a business Facebook and Google still haven’t fully cracked. Direct response ads — or download-this-app or sign-up-for-this-service ads — still make up the bulk of their ad businesses. Snapchat, however, could become a big draw for brand ads if they buy into Spiegel’s quality argument.
Still, lots of companies promise to focus on quality over short-term gains, and sticking to that plan, which is usually slow and doesn’t always mesh with Wall Street’s expectations, is easier said than done.
For at least one day, this quality-over-quantity storyline didn’t pass muster. At least not on Wall Street.
Snap has already started to draw comparisons to Twitter, another consumer product that ran into user growth issues while living in Facebook’s shadow. There are other similarities, too, like the fact that both products can be hard for people to use, that both businesses are unprofitable, and both companies spend a lot of money on stock awards granted to employees.
But Snap offers a vastly different product. It’s more intimate and personal and, as a result, is less likely to suffer from the kind of abuse that Twitter deals with. While Twitter is trying to claw its way into the video space, Snap has been there from the beginning.
And while Twitter said at the outset it wanted to be the biggest social network in the world, Spiegel is already avoiding that narrative. The comparisons to Facebook will still happen because Facebook has identified Snapchat as a competitor, but it doesn’t look like Spiegel will be fueling them.
In fact, Spiegel says he’s not worried about Facebook, and that he’s prepared for others to copy his product along the way, too.
“If you want to be a creative company,” Spiegel said, “you gotta get comfortable with, and basically enjoy the fact that people are going to copy your products if you make great stuff.”
The question now is, how fast can Snapchat keep making “great stuff”?
This article originally appeared on Recode.net.