How Snap aims to turn augmented reality into a monetization machine

Snap sees augmented reality at the intersection of customer experience, ads, data and commerce. The big question is whether we need smart glasses en masse to make it happen.

Snap is hellbent on the idea that it can make augmented reality profitable and a commerce platform. Perhaps it has a point.

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At Snap's investor day on Tuesday, the company outlined an upbeat outlook with "sustained revenue growth of about 50% for several years assuming favorable economic conditions." Snap also said it will invest in Discover to drive engagement, Spotlight to expand premium inventory supply and augmented reality as an advertising tool. Snap Map will be a small business ad platform.

Evan Spiegel, CEO of Snap, said:

Our strategy is to take product innovations like augmented reality lenses and evolve them into platforms by building tools for creators and developers and providing distribution for their creations to reach the Snapchat community. We've laid a foundation for this to happen more broadly by organizing our platforms into 5 main screens of our application, Camera, Map, Chat, Stories and Spotlight.

Spiegel said that Snap has invested heavily in augmented reality and will be doubling down on the strategy in 2021.

Also: As Snapchat use soars during pandemic, infrastructure costs also climb

"Augmented reality has evolved from something fun and entertaining into a real utility. Our camera can solve math equations, scan wine labels to find ratings, reviews, and prices, tell you the name of the song you're listening to and so much more," said Spiegel.

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Snap also has enabled more than 200 beauty brands to upload thousands of SKUs to its camera.

In other words, it's early days for augmented reality to meet advertising, but chances are good Snap gets there first. After all, Snap has 35 million businesses on its Snap Map. The combination of commerce, location, and augmented reality could be promising.

The big questions revolve around whether it's truly primetime for augmented reality as a commerce and advertising platform and whether Snap can lead. Augmented reality, along with its cousin virtual reality, has a place in the enterprise for training, remote maintenance, and knowledge transfer. There is a real return on investment.

Front-facing commerce and consumer applications by verticals such as retail remain an augmented reality work in progress.

Here are the key questions:

Do we need more wearable devices to make augmented reality fly? Snap started with a plan to offer glasses but now rides along with smartphones. Those screens can be limited. Snap CTO Robert Murphy noted:

As powerful and portable as modern computing is, we are constrained in how we engage with it. Hunched over with our fingers tapping and swiping on small screens. Advances in technology will change this, overlaying digital experiences directly in our field of view and empowering us to engage with computing the same way we do as humans, with our heads up looking out at the world in front of us. Over time, the gap will close between what we are able to see through a screen and what we're able to imagine ourselves and with others. Our ability as humans to transmit ideas will improve dramatically with information and entertainment directly in our line of sight.

Our goal as a company is to accelerate the path to this future by building on what is possible today. This requires that we reimagine the role of the camera. Historically, cameras were used for documenting moments, capturing a scene exactly as it is for the purpose of viewing it later in time. Now through developments in hardware and software, we can do a lot more than just capture a scene. We can understand, interpret, edit and augment a scene, and not just for later, we're increasingly able to do all of this in real time. This is the camera that will enable the next-generation of computing. And that's why we are a camera company.

Does Snap have the scale to make augmented reality a mainstream option? In a word: Yes. Snapchat is used by 265 million people daily and that audience creates 5 billion Snaps. These users have captions and lens. It's just a matter of time before data and commerce follow.

Murphy said:

Our augmented reality platform is driven by 3 major efforts: one, innovating in technology to unlock new capabilities in the camera; two, exploring creatively to design exciting and informative experiences; and three, supporting a growing community of AR consumers and creators. We're investing heavily in each of these with incredibly talented technical and creative teams in which scientists, engineers, designers and product and community thinkers are working together to invent the future.

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What augmented reality data overlays can drive monetization? Murphy said the ability to use neural rendering to change faces could have implications for fashion and beauty. Understanding facial expressions could also have a role. Landmarkers can drive brick-and-mortar commerce. Murphy said:

Neural rendering will lead to even more realistic visual transformation, enabling real time, high-quality special effects. Landmarkers and local lenses are the precursor to large-scale robust 3D mapping, which will someday allow anyone, anywhere to engage with AR connected to any physical space. And scan is the starting point to bring our vast growing library of AR experiences, not to your fingertips but immediately into your line of sight.

Are augmented reality glasses necessary? Snap is planning for the day and it may advance its own hardware or leverage other vendors (think Apple AR glasses). Murphy said:

We are extremely optimistic about all the growing momentum in AR for smartphones. It's a starting point to imagine AR beyond the phone. To fully realize this idea of computing overlay directly on to the world will require a new device. A completely new kind of camera that is capable of rendering digital content rights in front of us, put the power to instantly and continuously understand the world as our own eyes do, and all in a light wearable form factor.

Spectacles is our investment in this future. It's an opportunity to design and develop a device specifically for augmented reality. We're doing this incrementally by building and releasing increasingly more capable devices that are connected to the Snap platform. Over time, the same lenses that we're starting to see on today smartphones, lens that can help you shop new outfits, see your favorite characters come to life or learn new things about the world, will be able to be experienced in full immersive 3D.

Will AR be an advertising platform? Snap certainly sees AR as part of its ever-evolving ad stack. Peter Sellis, senior director of product at Snap, said:

Our team will focus next on the camera via AR advertising. We're going to do this by first, building the core behavior of AR as a utility; then second, making it easier for brands to create and experiment; and then third, we'll pair it seamlessly with our powerful advertising platform.

We are investing in building new experiences for specific verticals where we believe AR can clearly augment the customer journey and provide value to businesses. We're going to start with shopping. We've already partnered with several leading brands to leverage our technology for virtual try on experiences. Through our recent beta program with over 30 brands across verticals from beauty to auto,

Snapchatters tried on products over 250 million times. These same Snapchatters were 2.4x more likely to click to purchase an average. Next, we're making it easier for businesses to create, publish and share lenses with millions of Snapchatters.

Can AR attract the big ad budgets? Jeremi Gorman, the chief business officer at Snap, said:

Over the next few years, we believe our AR capabilities will become the next industry standard for mobile native advertising. We have already partnered with several leading brands to leverage our AR and ML technologies to power virtual storefronts and try on experiences such as Champs, Clearly, Dior, Essie, Kohl's, Levi's, Jordan Brand, Sally Hansen and Gucci, just to name a few.

The challenge with AR, which is different from our existing video ads business is that we're still in the early stages of development of the AR industry in its entirety.

They are not often existing augmented reality budgets that these large agencies are within the brand. However, I've been in this industry a long time. And I remember when there weren't distinct mobile budgets, video budgets, social budgets or e-commerce budgets either, but here we are in a place where those are core disciplines that each brand and each agency, so too will be augmented reality.

Add it up and Snap is seeing AR blend with a direct response to deliver real returns with a strategy to target key verticals. The biggest wild card will be timing.