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When a redesign goes bad: Inside Snapchat's Q1

Snapchat sees disruption ahead following its redesign, but in the long-term monetization mix, the move doesn't look that nutty.

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My kids hate the Snapchat redesign. Apparently, a bunch of other people do, too.

Snapchat's first quarter results featured revenue of $230.66 million, up 54 percent from a year ago. But the net loss of $385.78 million.

Revenue fell short of expectations. Why? Call it the redesign from hell. Snapchat is trying to juggle monetization versus customer needs. Good luck with that.

Not surprisingly, Snapchat's conference call revolve around -- you guessed it -- the company's redesign.

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CEO Evan Spiegel kicked off the festivities:

We have known for a long time that creating public-facing content is a very different behavior from interacting with close friends, which makes it challenging for both to exist successfully in the same ecosystem. Before the redesign, Stories were sorted by recency, meaning that people who post most frequently were usually at the top of the list. Naturally, the most frequently posting users tended to be people who create content as part of their job compared to users who are just sharing their day with friends. As our community continue to grow, keeping friends and creators in the same feed made Snapchat feel less personal because close friends were constantly buried below creators. We addressed these issues by separating friends from creators and by making it easier to find Stories from the people closest to you. Now personal friends no longer have to compete with creators, and people can find Stories based on the depth of their relationships rather than who is posting most often. We also built a new home for creators in a newly expanded Discover section. This enables us to properly invest in products, discovery and monetization for our creators while also supporting a larger variety of content on Snapchat. The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both. As we have mentioned on our past 2 earnings calls, a change this big to existing behavior comes with some disruption, especially given the high frequency of daily engagement of our community. While we had an average of 191 million daily actives users in Q1, our March average was lower but still above our Q4 average. We are already starting to see early signs of stabilization among our iOS users as people get used to the changes but still have a lot of work to do to optimize the new design, especially for our Android users.

That's a long quote, but you almost feel for Spiegel. Maybe his net worth may fall.

The good news is that Spiegel will keep tweaking. The bad news is that the old Snapchat redesign isn't coming back. Spiegel said:

The redesign created a lot of new opportunities, and we look forward to continuing our efforts to refine and improve Snapchat. This overall process is indicative of how we approach product development at Snap. We start with a core belief that builds on our mission of empowering people to express themselves, live in the moment, learn about the world and have fun together. In this case, it is our long-standing belief that separating social interactions from media content encourages people to create and share snaps with each other while also providing better opportunities and incentives for media partners. We then build and optimize our products around these underlying values, prioritizing them over short-term growth.

Imran Khan, chief strategy officer, said the redesign will create short-term disruptions. But ad revenue grew 102 percent.

"These have been challenging conversations as we made the proactive and deliberate decision to prioritize our long-term consumer product goals over our short-term monetization goals," said Khan.

Yet, if Snapchat's core audience can digest the redesign the company may just find a model. Khan noted that the company is rolling out new tools for advertisers and focusing on small businesses.

Khan said:

The vast majority of businesses are SMBs, and they are increasingly adopting digital marketing platforms to grow their businesses. In order to onboard these advertisers, we have been rolling out our self-serve tools and investing to create a frictionless ad buying experience. We made good progress this quarter, as evidenced by 30% quarter-over-quarter revenue growth for our SMB business. We're also launching sophisticated tools for our large advertisers.

Now, as long as we all can digest the Snapchat redesign, the company can balance user growth and monetization. No small feat.

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