- The macroeconomic environment has changed rapidly, leading to challenges for businesses.
- Snap has experienced a decrease in revenue growth and had to lay off 20% of its team.
- The company is focused on growing its community, reaccelerating revenue growth, and investing in augmented reality.
- Augmented reality is a core part of Snap's business and will continue to be important in the future.
- Snap plans to compete with TikTok by focusing on visual messaging between friends and family.
- The decision on whether TikTok should be banned is best determined by CFIUS.
- TikTok's success can be attributed to its significant investment in user acquisition and content.
- The scale of TikTok's investment was unexpected and has made it challenging for competitors to respond.

- TikTok's algorithm is more personalized because users invest time in it, making it harder for new services like Shorts or Reels to compete.
- Snapchat is focusing on augmented reality (AR) for self-expression and utility, particularly in the area of trying on clothing for improved shopping experiences.
- Snapchat is building an AR enterprise business model to help merchants integrate AR technology into their applications and websites.
- Snapchat's CEO, Evan Spiegel, admits to not speaking on earnings calls due to not being asked a question directly, but he has been transparent with investors in other ways.
- Spiegel believes in the long-term potential of Snapchat and wants to build an independent company, despite competition and volatility in the stock market.
- Snapchat is focused on increasing the long-term value of the business through innovation and execution.

- The CEO believes it is difficult to engage with proposed legislation piece by piece and focuses on big ideas that may influence the future of tech.
- They do not rely on government intervention for success and prioritize executing their strategy and delighting their community.
- The CEO views Meta as a challenging competitor in performance advertising and direct response advertising.
- They focus on the value of augmented reality (AR) for their community and integrating computing into the real world, rather than the concept of the metaverse.
- The CEO struggles with balancing business pressure and parental responsibilities, but feels grateful for the time spent with family during the pandemic.
- Finding partnerships early on was challenging, but those who had kids using Snapchat understood the product better and were more interested in partnerships.
- The CEO believes that true innovation can lead to success even against competitors with more resources, as constraints can drive learning and iteration.
- They have taken a step-by-step approach to developing their glasses products, starting with integrating cameras and gradually expanding features.

- Snap took a step-by-step approach to developing AR glasses, starting with integrating cameras and understanding the role of 3D in content.
- They have also developed software and are considering offering it to others in the future.
- Snap believed that AR glasses would transform the experience for their community by breaking AR out of the confines of a phone.
- Snap announced restructuring and the departure of Snap Originals to focus on their core strengths of technical innovation and supporting content partners.
- They will focus on evolving the platform and working with partners who have found a sustainable business model on Snapchat.

- Snap has faced challenges in the changing macroeconomic environment, leading to a decrease in revenue growth and layoffs.
- The company is focused on growing its community, reaccelerating revenue growth, and investing in augmented reality (AR).
- Snap plans to compete with TikTok through visual messaging and believes the decision on banning TikTok should be determined by CFIUS.
- TikTok's success is attributed to significant investment in user acquisition and content, making it challenging for competitors to respond.
- Snapchat is focusing on AR for self-expression and utility, particularly in the area of trying on clothing for improved shopping experiences.
- The CEO believes in the long-term potential of Snapchat and prioritizes innovation and execution.
- They do not rely on government intervention for success and view Meta as a challenging competitor.
- The CEO struggles with balancing business pressure and parental responsibilities but values time spent with family.
- Snap has taken a step-by-step approach to developing AR glasses and is focusing on technical innovation and supporting content partners.

Snap Inc. Co-founder and CEO Evan Spiegel sits down with Kara Swisher and Pivot Co-host, Prof G Pod Host and NYU Stern Professor of Marketing Scott Galloway at the 2022 Code Conference.

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You've had a hard week, but thank you for the news.

Talk a little bit about what's been going on this week and how you look at stuff.

You and I, I saw you this morning, you were talking about the macroeconomic environment.

Talk a little bit about what's happened and how you look at

Well, there certainly have been a lot of changes very quickly in the macroeconomic environment.

When we entered the year at the beginning of the year, prior to the invasion of Ukraine, we were growing revenue about 44% year over year.

And we were really excited about how the year was going to unfold.

And then, of course, we had this terrible invasion of Ukraine.

We actually had quite a sizable team there, which was really challenging to work through.

And then, of course, after that, rippling through the economy has been shocks to energy prices, of course, food, etc.

And inflation has run a lot higher and hotter than people expected.

And so, of course, in response to that, the Fed and the ECB are responding with rate increases.

And that's really changed the cost of capital, which has required businesses to focus a lot more on generating cash.

And in order to generate cash, you have to obviously either grow your revenue a lot faster or reduce your cost structure.

And because revenue is growing slower, actually, for a lot of businesses, they have to reduce their cost structure.

And when they do that, 1 of the easiest and fastest ways to do that is actually to turn off digital advertising.

That's 1 of the benefits of digital advertising.

It's so flexible, you can turn it on and off.

And so we saw that impact in our business.

And that means that now, quarter to date, we've grown about 8% year over year, down from 44%.

And looking forward at the macro economy, we don't see a lot of things that make us optimistic.

And so what we've had to do is really restructure our business, focus on our 3 strategic priorities of continuing to grow our community, which grew 18% to almost 350 million daily active users in the last quarter, reaccelerate our revenue growth, of course, and then really invest in this long-term future of augmented reality.

As part of that, we had to lay off about 20% of our team, which is obviously really difficult.

I'm not going to bust your chops about it.

It's a very lovely bookend row, which is really well done, as most things you make are.

So this was 1 of them that wasn't, it was beautiful, cool, not making money.

OK, all right, Which sounds great for businesses struggling.

So where do you see the company going forward?

You've done this cut, which is difficult for anyone.

And I remember Brian Chesky talking about having to do it during the pandemic.

You guys did really well during the pandemic.

What do you see the company going forward?

Well, our community engagement is really strong.

So in the immediate term, we're really focused on re-accelerating revenue growth.

And the way that we think we can do that is really with, you know, a focus on low funnel direct response advertising.

So, advertising that's really easy to measure, that helps people clearly drive business results, because those are the dollars that even in uncertain macroeconomic times businesses will still spend because they're very important for generating incremental revenue.

And so what we've done is actually reorganize our team.

We promoted Jerry Hunter, a longtime leader at Snap to chief operating officer.

He's taking responsibility for really bringing together our product sales and engineering teams to help us do a much better job of solving the technical and operational challenges of running a large-scale direct response business.

It was that business, the other business, what was the second 1?

We're definitely our priorities, you mean.

Community growth, revenue growth, and then investing in augmented reality.

Well, Spectacles is a part of the long-term future of augmented reality.

But what's really cool about augmented reality is that over 250 million people are engaging with AR today, every day, on Snapchat through our camera.

And even more than that, many people are now using our augmented reality tools in other people's applications.

Because businesses embed something called CameraKit, which is a suite of our AR tools into their own applications to drive business results.

And so what we've been doing over time is slowly building this augmented reality platform on mobile that over time, of course, will transition to things like wearables.

But that's kind of the long distant future.

you think it's critically important to continue to, because I've looked at lots of very cool things that you're making around.

AR is an enormous driver of our business today, of engagement today, of course, revenue, and will continue to be in the future because it's really at the core of what computing is going to look like over the

So I don't know if you've been following the conference, but there's been 2 major themes so far.

The first is tick and the second is talk.

Also people running for president, but go ahead.

way, I think this is the only dude who's not running for president who's been on this stage.

Yeah, they're all just interested in tech.

Anyways, a little cynical, a little cynical.

Their primary platforms are Snap and TikTok.

And the more I've gotten to know them, the more I like Snap.

It strikes me as joyous and communication.

And the less or the more I'm worried about TikTok.

The business world or consumers are not listening to me.

It feels like everyone but TikTok, their business is declining dramatically.

And it just feels like they are kicking the shit out of everybody.

So my question is, how do you plan to compete with TikTok?

And 2, and just as a follow-up, do you think TikTok should be banned?

Good, we're starting with the easy questions.

So in terms of our strategy, I think 1 of the things that we've learned over time is that by focusing on visual messaging between friends and family, we're able to drive long-term retention and engagement.

So when people start using Snapchat to send photos and videos to their friends.

They love it, and they keep coming back, because it's a much better way to communicate than text message.

And over time, we built a business around that messaging by, of course, building out Stories and Spotlight, which is our TikTok competitor, our map, and the augmented reality platform.

So we're going to stick to that strategy of really helping, you know, friends and family communicate with visual messaging because we've seen how effective that's been through lots of ups and downs and tons of competition and a botched redesign.

You know, That for us has really been core to our success.

So I think we'll compete by continuing to focus on the reason why our community gets value from Snap and just drive towards that North Star over time delivering more and more value to the people who use our service.

I think, you know, on your second question, that's probably best determined by CFIUS.

I mean, TikTok is going through a CFIUS review process right now to determine whether or not it should stay in our country.

I think a couple things probably inform that from my perspective.

1 is that we've had laws for a really long time about foreign ownership of radio or television or whatever, you have to get approval to do that.

So that sort of I think is the context here.

And then secondarily, over the last couple of years, obviously, there have been a lot of other products that have been created that are very similar to TikTok, like shorts and reels and spotlight.

And so I think a lot of the concerns maybe that the administration had in the past of like, oh my gosh, if TikTok goes away, what are people going to do?

Where are they going to watch short videos?

I think that's sort of been answered by the competitive environment.

So I don't know how these trade-offs are being made.

The interesting thing about the CFIUS process is that it involves so many different stakeholders, the Treasury and of course the national security folks.

I don't quite know how that process works, but we'll just have to see what happens.

Why do you think it's been doing so well in cleaning clocks all over the place?

Everybody's had versions of what they managed to do.

When you look at a competitor, and often people have copied you.

Let's do to TikTok what Facebook has been doing to you.

So I actually I think the reason why this has been so challenging for companies to respond to in the United States, but also around the world is the scale of TikTok's investment.

I think what's so interesting, as you look at their business strategy over time, they started by buying a very, very small application that was so small that at the time They bypassed CFIUS review.

Then they spent billions upon billions of dollars acquiring users and buying content to subsidize both sides of that marketplace.

Of course, with artificial intelligence, the more inputs you have, the more people you have watching more content, the better it gets and the more personalized it is for the people that use it.

And I think what nobody had anticipated in the United States was the level of investment that ByteDance made into the U.S.

Market and, of course, in Europe, because it was just something that was unimaginable.

I mean, no startup could afford to invest billions and billions and billions of dollars in user acquisition like that around the world.

So it was a totally different strategy than any technology company had expected before because it wasn't an innovation-led strategy.

It was really about subsidizing large-scale user acquisition around the world.

What is the reason when you use it and look at it yourself?

I think the reason is that it gets to know you over time, because you invest a lot of time in it.

And that investment means that the content is more personalized.

And so I think what people find, of course, if they uninstall the app and come back and they haven't created an account or something like that, is that it doesn't reflect their interest anymore and they have to train it again.

And so TikTok got this great lead early on, of course, by really aggressively expanding, spending a huge amount of money to do that, so that people could train the algorithm and ultimately end up with a much more personalized feed that's harder to get on a new service.

Because when you open up Shorts or you open up Reels, it hasn't been personalized for you yet until you start using it.

So what do you look at as you've been on the edge of innovation most of the time, as he was joking about Facebook stealing stuff, but they do.

What do you think is really important in the area that you're strongest in, in communications?

You did a really cool thing at Con on Vogue where you yourself put on a gown and you look lovely.

All these filters and things like that you did with Vogue.

What are you looking at that is most exciting in creation, in making things?

Well, so much of communication is visual, which is why we've focused on augmented reality, because it empowers people to express themselves.

And as we started doing that and people started building more lenses and we open sourced our tools, I shouldn't say open source, made available our tools like Lens Studio so the creators could build more and more of these lenses, that's when we started to recognize the possibility of augmented reality beyond just self-expression.

What you mentioned is trying on clothing is a huge area of investment for us because it's a way that augmented reality provides a huge amount of utility and differentiation.

Because what we find is when people can visualize themselves trying on clothing, of course, they're more likely to buy that clothing and they're less likely to return it, especially if we can help them find the right size.

And So that's really a way that augmented reality today can make the shopping experience much better from the comfort of your home without having to actually change your clothes.

So a whole commerce business that you're thinking about essentially.

Not commerce on Snapchat per se, but powering commerce with augmented reality, you know, with all sorts of merchants.

So we built out this AR enterprise team that's taking our AR shopping suite and helping merchants integrate our AR technology into their own applications and websites to help.

And then what do you get, a part or a piece?

Well, today we're just working on growing that business and getting feedback from our beta clients.

But over time, what we're planning on doing is more of an AR enterprise business model, where There might be some small setup fee or something, because it takes quite a lot of work to get it integrated and up and running.

If we're really driving conversions for you because more people are trying things on, and they like how they look, and they want to buy, then we can take some small fee off of that transaction.

I want to do a compliment before a hard question.

I've served on a bunch of public company boards.

I listened to your earnings call last night.

How is your board not letting you speak on earnings calls?

Isn't this exactly the time where CEOs should be speaking directly to investors?

That was a huge mistake that I shouldn't have made.

To be honest with you, I wasn't even thinking about it.

You just felt like there were other people.

I actually kind of expected a question, kind of given everything going on.

But I'd also come in person in May to preannounce that we were going to miss the bottom end of our guidance to a big investor conference, answered a bunch of investor questions there in person.

I wasn't thinking, oh, I'm not engaged with investors.

I spent quite a lot of time answering their questions and really helping them understand our business.

We thought we were doing the right thing by being really transparent and coming out and saying, hey, we're going to come in below the low end of our guidance.

Obviously plenty of other companies missed in that quarter, too, but we thought it was important to preannounce.

When we were on the call, generally on all these calls, we let folks answer the question.

I don't think it was appropriate to step on top of Derek or Jeremy or something like that to answer a question.

So you own 13% of the stock, but you have 51% of the voting stock, which means you control the company.

It feels like everyone but Facebook and Google in this space are subscale.

And unless they break out and start growing again, they should be acquired.

Or they should partner with another company in terms of if they were really shareholder driven.

If at some point you didn't start scaling again, and someone like Comcast or Google approached you at this conference and said, we'll pay 100% premium for your stock today.

Before he answers, let's play something from 2018.

I think this was the logical step forward in being an independent company.

When we raised a lot of money from venture capitalists, I guess our first investor invested at a $4.25 million valuation.

The understanding from the venture capitalists was that we were going to provide an exit for them.

And that was either going to be in the form of an acquisition, or that would be in the form of an IPO.

So you did it for the venture capitalists or because they don't care and you shouldn't care about them.

To be honest with you we do we do care about them and we do we do care about our investors.

And I think for us this was a really great transition to take what is ultimately short-term capital.

Venture investors are short-term investors.

They invest for a couple years and then they rotate out of their investments.

We were able to transition inherently short-term investors to long-term investors.

Despite there being a little volatility that comes with that, ultimately that's the right thing to do to build our business.

By the way, I did not know that video was going to happen.

That's right, because I'm the brains of the operation.

As you point out, Bobby and I own 20-something percent of the business.

We're very focused on its long-term success because we want to

see- You control, just to be clear, you own 99 percent.

You make every decision at the end of the day.

At some point, would you personally be open to selling the company if it was fairly apparent it was the best thing for shareholders?

Personally from where I sit today, when I look at the long-term opportunity in our business, I really believe it's enormous.

I believe we're far from reaching our full potential.

And I believe over time, the stock price has gone up and down.

And we've tried to stay focused on delivering real value for shareholders.

Since our IPO, we've, I think, grown revenue 10x or something.

It's about 50 plus percent year over year on average for the last 5 years.

We believe those things are really important for building long term value for shareholders.

And of course, along the way, we've really tried to continue to innovate, to increase our long-term opportunity with things like our map, for example, our augmented reality platform.

These are big innovations and big investments that we think really contribute to the long-term value of our business as we monetize those parts of our service over time.

If you look at the engagement across Snapchat, 350 million daily active users growing really rapidly and the level of monetization of our service on an average revenue per user basis, I think it's something still today like half of Twitters, right?

When we look at our overall opportunity, we look at the engagement just on the core Snapchat platform today, we believe we have an enormous amount of opportunity ahead of us.

It's going to be difficult because you're right, we are smaller than these other very, very large companies.

These other very large companies started as small companies too.

They were asked many of the same questions about competition.

They were asked many of the same questions about revenue growth.

They faced a lot of volatility and many challenges themselves.

That's the difficulty of building an independent business.

But I think so far, Bobby and I believe that the best way to realize our long-term potential is by building an independent company.

I think while the stock price has gone up and down over time, we have slowly and steadily increased the long-term value of our business.

We have a lot of talk about tech regulation here.

You've said in the past you would support thoughtful regulation.

How do you look at the most of the people who have been on stage here do not support Amy Klobuchar's antitrust bill?

How are you looking at the regulatory landscape as a smaller company compared to these larger, you wouldn't be subject to many of these things.

There are so many pieces of proposed legislation flying around all over the world right now that I think it's really hard to engage sort of piece by piece.

I think for us it's much more important to look at the big ideas that might influence the way that tech evolves in the future and more importantly to build a strategy that does not rely on government intervention for our success.

I think historically, these processes have taken a long time.

And what's been really important for small businesses is not to wait for the government to come to the rescue, but actually just to continue executing on our strategy to focus on our community, which is so important to the long-term growth of our business, and just to continue to delight them with great products.

Specifically the antitrust bill, would that help you if it passes?

Again, it's so hard to know because in its current form, I'm sure it would change a lot before it ever was considered to pass.

I don't know and it's hard to respond to.

We could spend so much time chasing all this legislation around, but that would take us further away from our customer

Right now, what companies do you view as your core competition at this moment?

I think today as it pertains to performance advertising, direct response advertising, which is a big focus of ours, it's, you know, meta continues to be a very, very large and challenging competitor.

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Snap Inc. Co-founder and CEO Evan Spiegel | Full Interview | Code 2022