Why Is Snap Starting An Ipo

Why is snap starting an ipo

Snap expects to spend $2 billion on cloud services with Google over the next five years.

Silicon Valley and Wall Street are all atwitter about the pending IPO of Snap, the parent company of Snapchat, the social network that has built a huge following among millennials and venture capitalists.

Snap’s IPO has also become a banner event for the data center industry.

In recent weeks Snap has committed to pay $3 billion for cloud infrastructure from Google and Amazon over the next five years.

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That includes a $2 billion deal with Google Cloud Platform, and a $1 billion agreement with Amazon Web Services.

Snapchat’s 158 million daily users send more than 2.5 billion “Snaps” per day, including photos and video. That’s in the same ballpark as photo uploads to Facebook, which has about 10 times more users.

Why is snap starting an ipo

Those usage numbers reveal why Snapchat is spending heavily on cloud infrastructure. Facebook has built an enormous data center network to manage its user data, including specialized cold storage facilities to house massive archives of photos and videos.

AR May Drive Snap’s Growth

While social sharing generates large amounts of data, Snap is also a pioneer in augmented reality (AR), in which digital imagery is overlaid on real world experiences, or screens integrating the two.

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ART has the potential to be incredibly viral, as illustrated by the success of Pokemon Go, which stress-tested the Google cloud infrastructure during its launch last summer. It also can create larger files, upsizing storage requirements.

How did Snapchat mount a comeback?

Snapchat is best known for its ephemeral messaging – sharing photos or videos that self-destruct after a short period of time. It’s revealing that in its IPO filing, Snap now describes itself as a “camera company,” pointing to a larger vision.

“We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate,” the company says.

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“In the way that the flashing cursor became the starting point for most products on desktop computers, we believe that the camera screen will be the starting point for most products on smartphones.”

Some industry watchers believe Snapchat has created a winning platform for the evolution to AR.

“I think Snapchat is going to dominate the AR space,” said Ian Forester, co-founder and Chief Creative Officer of VR Playhouse, a Los Angeles creative studio specializing in VR and AR.

“Snapchat is already in the culture.”

Lenses and Spectacles: Gateway to Social AR Network

Snapchat features a lightweight form of AR with its lenses – animated overlays that augment your face or the background of a photo or video.

Why is snap starting an ipo

Custom lenses created by advertisers like Gatorade and Taco Bell have used custom lenses racked up hundreds of millions of views during the Super Bowl. In October it announced Spectacles, connected sunglasses that integrate a tiny video camera and wireless connectivity. The company has also made a series of acquisitions of augmented reality companies, signaling larger ambitions for AR integration.

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“We think that Snapchat is evolving beyond just ‘another social media platform’ and could be headed to be the first ‘social augmented reality platform,’” securities analyst Robert Peck of Suntrust wrote last year.

Why is snap starting an ipo

Snap expects to gradually scale its use of cloud infrastructure. Under the terms of its deal with Amazon, Snap committed to spend $1 billion on AWS by December 2021 – $50 million this year, then $125 million, $200 million, $275 million, and $350 million in each subsequent year. If Snap does not meet minimum purchase requirements in any of those years, it must pay the difference.

Major Customer for Google

Snap is one of the most important customers for the Google cloud, according to The Information, the Silicon Valley subscription news service, which has reported extensively on the relationship.

Why is snap starting an ipo

Snap’s latest deal with Google is seen as a long-term strategy for managing cloud costs, building upon Snap’s use of reserved instances.

The Information reports that Snap’s deal with Google provides it with round-the-clock access to Google’s site reliability engineers, as well as performance profiling for new code updates (a feature also highlighted by Facedbook and its Mobile Device Lab).

Watch: This is how Snapchat makes its money

In its IPO filing, Snap indicated that in the future it may explore building its own infrastructure. But for the moment, it clearly prefers the cloud route.

“Partnering with Google has allowed us to scale quickly without upfront infrastructure costs, letting us focus on building great products and experiences,” Snap said in its filing, adding that it allows global expansion by providing infrastructure “in countries where we do not expect significant short-term monetization.”

Tagged With: Amazon Web Services, Google, Snap

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