Messaging app Snapchat has had a rough few days. Things started going downhill for the company when an ex-employee, Anthony Pompliano, in a court filing alleged that Snapchat CEO Evan Thomas Spiegel made disparaging comments about ‘poor countries like India and Spain’. The alleged remarks sparked an outrage, which saw #BoycottSnapchat and #UninstallSnapchat trending on Twitter. Snapchat ratings have dropped to 1 star on iOS App Store while it remains at 4 on Google Play Store. Here is a detailed look at the allegations and their fallout:
Mr. Spiegel allegedly said that the “app is only for rich people. I don’t want to expand in to poor countries like India and Spain” in September 2015, according to the court filings by Mr. Pompliano’s lawyer. To put the statement in context, Mr. Spiegel was speaking about countries where mobile Internet and smartphone penetration might be low. He mentions Spain and India as examples in his statement.
The statement was made at a meeting between Mr. Spiegel, Mr. Pompliano and others after Mr. Pompliano was hired to work on the growth of the app. He was formerly employed by Facebook, one of Snapchat’s biggest competitors.
This is a small part of a larger suit in which Mr. Pompliano accuses Snapchat of “fudging” statistics and misleading investors, advertisers, and other stakeholders.
What is the lawsuit about?
Filed at the Los Angeles County Superior Court, Mr. Pompliano’s suit has alleged “institutionalised aversion” for user data and analysis, with the company being accused of misquoting several key performance indicators such as the number of daily active users (DAUs), monthly active user, user retention rates, etc.
For one, Snapchat said they had 100 million daily active users, while Mr. Pompliano’s analysis pegged the same at 97 million DAUs. Moreover, Mr. Pompliano says he found user retention rates at an abysmal 20% as opposed to Snap Inc.’s estimation of 40%.
Mr. Pompliano has alleged that Snapchat has been misleading stakeholders with inaccurate information about its performance.
What is Snapchat’s response?
In response to Mr. Pompliano’s allegations, Snap Inc. lawyers have told Variety, “The simple fact is that he knows exactly nothing about Snap’s current metrics… He and his lawyers are — not to put too fine a point on matters — just making things up.”
Furthermore, they believe that Mr. Pompliano is a “disgruntled employee fired for poor performance” with a mere stint of three weeks with their company who has filed a lawsuit for publicity.
Snap Inc. moved for arbitration (an alternative dispute resolution method) to, perhaps, avoid investor scrutiny caused by a full-blown lawsuit.
So, is Snapchat not meant for “the poor”?
Snap Inc., in its Securities & Exchange Commission filing, has listed a number of potential “Risk Factors” that could possibly harm its growth. This is what is said of smartphone and mobile internet penetration:
“…because our products typically require high bandwidth data capabilities, the majority of our users live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas. We therefore do not expect to experience rapid user growth or engagement in countries with low smartphone penetration even if such countries have well-established and high bandwidth capacity cellular networks. We may also not experience rapid user growth or engagement in countries where, even though smartphone penetration is high, due to the lack of sufficient cellular based data networks, consumers rely heavily on Wi-Fi and may not access our products regularly.”
Although 4G penetration has increased in the past year, network connectivity largely remains unreliable. Moreover, affordability of smartphones is an issue, with most users opting for low-end Android phones.
Snapchat, for one, consumes large amounts of mobile data as it is required to upload and view photos and videos.
Moreover, Snapchat has seldom worked on the Android version of their application as was disclosed in their SEC statement:
“The majority of our user engagement is on smartphones with iOS operating systems. As a result, although our products work with Android mobile devices, we have prioritized development of our products to operate with iOS operating systems rather than smartphones with Android operating systems. To continue growth in user engagement, we will need to prioritize development of our products to operate on smartphones with Android operating systems. If we are unable to improve operability of our products on smartphones with Android operating systems, and those smartphones become more popular and fewer people use smartphones with iOS operating systems, our business could be seriously harmed.”
Why is this important?
Snapchat, which offers several photo filters and video options in messaging, is highly popular among youth, especially in developed countries. Many media organisations are now active on the platform, and many brands run campaigns to reach youth there.
Recognising its potential, Facebook CEO Mark Zuckerberg offered to buy the company earlier for over $3 billion. But, it was refused by Mr Spiegel. Snapchat has gone public since as Snap Inc., with a promising IPO debut at the New York Stock Exchange in March, 2017.
Snap decisions
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