Social Media Wars Case Study PDF

9-721-443 APRIL 8, 2021 DAVID B. YOFFIE DANIEL W. FISHER Social Media War 2021: Snap vs. Facebook vs. TikTok Working from home in early 2021, Snap CEO and co-founder Eva...

9-721-443 APRIL 8, 2021 DAVID B. YOFFIE DANIEL W. FISHER Social Media War 2021: Snap vs. Facebook vs. TikTok Working from home in early 2021, Snap CEO and co-founder Evan Spiegel pondered how he should fight the ongoing social media war with Facebook and TikTok. After its IPO in 2017, Snap had struggled with a declining user base and large losses (see Exhibit 1A, Snap Financial Information). In the meantime, Facebook had surged to almost 3 billion users and TikTok, a social media app run by the Chinese company ByteDance, had attracted more than 700 million users in just three years. 1 Snap ended 2020 with 265 million users. 2 Snap’s core product, Snapchat, had captured the attention of a younger demographic through a simple innovation: allowing users to send disappearing messages to their friends. Snap further innovated with new features like Stories and augmented reality (AR) Lenses. But each time Snapchat introduced a powerful new feature, its largest rival, Facebook, copied it. As one journalist observed: “There is a joke in Silicon Valley that Snap is Facebook’s product lead... Facebook doesn’t have to think of new ideas anymore—it just has to mimic new Snapchat features and distribute them to its larger user base.” 3 2020, however, may have been a turning point: Snap’s revenues started to grow again, and users were sending over 5 billion Snaps every day (up 40% year-over-year). 4 Part of the explanation was that Snap’s competition had been rocked by controversy. Facebook faced withering critiques over its spread of misinformation as well as several antitrust lawsuits. At the same time, India banned TikTok, fearing that data from the app was controlled by the Chinese government. Several other countries, including the U.S., were threatening to do the same. Spiegel wondered how to capitalize on Facebook and TikTok’s problems. An obvious question was: Had fears over privacy and declining trust at Facebook and TikTok created an opportunity? Spiegel and his team debated several options, ranging from targeting new users at home or abroad and leveraging its early mover position in augmented reality, to betting on privacy to drive sustainable differentiation. Despite a surging stock price and a $96 billion valuation in early 2021 (See Exhibit 1A), Snap had to make tough choices. The company was still unprofitable a decade after its founding. Moreover, Facebook and TikTok would not sit idly: Spiegel would need to anticipate their next moves and figure out how to counter them. With negative cashflow (see Exhibit 1B), Snap was still a “David” in a war with Goliaths. Professor David B. Yoffie and Research Associate Daniel W. Fisher prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2021 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok Snap—The Early Days Evan Spiegel, Reggie Brown, and Bobby Murphy met while attending Stanford University. Spiegel and Brown lived across the hall from one another in their freshman dorm and all three were members of the Kappa Sigma fraternity. Murphy said of Kappa Sigma: “We weren’t cool. So we tried to build things to be cool.” 5 Brown came up with the idea for Snapchat in 2011. He had been complaining to a friend about a photo he regretted sending over iMessage. He wished there was a smartphone app to send disappearing photos. Thinking he had struck upon a “million dollar idea,” he ran to Spiegel’s room. Spiegel loved the idea, and the two recruited Murphy to develop an app they called Picaboo. 6 The first version of Picaboo was a website where users could upload and send photos that would disappear after a set amount of time. The team soon switched to a phone app, and while it made improvements, the Picaboo app had less than one hundred users by the end of the summer of 2011. To make matters worse, they received a cease-and-desist letter from a photobook company called Picaboo and were forced to change its name. They relaunched the app as Snapchat on September 26, 2011. 7 With the start of the school year in the fall of 2011, Snapchat took off. It was popular with high school and middle school students in the Los Angeles area, who used it to send messages during class. They loved Snapchat because messages vanished, leaving no evidence. Snapchat also ran on Wi-Fi, which meant that it could be used on an iPod Touch and an iPad, which were distributed by some schools. 8 (Students had previously used Facebook Messenger, but it had been banned by many of these schools.) Snapchat’s user base grew 50% month-over-month, and its engagement and retention metrics were encouraging. 9 In April 2012, Snapchat raised Lightspeed Venture Partners invested $485,000 at a $4.25 million valuation, and Spiegel dropped out of Stanford to work on the app full-time. 10 In May, Spiegel published his first blog post on the company website: Most photo apps… make photos prettier or more stylized, we thought there was an opportunity to do something different. We wanted a place to share awkward selfies and funny photos with our friends…Snapchat isn’t about capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion. 11 (Emphasis added.) Spiegel hoped to position Snapchat as a healthier alternative to existing social media. But early press coverage characterized the app as having only one real purpose: sexting. The New Yorker called the app a way “to avoid making youthful indiscretions a matter of digital permanence.” 12 The New York Times compared it to TigerText, a self-destructing messaging app named after a sex scandal involving the golfer Tiger Woods. 13 Nevertheless, Snapchat continued to grow. By October 2012, Snapchat users were sending 20 million “snaps” every day. Spiegel also stated firmly that he had no interest in being acquired. “There’s no way I’m going to work for anybody else,” he said. 14 Separating “Social” from “Media” Snapchat began as an app with a restrictive use case: sending and receiving disappearing photos to friends. Early adopters, however, were keen to find workarounds to invent certain features. For example, if they wanted to send a text message without a picture, some users would cover the camera, take a picture (producing a black screen), and add a caption. In the same way that Twitter added official support to user-invented features like the hashtag, Snapchat eventually added new features like Chat. At the same time, Snap’s challenge was to figure out a way to preserve what made Snapchat special. If it made all the changes to Snapchat that its users requested, it ran the risk of destroying its advantages over the competition. For example, Spiegel refused to give into users’ demands for a “send to all” feature, which Spiegel feared would have ended up making Snapchat too similar to Facebook. 15 2 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 Instead, Snapchat introduced “Stories” in 2013, a new feature that allowed users to post pictures and videos that would be available for all their friends to see for 24 hours. Eventually, Stories would evolve into Chat’s counterpart, a section of the app where users could watch friends’ Stories, Stories from celebrities they followed, and professionally-produced short videos. Snapchat became an app that served two distinct purposes—communication and content delivery—and the Snapchat interface ultimately reified the division: after opening the Snapchat app to the camera feature, users could either swipe to the left to send Snaps and chat with friends or swipe to the right to view Stories and videos (see Exhibit 2). This made Snapchat unique among social media platforms. Apps like Facebook, Instagram, and Twitter were centered around a single scrolling feed of content, which Snapchat lacked. Spiegel thought Snapchat’s divided interface was one of its greatest strengths. He said in 2017: The personalized newsfeed revolutionized the way people share and consume content. But let’s be honest: this came at a huge cost to facts…The combination of social and media… undermined our relationships with our friends and our relationships with the media. We believe that the best path forward is disentangling the two…This will provide a better way for publishers to distribute and monetize their Stories, and a more personal way for friends to communicate and find the content they want to watch. 16 Chat Snap frequently released new features to give users more ways to interact with their friends. In 2014, Snapchat added chat functionality similar to iMessage or Facebook Messenger, but it kept Snapchat’s theme of ephemeral content: chat messages disappeared as soon as users closed their chat screens. Another important feature was the Snapchat “Filter.” Filters were effects and graphics that Snapchat users could add to the Snaps, like color filters or a small graphic that displayed the current temperature. In July 2014, Snapchat added “geofilters,” which users could apply to their snaps if they were in a specific area—for example, a small picture of the famous Christ the Redeemer statue if a user was in Rio de Janeiro. It debuted its first “Sponsored Geofilter” in June 2015, which allowed users at McDonald’s locations to apply the McDonald’s logo and pictures of McDonald’s food to their Snaps. 17 In 2015, it launched “Lenses,” which were augmented reality (AR) features that could add effects to a user’s face or their environment. Like Filters, Lenses were also eventually monetized. Later, in 2019, Snapchat debuted another feature that had the potential for monetization called Cameos, which allowed users to animate still pictures of their faces to create short videos to send to friends. Stories Stories not only engaged users: they also enabled Snap to begin monetizing in a serious way. Starting in October 2014, Snap began including “Sponsored Stories” alongside Stories from users’ friends. Sponsored Stories eventually evolved into a collection of different advertising options (see Innovating Advertising section below.) In January 2015, Snap launched Discover, a feature that showed stories from brands such as ESPN, CNN, and others with video ads worked in. 18 Joshua Benton, the director of Harvard’s Nieman Journalism Lab, identified the new platform as a potentially “significant moment in the evolution of mobile news” and other content that had struggled to find the right format to attract the interest of younger viewers. 19 Originally, Snap was strict about making publishers on Discover produce exclusive content for Snapchat. However, starting in 2018, it allowed publishers to show pared-down versions of popular content recycled from other platforms like Facebook and YouTube, which proved to be equally popular on Snapchat. 20 Snap also produced its own content for Discover, beginning with a selection of series 3 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok that it showed on its own channel. Like all other content at the time, episodes from these series were available for only 24 hours, but Snap later abandoned this restriction. One persistent challenge Snap faced with the content side of its business was figuring out how to merchandise content. The selection of content it offered was diverse, but it struggled to organize it efficiently and make it accessible to users. Spiegel said on one earnings call, “I think today, it’s almost like walking into a supermarket without the aisles labeled.” 21 Facebook, TikTok and other social media apps solved this problem with the algorithmically-driven feed, which was conducive to consuming what Spiegel called “lean-back” content: 22 all users had to do was lean back and keep scrolling. Snap was still figuring out how to deliver the same ease-of-use without defaulting to the norm. Scaling the Enterprise Snapchat was part of the first generation of social media startups to emerge in the age of cloud computing. Services like Amazon Web Services and Google Cloud Platform enabled companies to scale easily without having to invest in their own data centers. As Greg DeMichillie, head of Google Cloud Platform, explained in 2014, “Snapchat didn’t exist three years ago. You can go down the list of apps that you probably have on your Android phone or your iPhone. Those exist because cloud platforms enable two developers with an idea to launch a service.” 23 While Facebook and ByteDance built their own server farms, Snap signed agreements with Google Cloud Platform and AWS. According to its 2016 agreement with AWS, it was required to purchase a total of $1.1 billion of cloud services between 2017 and 2022, and according to its 2017 agreement with Google, it was required to purchase at least $400 million of cloud services per year through 2022. 24 Cloud services allowed smaller firms to move quickly and avoid large, upfront capital investment. However, cloud computing services charged in proportion to user engagement. Once at scale, competitors with their own data centers faced lower variable cash costs than Snap. Facebook, for example, owned 15 data centers, including 11 in the United States. 25 Besides hosting costs, the other two major components of Snap’s cost of revenue were revenue sharing agreements with content creators and investments in original content. 26 Snap also invested 51% of annual revenue in research and development (see Exhibit 1A). R&D costs mainly consisted of technical staff, who were highly paid with stock-based compensation. Its R&D efforts were focused on product development (e.g., Lenses), advertising technology (e.g., targeting, self-service tools, etc.), and infrastructure efficiency. 27 Similar to other social media firms, Snap invested in machine learning, especially computer vision, to track features and overlay Lenses on photos. Snap was making these substantial investments in order to stand out from the competition. Although Snap had introduced many innovative features, those features were quickly copied by Facebook and others. In addition, many users spent time on multiple platforms. Survey data suggested that on any given day, 60% of Snap users spent time on Facebook and 52% used Instagram. 28 The problem was that Snap was essentially in the same business as everyone else: communicating with friends, consuming content, and selling ads. Snap earned virtually all of its revenues from advertising, and it offered services similar to larger social media platforms like targeting and optimization metrics based on user data and user engagement. The social media war was leading to a jumble of competition, with big and small social media platforms vying to be unique while everyone copied everyone else. 4 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 The Competition Facebook The 800-pound gorilla in the space was Facebook, a social media conglomerate that controlled five major platforms: Facebook, Instagram, WhatsApp, Messenger, and Oculus. It was founded by Harvard dropout Mark Zuckerberg, who built a website for networking with fellow Harvard students into a digital empire encompassing roughly a third of the world population. Zuckerberg coined the de facto motto of tech entrepreneurship in the 2000s: “Move fast and break things.” Just before Facebook went public in 2012, he warned his employees: “If we don’t create the thing that kills Facebook, someone else will…The internet is not a friendly place.” 29 If someone else created an exciting new feature, Facebook did not hesitate to copy it or, if it had to, acquire the competitor. By 2018 it had grown so powerful that Facebook cofounder Chris Hughes called for the company to be broken up. 30 In December 2020, the FTC and 48 states agreed: they filed lawsuits against Facebook for illegal monopolization, accusing the company of using a “buy-or-bury” strategy, where Facebook acquired or copied new players who presented a threat, and an “open-first, closed-later” strategy, where Facebook created open application programming interfaces (APIs) to attract developers to its platform and banned whoever helped its competition. 31 Of course, Zuckerberg maintained that Facebook was a force for good. Once he told The New Yorker that he was fascinated by the Roman emperor Augustus Caesar, who had used brutal means to establish lasting peace in the Empire. He said that on their honeymoon in Rome, his wife joked that it was “me, her, and Augustus” because “[a]ll the photos were different sculptures of Augustus.” 32 The couple named their second daughter August, presumably after the emperor, and some speculated his distinctive haircut—straight bangs cut short, high on the forehead—was an intentional homage. 33 Facebook App: The Facebook app was the most widely used social media platform in the world. Its usage centered around the News Feed, a feature that provided users with a regularly-updating feed of profile changes, status updates, videos, and articles shared by friends. In addition to ‘friending’ other users, users could join groups, follow pages run by celebrities or brands, and use other features like Facebook Watch, its in-house streaming platform. Facebook made substantially all of its revenue from selling advertisements, which appeared mainly in users’ News Feed. It used data like age, location, and interests to help advertisers target specific audiences. As of 2020, the Facebook app had 2.7 billion monthly active users (MAUs) around the world. 34 Although the United States and Canada represented a small minority of users (approximately 9% of MAU), the North American region accounted for half of Facebook’s revenue: North American average revenue per user (ARPU) was $36.49 per quarter versus a global ARPU of $7.05. 35 On average, adult users in the United States used Facebook for 34 minutes a day, and roughly 83% of users in the United States were 25 or older. 36 For comparison, around half of Snapchat users were 25 or older, and they also spent roughly 30 minutes per day on the app (see Exhibit 4). 37 From the start, Facebook received criticism for how it handled user data and privacy: In fact, the debut of its most distinctive feature, the News Feed, engendered controversy over the intrusiveness of giving users’ friends daily updates about their personal life. 38 Not long after, Facebook began to receive criticism for how it moderated content posted by users, either for being too lenient (e.g., leaving up Holocaust denial Facebook groups) or for being too strict (e.g., removing photographs of women breastfeeding their children). The two issues came to a head after the 2016 presidential election. Many critics alleged that Facebook allowed “fake news” to permeate the platform; in addition, it failed to prevent a small political consultancy called Cambridge Analytica from gathering data illicitly from 5 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok millions of Facebook users. The combination of fake news and advertising campaigns based on Cambridge Analytica data may have had a substantial impact on the election. These controversies led Facebook to make changes to its privacy policies and ramp up investments in content moderation. In total, Facebook employed approximately 15,000 content moderators, but the vast majority of moderation was done by algorithms, which cleared the platform of spam, terrorist content, sexually explicit content, and other violations of Facebook’s Content Guidelines. 39 Facebook also established an independent “Oversight Board” to make the final decision on Facebook’s more controversial content moderation decisions. Dissatisfied with Facebook’s efforts to moderate content, some of the largest advertisers in the world, including Unilever and Coca Cola, boycotted Facebook, Instagram (and Twitter) in the summer of 2020. By year-end, however, most of the advertisers came back. 40 Instagram: Zuckerberg bought Instagram for $1 billion in 2012, when the app had only 16 employees, 30 million users and no revenue. At the time, Zuckerberg wrote an email explaining that Instagram’s business was “nascent but the networks are established, the brands are already meaningful, and if they grow to a large scale, they could be very disruptive to us.” 41 Instagram did indeed prove to have an advantage over Facebook: it was more popular with younger users. Approximately 60% of Instagram users were under the age of 35. 42 Instagram, along with YouTube, made “influencer” into a household term by enabling a new generation of internet celebrities to turn their fame into wealth by promoting products. 43 According to a survey conducted in 2019, members of Generation Z (18-25 at the time) preferred Instagram to Facebook, largely because of the popularity of the app among their friends (see Exhibit 4). 44 With Instagram’s focus on photos and younger user base, it was much closer to Snapchat than Facebook. In fact, Zuckerberg pushed Instagram to copy Snapchat features, such as 24-hour Stories, AR face filters, and disappearing messages. 45 Instagram Stories in particular was an instant hit, with daily users quickly surpassing Snapchat. 46 Instagram CEO Kevin Systrom didn’t hesitate to acknowledge Snapchat. “They deserve all the credit,” he said. 47 Overall, Instagram had approximately 1 billion MAU in 2020. 48 Like Facebook, Instagram ran advertisements in users’ feed, but it was also experimenting with other forms of monetization, such as ecommerce. The United States, its largest user base, generated an average of $114.86 of revenue per user in 2019. 49 Instagram also had higher ratings than Snapchat on Google’s Play Store (4.5 stars vs. 4.25 for Snap) and on Apple’s App Store (4.5 vs. 3.5). 50 WhatsApp and Messenger: WhatsApp was an instant messaging service that users could sign up for with their phone number. In addition to encrypted text messages, users could send photos and videos to individual users and groups, as well as make voice or video calls. By the time Facebook acquired WhatsApp for $19 billion in 2014, it had reached 450 million users faster than any company in history. 51 As of 2020, WhatsApp had around 2 billion MAU. 52 Messenger, which was Facebook’s in- app messaging feature before Facebook spun it off into a separate app, had 1.3 billion MAU. 53 Trust and Antitrust at Facebook 2021: By multiple measures, Facebook was the least-trusted social media platform in the United States (see Exhibit 5). This lack of trust made Facebook vulnerable to a growing number of risks. First, growth was slowing. Facebook DAUs increased only 12% in 2020, which could be partly attributed to declining trust. Second, many feared the possible repeal or reform of Section 230, a regulation that freed social media companies from being held legally responsible for content posted on their platforms. Frustration with the statute was bipartisan: Democratic legislators were upset that platforms like Facebook were not doing enough to fight hate speech and fake news; Republicans thought their content moderation practices were biased against conservatives; and both believed that the legal immunity Section 230 awarded to platforms should be conditioned on addressing their respective concerns. Having read the writing on the wall, Zuckerberg broke with a longstanding industry consensus during a Senate hearing in October 2020 and said he believed the law 6 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 should be changed “to make sure it’s working as intended.” 54 Facebook also made significant changes to its approach to content moderation to address some of the concerns. In 2020, Zuckerberg said that Facebook “shouldn’t be the arbiter of truth,” which had been his position for many years. 55 But on January 7, 2021, on the morning after a mob stormed the Capitol Building, Facebook took the extraordinary step of suspending Donald Trump’s account. 56 And in February 2021, the company implemented new measures to limit the spread of misinformation about the Covid-19 vaccine. 57 A third threat to Facebook was antitrust litigation. Some antitrust experts speculated that Zuckerberg’s decision to technically integrate Instagram, WhatsApp, and Messenger into a unified messaging experience with end-to-end encryption was an attempt to “scramble the egg” and make it harder to break up Facebook in the future. 58 This did not dissuade the FTC from filing lawsuits alleging monopolization in December 2020. Previously, the FTC fined Facebook a record $5 billion following the Cambridge Analytica scandal. However, given that $5 billion represented only 9% of Facebook's revenue in 2018, many deemed the settlement to be toothless. Some speculated that the new lawsuit was an attempt to rehabilitate the FTC’s reputation—a “do over,” Facebook’s counsel called it. 59 ByteDance: TikTok According to the FTC antitrust suit against Facebook, it was difficult to enter social networking after Facebook emerged as the leading player. First, the value of the network increased for each individual as more family and friends joined. Second, switching costs were high because the more you invest in a network (adding friends, photos, videos, other forms of data, etc.), the harder it would be to move all of those assets. Third, there were ratchet effects: the more time a user invested in developing profiles and relationships, the stickier the site became. 60 And fourth, Facebook’s platform, which gave third parties access to Facebook’s APIs, had over 10 million apps and connected websites as early as 2013. 61 Despite all of these barriers, TikTok burst on to the scene in 2017. TikTok was owned by ByteDance, a Chinese company founded by Zhang Yiming in 2012. Time magazine described Yiming, the same age as Zuckerberg, as “an impressive leader…soft-spoken yet charismatic, logical yet passionate, young yet wise.” 62 His first success, Toutiao, was a personalized news app that used artificial intelligence to recommend new stories. In 2017, ByteDance acquired Musical.ly, a video-sharing app popular with teenagers in the United States and Europe, for $1 billion, and folded it into its own video app, TikTok (known as Douyin a in China), which quickly grew to be ByteDance’s most popular app. 63 After investing more than $300 million to advertise the service in 2019, TikTok had more than 100 million users in the United States and had been downloaded around 1.9 billion times around the world. 64 Its parent company ByteDance was valued over $100 billion, making it one of the most valuable privately- held companies in the world. 65 According to one report, ByteDance had $17 billion in revenue in 2019, with $3 billion in profits. 66 Most of TikTok’s revenues came from advertising, but it was also experimenting with “social commerce.” Wal-Mart, for example, started doing QVC-like shows on TikTok in December 2020, which allowed users to buy directly from the app. 67 TikTok was highly addictive: American users spent one hour per day on the app, twice the amount as Facebook and Snapchat. 68 (Perhaps ironically, TikTok was also the largest advertiser on Snapchat. 69) Part of TikTok’s appeal was a simple interface: when users opened the app, they were presented with the “For You” page and a video taking up the entire screen; to view another video, they could swipe down. Unlike other social media platforms, where users chose what content they wanted to see by ‘friending’ and ‘following’ other users, the TikTok platform did all the work, using a recommendation a TikTok and Douyin were actually two separate apps, and Douyin users were “walled off” from accessing content shared on TikTok. ByteDance kept them separate to make it easier to deal with demands from the Chinese government. 7 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok algorithm that monitored what kinds of videos a user liked, whether the user watched a video multiple times, and so on. b (As one New York Times reporter summarized it, “Imagine a version of Facebook that was able to fill your feed before you’d friended a single person. That’s TikTok.” 70) While Facebook and Instagram’s primary communities were friends and followers, TikTok’s community was everyone in the world who used the app, with the algorithm operating as mediator. In addition to watching videos, users could make videos. TikTok included a number of features to make videos more engaging, including an array of Snapchat-like filters. One popular feature allowed users to put audio in their videos, to which users lip-synced, danced, and performed skits. TikTok Controversies: TikTok ran into trouble in 2020 over national security. Fearing how data was handled by its Chinese owner, the Indian government banned the app in June 2020, and a number of other countries including Japan, Indonesia, and the United States also threatened bans. The United States demanded ByteDance sell TikTok’s U.S. assets in August 2020. President Trump gave his “blessing” to a deal between ByteDance, Oracle, and Walmart in September 2020 to give TikTok an American base, but it languished as ByteDance launched successful legal challenges. After Joe Biden became President, his administration announced, “plans to conduct an evaluation of the underlying record justifying those prohibitions.” 71 Analysts speculated that Biden wanted to include the status of TikTok in future trade negotiations with China. Like Facebook, TikTok faced criticism over its content moderation practices. The Intercept, for example, claimed that it had secured internal documents telling moderators to censor political speech, particularly criticism of the Chinese government, and to suppress posts from people with “ugly facial looks,” an “obvious beer belly,” or “too many wrinkles.” 72 Measures that the company took to avoid further controversies included making the accounts of users under the age of 16 private by default and by “ruthlessly poach[ing]” Facebook moderators to grow its own moderation staff. 73 Other competition: YouTube, Twitter, Pinterest, and regional competitors YouTube: YouTube was a video-sharing platform that first launched in 2005 and was acquired by Google in 2006 for $1.65 billion. At the time, YouTube was “basically America’s Funniest Online Videos + illegal SNL clips,” as one writer put it, but it was growing fast, and by 2019, it accounted for 37% of mobile internet traffic. 74 Compared to other platforms, YouTube was extremely popular with users under the age of 11, and it was the leading app among younger users overall in terms of market penetration, having reached 77% of teenage and young adult online users. 75 In 2019, YouTube generated an ARPU of $16.50. 76 Most of YouTube usage was passive consumption of content. 77 Twitter: Twitter was a “microblogging” social media platform that first debuted in 2007. It allowed users to post and share “tweets”—short text posts, pictures, videos, links, and so on—with people who selected to “follow” them. Twitter later expanded its original character limit of 140 to 280 characters, and also made it easier to produce Twitter “threads” of tweets to compose longer messages. It also enabled direct messaging between users. By 2020, Twitter’s user base had grown to include 186 million “monetizable” daily active users (Twitter’s main metric), but its growth in MAU had levelled out in 2015. 78 Twitter generated an average of $30 of revenue per user in 2019. 79 In November 2020, Twitter launched Fleets, its own version of the Snapchat Stories. 80 Pinterest: Launched in 2010, Pinterest was an image-sharing platform that enabled users to create and follow “boards” of images grouped by topic or events like weddings or vacations. Like other social media platforms, it featured a central feed that showed images shared by the people a user followed. b TikTok also allowed users to follow other users, but these videos appeared on a separate screen from the main “For You” page. 8 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 By 2020, Pinterest had 442 million MAU generating an annual ARPU of around $4. While ARPU was low, Pinterest appealed to advertisers for several reasons. First, it offered a unique form of computer vision-powered ad targeting based on users’ boards. 81 And second, because the platform mainly functioned as a tool for planning and sharing ideas for major life events, users were “very likely to spend money” when they were using it, as one tech analyst explained. 82 Regional Competitors: Snap also faced competition from messaging services that were popular within specific regions. Examples include Snow, a South Korean clone of Snapchat that Facebook once attempted to acquire; KakaoTalk, a South Korean messaging service; Line, a Japanese messaging service; and China’s QQ and WeChat (discussed below), messaging services run by Tencent. 83 Snap and Facebook Go to War While Spiegel had no interest in selling his company, Facebook’s CEO Mark Zuckerberg had a different idea. It started out friendly enough: Zuckerberg sent Spiegel an email on November 28, 2012, saying, “Hey Evan, I’m a big fan…I’d love to meet you and hear your vision…” 84 The two met a few weeks later and Zuckerberg offered to acquire Snapchat for $60 million. 85 Zuckerberg allegedly told Spiegel to accept his price, or Facebook would copy its products and crush Snap. 86 Spiegel declined. Soon after, Facebook released a copycat app called Poke. Poke quickly rose to the top of Apple’s list of most downloaded apps, but new downloads fizzled out after just a few days. 87 Facebook, however, did not give up the fight. Indeed, Spiegel claimed that Facebook launched a full-blown attack on his company and compiled a detailed record that he named “Project Voldemort” after the main antagonist in the Harry Potter series. This dossier was delivered to antitrust authorities, and included allegations that Facebook blocked searches of Snap-related terms on Instagram and pressured Instagram influencers against adding Snapchat links by threatening to revoke their ‘verified’ status. 88 Snap also claimed that Facebook used Onavo, a VPN app that routed smartphone traffic to Facebook’s servers, to track Snapchat users and their preferences for the most popular features. 89 In November 2013, Zuckerberg approached Spiegel again, offering $3 billion for the company. Spiegel declined again. 90 By that point, Snapchat users were sending 400 million snaps every day, 91 which gave Spiegel confidence that Snapchat could scale. With advertising as its primary source of revenue, sales reached $60 million in 2015 and Spiegel forecasted a $1 billion in sales by 2017. 92 However, the company was still far from turning a profit: it had lost $373 million in 2015 and it expected annual losses would grow for several years. 93 Nonetheless, Spiegel was undeterred. In the fall of 2016, he changed the company’s name from Snapchat to Snap, and filed to take the company public. 94 Snap Struggles and Recovers On the first day of Snap’s IPO in March 2017, it closed at a market value of $28.3 billion, making it the largest technology IPO since Alibaba’s debut in 2014. Just a few months later, Snap’ share price took its first large tumble, falling 24%. Investors feared that Snapchat was losing out to Instagram. Snapchat also suffered from a disastrous redesign of its app, which Spiegel feared might be “disruptive to our business in the short term.” 95 Over the next two quarters, Snapchat’s DAU count fell by 3%. 1.2 million Snapchat users signed a petition demanding Snapchat reverse the design change; satisfaction among younger users fell by 73%. Media personality Kylie Jenner tweeted, “sooo does anyone else not open Snapchat anymore?” 96 In May 2018, Snap reversed the changes. 97 It took almost two years for Snapchat’s DAU to recover. But user growth accelerated in 2020. Ironically, the coronavirus pandemic was a boon for Snapchat. “[O]ur product has never been more 9 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok important in people’s lives…We are seeing sustained communication volumes on our service that eclipse the peaks we see during major holidays,” said Spiegel. 98 DAUs grew 22% year-over-year (YoY) in Q4, 2020, while Snap’s revenue increased 62% (YoY) and ARPU increased 33% YoY to $3.44. 99 Snap bears noted, however, that the company’s growth was coming from “low-spending (aka unprofitable) users,” especially young and international users. 100 In addition, expenses remained high. This left the obvious question: How and when could Snap become profitable? Snap’s Future From 2015 to 2020, Snap’s annual revenues grew from $59 million to $2.5 billion, but its operating costs grew almost as fast (see Exhibit 1A). Snap had burned through $8.7 billion in cash since its founding. 101 Trying to keep up with Facebook’s technology was daunting: In 2010, when Facebook’s annual revenues were roughly the same as Snap’s in 2019, it spent less than 10% of revenues on R&D. In 2019, Facebook spent 20% of sales on R&D ($18 billion), which was seven times Snap’s revenue. (See Exhibit 1A and Exhibit 3). The difference highlighted Snap’s challenge: Although Snap was earning more revenue on each user than Facebook when its user base was of a comparable size, Facebook’s growth exploded without any dominant competitors in its space. Facebook, in other words, reached scale in a simpler time. But the pandemic, combined with Facebook and TikTok’s political and trust problems, may have opened new opportunities for Snap in 2021. Spiegel and the Snap team had a number of options to consider. Target new users? Global and/or older? Beginning 2018, Spiegel began to talk about the importance of growing Snapchat’s presence in new markets, particularly countries with young populations like India, Indonesia, and the Philippines. This marked a shift in Snap’s strategy, which had long prioritized its expansion in wealthier markets, particularly the United States. Snap had prioritized its iOS app over the Android app, even though the majority of smartphone users in the world used Android phones. In April 2019, Snap released a new version of its Android app to address longstanding problems with the previous version. 102 That same month, Snap hired its first employee in India. 103 At the time, India had 11 million Snapchat users, making it Snap’s fifth largest market, but the app remained far behind competitors like Facebook and TikTok, which had 300 million and 120 million Indian users, respectively. 104 To drive interest, Snap released new content in Indian languages and began collaborating with local brands to create locally-relevant ads. India soon became Snapchat’s second largest market, with roughly half as many users as the United States by the end of 2020. 105 Overall user growth in Snap’s ‘Rest-of-World (ROW)’ category was accelerating: the number of ROW users surpassed Europe in Q1 2020 and was roughly equal to North America by the end of the year (see Exhibits 6 and 7). 106 But three quarters of Snap’s new revenue in 2020 came from North America. ARPU in ROW was only $1.11 in Q4, while ARPU in North America was $7.19. By comparison, Facebook’s Q4, 2020 ARPU in Asia was $4.05 and $53.56 in the U.S. 107 One way to address the ARPU problem was to target older users, with higher incomes. In fact, Snapchat had some luck in reaching older users: From 2018 through 2020, Snapchat’s fastest-growing age demographic in the U.S. was users between the ages of 35 and 44 (11.5% annual average increase), followed by users 17 and under (5.8%) and users over the age of 45 (3.7%) (see Exhibit 4). In February 2020, Spiegel reported that it had added new content “that appeal to older audiences,” resulting in a 25% year-over-year increase in viewership among users 35 years old and above. 108 10 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 Differentiate through augmented reality? In its prospectus for its 2017 IPO, Snap articulated broad long-term ambitions for the company: Snap Inc. is a camera company. We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate… This means we are willing to take risks in an attempt to create innovative and different camera products that are able to reflect and improve our life experiences. 109 Spiegel had originally decided to have the Snapchat app open directly to the camera in order to make it easier for users to capture fleeting moments. But anticipating a future in which devices like AR glasses would become consumers’ first stop for accessing digital services, Snap made significant investments to turn the Snapchat camera into a versatile AR platform—and hopefully, a prime candidate to become the new default user interface. Advertising with AR: The first Snap AR feature to capture investors’ attention were its AR- powered advertisements. Snap’s advertisement offerings came in two basic types, falling either on the ‘social’ or the ‘media’ side of the Snapchat app. On the media side, advertisers could purchase ads that showed between Stories, Story ads that appeared on the Stories homepage, or six-second Commercials that appeared between shows. On the ‘social’ side, advertisers could purchase Filters, Geofilters, and Lenses that users could use in their Snaps; by paying extra, advertisers could ensure that their Lens or Filter was one of the first options users saw when they took a Snap. Users could interact with AR ads by making facial expressions, virtually “try on” clothing, or walk through a virtual store and browse items. “We believe augmented reality is the future of immersive customer experiences,” said Jeremi Gorman, Snap’s “chief business officer,” hired away from Amazon in late 2019. 110 According to one analyst, Snapchat users in 2020 took about 18 Snaps per day per DAU and that around 75% of DAUs engaged with AR Lenses every day; “[i]f Snap can add just one AR Lens ad per day across 75% of DAUs that engage at $7 CPM, it would add over $500M in revenue,” the analyst said. 111 Snap, however, had competition in AR. Instagram sponsored AR effects, which worked slightly differently. On Instagram, sponsored AR content appeared on commercial pages: a makeup company, for example, could share effects simulating different types of eyeshadow, which users could add to photos they sent to friends. Meanwhile, TikTok’s Branded Effects, which enabled advertisers to create AR effects for TikTok videos, was basically the equivalent of Snap’s Sponsored Filters and Lenses. Mixed Reality: Snap’s AR ambitions reached beyond advertising. In April 2019, Snapchat debuted a general-purpose AR developer platform called Scan. 112 One Scan app, for instance, allowed users to find the solutions to math problems by pointing the Snapchat camera at them, while another helped users to identify a dog’s breed. Its most ambitious experiment with AR was Local Lenses: By pointing your phone towards a small area around Carnaby Street in London, for example, enabled users to paint digital graffiti on the walls of buildings that other users could see. 113 Many referred to this kind of AR as “mixed reality” (MR) which merged the real and virtual worlds. In order to make digital features interact realistically with the real world, an MR system had to map a users’ surroundings in detail and recognize different surfaces and objects, which was computationally expensive. In September 2020, Facebook announced its own MR project, Project Aria. It argued that the technology’s real potential lay in MR glasses, which would enable “the device itself [to] disappear entirely into the ebb and flow of everyday life.” 114 Snapchat had also released glasses called Spectacles, but they only recorded video and did not have a built-in display. Facebook, which had been working on virtual reality (VR) headsets since its $2.3 billion acquisition of Oculus in 2014, believed that it was still years away from releasing a viable MR product. Apple, Microsoft, Magic Leap, and others were also working on MR glasses. 115 11 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok Bet on non-advertising alternatives: the WeChat model? WeChat was a multipurpose messaging app with over 1.2 billion users, most of whom were in China. 116 It was run by the Chinese company Tencent, which owned 10% of Snap. Unlike other social media platforms, WeChat made most of its revenue through transaction fees, which it earned whenever the app was used to make payments, order food, shop online, or play games. 117 Often described as a “super app,” many social media platforms outside of China had tried to copy the WeChat business model, but none had worked. Early on, some thought Snapchat might be the first. Venture capitalist Marcus Andreesen said in 2014: “The bull case on Snapchat is that there’s a company in China called Tencent…[I]t takes its messaging services on a smartphone and them wraps them in a wide range of services…and then charges for all these add-on services.…Maybe that’s [Spiegel’s] plan.” 118 Snap had, in fact, experimented with a WeChat revenue model, and at one point launched an in- app peer-to-peer payments system that was quickly abandoned. 119 However, Snapchat never completely gave up the WeChat strategy. In 2020, for example, Snap introduced Snap Places, which enabled Snap Map to offer many of the same features as Google Maps, such as information about restaurants hours, ratings, and food delivery options. 120 Spiegel hoped that he could monetize Snap Maps by allowing local businesses to buy ads to highlight their locations on the Map. 121 Spiegel moved one step closer to WeChat in 2019, with the introduction of games as a feature of chats. While chatting with a friend, a user could press a button to access a collection of games and invite the friend to play. Spiegel hoped that games could “created more monetization opportunities around the communication side” of Snapchat. 122 And in June 2020, Snap announced Snap Minis, which were pared-down versions of standalone applications embedded within Snapchat, similar to the many applications embedded within WeChat. This was Snap’s biggest effort to create an innovation platform for third party developers. Snapchat’s first set of Minis included apps for coordinating schedules with friends, for running guided meditations, and for studying with digital flashcards. Spiegel’s hope was that the platform would drive e-commerce. “Let’s say you’re getting ready with your friends… you can actually shop together with your friends, which I think could be a really fun experience,” he said. 123 Copy the competition? Snapchat was accustomed to other platforms adopting features it had developed, but it had rarely been accused of doing the same. That changed in November 2020 when it launched Spotlight, a me-too product that copied the core features of TikTok. Like TikTok, Spotlight allowed users to watch short videos submitted by Snapchat users, which were selected by an algorithm. Unlike TikTok, Spotlight did not allow users to leave comments on videos, and video creators were allowed to keep their profiles private. To drive content creation, Snapchat launched a lottery that awarded $1 million dollars per day, divided among the creators with the most popular videos that day. 124 In February 2021, just two months after launch, Snap reported that Spotlight had over 100 million monthly active users and was receiving over 175,000 video submissions per day. 125 Spiegel said he was “pleasantly surprised with the momentum.” 126 Instagram chief Adam Mosseri, meanwhile, said he was “not yet happy” with his platform’s own version of TikTok, Instagram Reels. 127 While Spotlight help to prevent the loss of users to TikTok and providing a new venue for video advertisements, it also meant Snapchat was becoming more similar to the competition. With Instagram having launched its own TikTok clone and Twitter having launched Fleets, its version of Stories, many noticed the pattern. One tech journalist at Buzzfeed News wrote about “a weird flattening and confusion between the apps;” 128 another at Wired said she had become accustomed recently to “a sort of digital déjà vu.” 129 Spiegel and the team wondered if Gartner analyst Nicole Greene was right when she 12 This document is authorized for use only by Mana Heshmati in 2023. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 observed, “That leaves space for these new, more niche disruptors to gain traction and provide experiences that aren’t being delivered on.” 130 One disrupter that had recently emerged was Clubhouse, a platform that hosted “rooms” similar to call-in radio stations, where users could listen to moderators and guests have a conversation. Soon after Zuckerberg spoke in a Clubhouse room in February 2021, reports emerged that Facebook was already working on its own product. 131 Privacy and curation? Like other social media platforms, Snapchat occasionally received criticism for violating users’ privacy and making poor content moderation decisions, like when the FTC forced Snapchat to implement a privacy program after hackers the usernames and phone numbers of millions of Snapchat users in 2014. 132 However, it received far less criticism than the competition concerning content moderation. Because most of the communications on Snapchat were private, disappearing messages, the company was not as exposed to the threat of controversial content going ‘viral’ on its platform. The little criticism it had so far received concerned its heavily-curated Stories platform. For example, in 2018, it featured “age-gated” sexually explicit content from Cosmopolitan on the Stories page visible only to users over the age of 18, but it was forced to abandon the experiment after receiving numerous complaints. 133 Later in 2018, Snapchat’s market capitalization fell by $1 billion after it was called out by Rihanna for featuring an ad that trivialized acts of domestic violence committed against her. 134 Despite some hiccups, Spiegel wondered if greater privacy and a more curated platform was the best defense against Facebook and TikTok. Facebook had the difficult challenge of balancing its users’ expectation of free expression and the public’s concern over hate speech, while TikTok (at least in the short run) remained a Chinese-based company, meaning other governments would remain concerned about its data collection practices. Spiegel was free to make bolder (and potentially controversial) decisions, like when he stopped promoting Donald Trump’s campaign account after determining his comments could incite violence. 135 And advertisers appeared to favor a heavy-handed approach: much of the company’s 2020 revenue growth could be traced to demand for its Commercials offering, which showed ads between content on Discover. Snapchat leadership noted that the product was appealing precisely because it was “brand-safe by design.” 136 (See Exhibit 8 for consumers’ concerns about social media advertising.) One possible threat to this option was Apple’s announcement in late 2020 that it would require iPhone apps to explicitly request permission from users to track their activity. 137 Facebook attacked Apple, taking out full-age ads in major U.S. newspapers to claim that the privacy changes would be “devastating to small businesses,” who depended on personalized ads to find customers. 138 Snap, however, did not voice any opposition. In an interview with CNBC, Spiegel said the company was “well prepared for these changes” and that they were “in line with [its] privacy philosophy. We generally view this as a good thing…even if it’s a little disruptive in the near term.” 139 Choices and trade-offs? Spiegel could go any number of directions, but he could not do everything. The lack of profits and free cashflow limited spending choices, and some of his options had difficult trade-offs. For example, going aggressively after older users might increase ARPU, but would it reduce its popularity among its younger users? What other trade-offs would each option entail? And how would Facebook and TikTok respond to these initiatives? Facebook and TikTok were moving targets. One thing was clear: becoming a profitable, long-run winner in the social media war would not be easy. 13 This document is authorized for use only by Mana Heshmati in 2023.  721-443 -14- Exhibit 1A Snap Financial Info (2015-2020 Snap 2015 2016 2017 2018 2019 2020 Revenue 58,663 404,482 824,949 1,180,446 1,715,534 2,506,626 Cost of revenue* 182,341 451,660 717,462 798,865 895,838 1,182,505 Research and development 82,235 183,676 1,534,863** 772,185 883,509 1,101,561 Selling, general, and administrative 148,600 165,160 1,535,595** 477,022 580,917 1,084,632 Operating income (loss) (381,729) (520,385) (3,485,576) (1,268,450) (1,103,328) (862,072) Net income (loss) (372,893) (514,643) (3,445,066) (1,255,911) (1,033,660) (944,839) Total cash, cash equivalents, and marketable securities 640,810 987,368 2,043,039 1,279,063 2,112,805 2,537,540 Accounts receivable, net - 162,659 279,473 354,965 492,194 744,288 Net property, plant, and equipment - 100,585,000 166,762,000 1,675,928 2,643,986 178,709 Total assets 938,936 1,722,792 3,421,566 2,714,106 4,011,924 5,024,238 Total liabilities 174,791 203,878 429,239 403,107 1,752,011 2,694,262 Total shareholders’ equity 764,145 1,518,914 2,992,327 2,310,999 2,259,913 2,329,976 Cash dividends paid - - - - - - Number of employees - - 3,069 2,884 3,195 3,863 International sales/sales - - 19.6% 30.3% 31.0% 50.0% Gross margin -210.8% -11.7% 17.9% 32.3% 47.8% 52.8% R&D/sales 140.2% 45.4% 186.1% 65.4% 51.5% 43.9% SG&A/sales 253.3% 40.8% 186.1% 40.4% 33.9% 43.3% Return on sales -650.7% -128.7% -422.5% -107.5% -64.3% -34.4% Return on assets -39.7% -29.9% -100.7% -46.3% -25.8% -18.8% Return on equity -48.8% -33.9% -115.1% -54.3% -45.7% -40.6% This document is authorized for use only by Mana Heshmati in 2023. Stock price low - - $11.83 $4.99 $5.64 $8.37 Stock price high - - $27.09 $20.75 $17.89 $53.33 Market value at period-end ($ millions) - - 21,485 11,347 22,992 95,989 Daily Average Users (millions) N/A N/A 187 186 218 265 *Snap’s cost of revenue included a portion of its depreciation and amortization expense. D&A's contribution to cost of revenue in 2020, 2019, and 2018 was $22 million, $21 million, and $26 million, respectively. **Snap reported a stock-based compensation expense of $2.6 billion in 2017, which was paid out to engineers and sales and marketing personnel. Source: Created by casewriter using data from Snap Inc. quarterly earnings reports and Capital IQ.  721-443 -15- Exhibit 1B Snap: Free Cash Flow Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 0 (50,000) (100,000) (150,000) $ Thousands (200,000) (250,000) (300,000) This document is authorized for use only by Mana Heshmati in 2023. Source: Made by casewriter using data from Snap Inc. quarterly earnings reports.  721-443 -16- Exhibit 2 The Snapchat Interface (October 2020)* This document is authorized for use only by Mana Heshmati in 2023. Source: From Snap Inc.’s Q3 2020 Earnings Presentation. *This user interfaced changed in December 2020 when Snapchat launched Spotlight, its clone of TikTok. Spotlight replaced the “Discover” page, which became part of the “Stories” page.  721-443 -17- Exhibit 3 Competitors’ Financial Info – Facebook, Twitter, and Pinterest (2015-2020) Facebook ($ millions) 2015 2016 2017 2018 2019 2020 Revenue 17,928 27,638 40,653 55,838 70,697 85,965 Cost of revenue* 2,867 3,789 5,454 9,355 12,779 16,692 Research and development 4,816 5,919 7,754 10,273 13,600 18,447 Selling, general, and administrative 4,020 5,503 7,242 11,297 20,341 18,155 Operating income (loss) 6,225 12,427 20,203 24,913 23,986 32,671 Net income (loss) 3,688 10,217 15,934 22,112 18,485 29,146 Total cash, cash equivalents, and marketable securities 18,434 29,449 41,711 41,114 54,855 61,954 Accounts receivable, net 2,559 3,993 5,832 7,587 7,483 11,335 Net property, plant, and equipment 5,687 8,591 13,721 24,683 44,783 45,633 Total assets 49,407 64,961 84,524 97,334 133,376 159,316 Total liabilities 5,189 5,767 10,177 13,207 32,322 31,026 Total shareholders’ equity 44,218 59,194 74,347 84,127 101,054 128,290 Cash dividends paid - - - - - - Number of employees 12,691 17,048 25,105 35,587 44,942 58,604 International sales/sales 50.1% 49.1% 50.9% 51.6% 51.7% 51.5% Gross margin 84.0% 86.3% 86.6% 83.2% 81.9% 80.6% R&D/sales 26.9% 21.4% 19.1% 18.4% 19.2% 21.5% SG&A/sales 22.4% 19.9% 17.8% 20.2% 28.8% 21.1% Return on sales 34.7% 45.0% 49.7% 44.6% 33.9% 38.0% Return on assets 7.5% 15.7% 18.9% 22.7% 13.9% 18.3% Return on equity 8.3% 17.3% 21.4% 26.3% 18.3% 22.7% This document is authorized for use only by Mana Heshmati in 2023. Stock price low $74.05 $94.16 $116.86 $124.06 $131.70 $146.01 Stock price high $109.01 $133.28 $183.03 $217.50 $208.10 $303.91 Market value at period-end ($ millions) 310,557 378,529 560,926 475,731 597,254 754,633 Family Daily Active Persons (billions)** - - - - 2.26 2.60 *Facebook’s cost of revenue included the depreciation of server equipment. Depreciation expense in 2020, 2019, and 2018 were $6.4 billion, $5.2 billion, and $3.7 billion, respectively. **Facebook defined a Family Daily Active Person as a registered and logged-in user of one of its platforms visiting at least one of those platforms on a given day. It published DAU figures for only the Facebook platform. (Exhibit continues on next page.)  721-443 -18- Twitter ($ thousands) 2015 2016 2017 2018 2019 2020 Revenue 2,218,032 2,529,619 2,443,299 3,042,359 3,459,329 3,716,349 Cost of revenue 729,256 932,240 861,242 964,997 1,137,041 1,366,388 Research and development 806,648 713,482 542,010 553,858 682,281 873,011 Selling, general, and administrative 1,132,164 1,251,105 1,001,307 1,070,179 1,273,634 1,450,292 Operating income (loss) (450,000) (265,900) 38,700 453,300 366,400 26,658 Net income (loss) (521,031) (456,873) (108,063) 1,205,596 1,465,659 (1,135,626)* Total cash, cash equivalents, and marketable securities 911,471 988,598 1,638,413 1,894,444 1,799,082 7,472,302 Accounts receivable, net 418,454 650,650 664,268 788,700 850,184 1,041,743 Net property, plant, and equipment 735,299 783,901 773,715 885,078 1,031,781 1,493,794 Total assets 6,442,439 6,870,365 7,412,477 10,162,572 12,703,389 13,379,090 Total liabilities 2,074,392 2,265,430 2,365,259 3,356,978 3,999,003 5,409,008 Total shareholders’ equity 4,368,047 4,604,935 5,047,218 6,805,594 8,704,386 7,970,082 Cash dividends paid - - - - - - Number of employees 3,898 3,583 3,372 3,920 4,900 5,500 International sales/sales 34.9% 38.2% 42.1% 46.0% 43.8% 44.1% Gross margin 67.1% 63.1% 64.8% 68.3% 67.1% 63.2% R&D/sales 36.4% 28.2% 22.2% 18.2% 19.7% 23.5% SG&A/sales 51.0% 49.5% 41.0% 35.2% 36.8% 39.0% Return on sales -20.3% -10.5% 1.6% 14.9% 10.6% 0.7% Return on assets -8.1% -6.6% -1.5% 11.9% 11.5% -8.5% Return on equity -11.9% -9.9% -2.1% 17.7% 16.8% -14.2% This document is authorized for use only by Mana Heshmati in 2023. Stock price low $22.14 $14.01 $14.29 $16.44 $27.99 $20.00 Stock price high $52.87 $24.87 $25.20 $46.76 $45.42 $55.87 Market value at period-end ($ millions) 12,278 11,592 24,434 23,518 30,273 43,070 Monetizable Daily Active Usage** - - 115 126 152 192 *Twitter’s net loss in 2020 was inclusive of a $1.1 billion provision for income taxes related to a valuation allowance against deferred tax assets. **Twitter did not report DAU figures. It defined Monetizable Daily Active Usage as Twitter users that used a Twitter application capable of showing ads on any given day. (Exhibit continues on the next page.)  721-443 -19- Pinterest ($ thousands) 2015 2016 2017 2018 2019 2020 Revenue - - 472,852 755,932 1,142,761 1,692,658 Cost of revenue - - 178,664 241,584 358,903 449,358 Research and development - - 207,973 251,662 1,207,059 606,194 Selling, general, and administrative - - 224,149 337,407 965,665 779,610 Operating income (loss) - - (137,934) (74,721) (1,388,866) (142,504) Net income (loss) - - (130,044) (62,974) (1,361,371) (128,323) Total cash, cash equivalents, and marketable securities - - 711,628 627,813 1,713,345 1,760,306 Accounts receivable, net - - - 221,932 316,367 563,733 Net property, plant, and equipment - - - 81,512 91,992 69,375 Total assets - - - 1,152,731 2,393,317 2,609,459 Total liabilities - - - 281,895 369,612 367,088 Total shareholders’ equity - - - (594,563) 2,023,705 2,242,371 Cash dividends paid - - - - - - Number of employees - - - - 2,217 2,545 International sales/sales - - 5.1% 5.4% 10.2% 17.0% Gross margin - - 62.2% 68.0% 68.6% 62.2% R&D/sales - - 44.0% 33.3% 105.6% 35.8% SG&A/sales - - 47.4% 44.6% 84.5% 46.1% Return on sales This document is authorized for use only by Mana Heshmati in 2023. - - -29.2% -9.9% -121.5% -8.4% Return on assets - - - -5.5% -56.9% -4.9% Return on equity - - - 10.6% -67.3% -5.7% Stock price low - - - - $17.45 $10.92 Stock price high - - - - $36.56 $72.99 Market value at period-end ($ millions) - - - - 14,430 51,513 Monthly Average Users (millions) - - - - 335 459 Source: Made by casewriter using data company earnings reports and Capital IQ.  721-443 -20- Exhibit 4 Platform Growth Broken Down by Age Group (United States, 2008-2020) This document is authorized for use only by Mana Heshmati in 2023. Source: Made by casewriter using data from eMarketer. 1 Figures for 2020 are forecasts.  721-443 -21- Exhibit 5 Trust of Social Media Platforms (2020) This document is authorized for use only by Mana Heshmati in 2023. Source: Made by casewriter using data from Business Insider Intelligence.  721-443 -22- Exhibit 6 Snap DAU, ARPU, and Revenue per Region (2016-Q3, 2020) This document is authorized for use only by Mana Heshmati in 2023. Source: Made by casewriter using data from eMarketer and Statista.  721-443 -23- Exhibit 7 Snapchat’s Largest National Markets compared to Instagram and Facebook (2020) Snapchat Instagram Facebook 350 United States 102 140 190 India 50 120 310 300 France 22 22 32 United Kingdom 19 78 38 250 Saudi Arabia 18 15 14 Mexico 16 31 92 200 Germany 14 25 28 Brazil 11 95 130 150 Millions of Users Philippines 11 11 73 Turkey 10 44 56 100 Iraq 10 10 21 Canada 9 12 19 50 Egypt 9 11 42 Indonesia 9 77 140 0 Pakistan 8 7 31 Russia 8 51 8 Australia 7 9 11 Colombia 5 10 32 Netherlands 5 7 10 Snapchat Instagram Facebook Nigeria 5 7 28 Source: Made by casewriter using data from Statista. This document is authorized for use only by Mana Heshmati in 2023.  721-443 -24- Exhibit 8 US Social Media Users’ Relationship Social Media Advertising This document is authorized for use only by Mana Heshmati in 2023. Source: Made by casewriter using data from Business Insider Intelligence. Social Media War 2021: Snap vs. Facebook vs. TikTok 721-443 Endnotes 1 Alex Sherman, “TikTok reveals detailed user numbers for the first time,” CNBC, August 24, 2020, https://www.cnbc.com/2020/08/24/tiktok-reveals-us-global-user-growth-numbers-for-first-time.html, accessed December 13, 2020. 2https://s25.q4cdn.com/442043304/files/doc_financials/2020/q4/Snap-Inc.-Q4-2020-Earnings-Slides.pdf, accessed February 19, 2021. 3 Derek Thompson, “Is Snapchat Doomed?” The Atlantic, August 11, 2017, https://www.theatlantic.com/business/archive/2017/08/snap-earnings-twitter/536580/, accessed June 8, 2020. 4 “Snap Inc. Q4 and Full Year 2019 Transcript” and “Snap Inc. Q4 2020 Prepared Remarks,” available at: https://investor.snap.com/events-and-presentations/events/default.aspx. 5 J.J. Colao, “The Inside Story of Snapchat: The World’s Hottest App Or a $3 Billion Disappearing Act?,” Forbes, January 6, 2014. 6 Billy Gallagher, How to Turn Down a Billion Dollars (St. Martin’s Press, 2017), pp. 20-25. 7 Billy Gallagher, How to Turn Down a Billion Dollars (St. Martin’s Press, 2017), p. 52. 8 Christine Lagorio-Chafkin, “Don’t Credit Sexting: How Snapchat Actually Took Off,” Inc., https://www.inc.com/christine- lagorio/real-origins-of-snapchat-growth.html, accessed May 12, 2020. 9 Billy Gallagher, How to Turn Down a Billion Dollars (St. Martin’s Press, 2017), p. 61. 10 Seth Fiegerman, “One California high school just made millions from Snap's IPO,” CNN Business, March 2, 2017, available at: https://money.cnn.com/2017/03/02/technology/snapchat-ipo-high-school/. 11 Evan Spiegel, “Let’s chat.,” May 9, 2012, https://www.snap.com/en-US/news/post/lets-chat. 12 Ken Auletta, “Get Rich U.,” The New Yorker, April 23, 2012, https://www.newyorker.com/magazine/2012/04/30/get-rich- u, accessed May 19, 2020. 13 Nick Bilton, “Disruptions: Indiscreet Photos, Glimpsed Then Gone,” The New York Times, May 7, 2012, via Factiva, accessed May 19, 2020. 14 Billy Callagher, “You Know What’s Cool? A Billion Snapchats: App Sees Over 20 Million Photos Shared Per Day, Releases on Android,” TechCrunch, October 29, 2012, https://techcrunch.com/2012/10/29/billion-snapchats/, accessed May 19, 2020. 15 Billy Gallagher, How to Turn Down A Billion Dollars (New York: St. Martin’s Press, 2018), p. 104. 16 Annlee Elingson, “Snap CEO Evan Spiegel skewers social media’s role in ‘fake news’,” November 29, 2017. https://www.bizjournals.com/losangeles/news/2017/11/29/snap-ceo-skewers-social-media-role-in-fake-news.html, accessed December 19, 2020. 17 “Snapchat Woos Advertisers with Branded Geofilters,” MediaPost.com, June 17, 2015, via Factiva, accessed May 29, 2020. 18 Jordan Crook, “Snapchat Launches Discover,” January 27, 2015, https://techcrunch.com/2015/01/27/snapchat-launches- discover/, accessed May 19, 2020. 19 Joshua Benton, “Snapchat’s new Discover feature could be a significant moment in the evolution of mobile news,” NiemanLab, January 28, 2015, https://www.niemanlab.org/2015/01/snapchats-new-discover-feature-could-be-a-significant- moment-in-the-evolution-of-mobile-news/, accessed May 19, 2020. 20 Sahil Patel, “Snapchat starts to syndicate video shows on Discover,” Digiday, July 24, 2018, https://digiday.com/media/snap-has-opened-up-snapchat-discover-to-non-exclusive-video-shows/, accessed June 1, 2020; Sahil Patel, “Insider is finding new revenue on Snapchat from old Facebook news-feed videos,” Digiday, March 15, 2019, https://digiday.com/media/business-insider-snapchat-discover/, accessed June 1, 2020. 21 “Q4 2018 Snap Inc Earnings Call – Final,” CQ FD Disclosure, February 5, 2019, via Factiva, accessed December 17, 2020. 22 “Q3 2018 Snap Inc Earnings Call – Final,” CQ FD Disclosure, October 25, 2018, via Factiva, accessed December 17, 2020. 25 This document is authorized for use only by Mana Heshmati in 2023. 721-443 Social Media War 2021: Snap vs. Facebook vs. TikTok 23 Elise Hu, “The Price War Over The Cloud Has High Stakes For The Internet,” NPR, April 23, 2014, via Factiva, accessed December 17, 2020. 24 Snap 10-K 2019, p. 89. 25“Why is Facebook not in the cloud business?”, https://interconnected.blog/why-is-facebook-not-in-the-cloud-business/, accessed December 18, 2020. 26 “Q4 2019 Snap Inc Earnings Call – Final,” CQ FD Disclosure, February 4, 2020, via Factiva, accessed December 17, 2020. 27 Snap 10-K 2019, p. 6. 28 “Snapchat’s US audience exclulsivity,” https://www.marketingcharts.com/digital/social-media- 81508/attachment/appannie-snapchat-us-audience-exclusivity-dec2017, accessed December 18, 2020. 29 Billy Gallagher, “How Facebook Tried to Squash Snapchat,” Wired, February 16, 2018, https://www.wired.com/story/copycat-how-facebook-tried-to-squash-snapchat/, accessed December 11, 2020. 30 Chris Hughes, “It’s Time to Break Up Facebook,” The New York Times, May 9, 2019, https://www.nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html, accessed December 11, 2020. 31 “FTC, US States file antnitrust lawsuit against Facebook to challenge its “buy-or-bury,” “open-first, closed later” strategies, https://theplatformlaw.blog/2020/12/14/ftc-us-states-file-antitrust-lawsuit-against-facebook-to-challenge-its-buy-or-bury- open-first-closed-later-strategies/, accessed December 20, 2020. 32 Evan Osnos, “Can Mark Zuckerberg Fix Facebook Before It Breaks Democracy,” The New Yorker, September 10, 2018, https://www.newyorker.com/magazine/2018/09/17/can-mark-zuckerberg-fix-facebook-before-it-breaks-democracy, accessed December 11, 2020. 33 Mary Meisenzahl, “Mark Zuckerberg’s fascination with Augustus Caesar mgith explain the Facebook CEO’s haircut, which his wife Priscilla Chan is cutting during quarantine,” Business Insider, October 24, 2019, https://www.businessinsider.com/mark-zuckerberg-haircut-explained-augustus-caesar-2019-10, accessed December 11, 2020. 34 “Facebook Q2 2020 Results,” pp. 3-4, https://investor.fb.com/investor