Snap Now Bets on the Hardware as Facebook Threat Looms

The popular Snap Inc takes on the road at London this week for promoting the initial public offering with a very daring proposition, that is, it can actually build great hardware gadgets and also ad-friendly software features that can be a step ahead of Facebook. Not any longer just a purveyor of the smart phone application for the disappearing messages, Snap has now hired thousands of hardware engineers.

They have built a secretive product development lab and also scoured the landscape for the acquisitions as it now pursues the newly stated ambition of being a camera company. These efforts that are aimed at the development of hardware and the so-called technologies like augmented reality are actually central to the strategy of the firm that is looking for a valuation of nearly $22 billion in the early March IPO in spite of heavy losses and also the specter of tough competition for advertising dollars with the much-larger Facebook.

There is very little precedent for a firm with its foundation in software and the social networking succeeding in a very hard consumer hardware business. Just some U.S. firms apart from Apple have actually made major profits on the hardware, and the wearable gadget makers and camera makers have actually had very little valuations than what Snap is seeking.

On a broader term, to create new products as well as features that do have the mass-market appeal and that which cannot be actually easily mimicked is actually a huge challenge.

Paul Meeks, the CIO (Chief Investment Officer) – Dahl & Holst –a company that manages nearly $1 Billion in assets, stated that Snapchat will have to be highly innovative as well as distinctive.  He added that it is really going to be hard to compete with Facebook. Snap initially signaled the new focus with its September reveal of spectacles and funky sun-glasses that come with an embedded video camera in order to post to the Snapchat app. The firm spent around $184 million on R&D last year, almost half the revenue.

Augmented realty, which means the computer generated images that is overlaid on to the real surroundings and that is viewed via smartphone or special glasses, is a major component of this plan. Snap’s Lenses (the feature of image overlay) has been a big hit and it generally gives Snap the advertising format that is pretty unique.

Nabil Elsheshai – the Senior Equity Analyst – Thrivent Financial stated that if a longer term bet has to be made on snap, then it has to come up with products that are really innovative, the ones that Facebook cannot actually copy.

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