Snap Inc. (NYSE: SNAP) goes from leader to follower

Snap Inc. (NYSE: SNAP)—the parent company of the Snapchat social network—reinvented digital sharing way back in 2011, when its disappearing photo format evolved into what the world now generically calls “stories.” But after setting the pace, the company spent the last decade falling behind after competitors, including Meta’s (NASDAQ: META) Instagram, copied the platform’s top features. 

CEO Evan Spiegel now wants to remake computing altogether with a new product launch, only this time around he’s chasing Big Tech rivals who are all able to outspend him in the pursuit of smart glasses that may or may not catch on with consumers.

“There’s a real under­stand­ing now that com­puters are going to need to evolve really mean­ing­fully to fully realize the bene­fits and the advance­ments in AI,” Spiegel told the Financial Times in a recent interview about the new version of a product called Specs that Snap plans to introduce next year.

It’s not the first time the company has tried to take visual computing mainstream, having originally introduced AR glasses a decade ago. What’s changed is that the AI-fueled technology on the backend is finally catching up with the futuristic vision that’s still proved elusive for most.

Specs will allow its wearers to “understand the world through advanced machine learning, bring AI assistance into three-dimensional space, enable shared games and experiences with friends, and provide a flexible and powerful workstation for browsing, streaming, and more,” the company said, without giving away many other details.

Big Tech is ahead of the pack

While Spiegel could indeed be tapping into demand for a new kind of interface that will finally free people from staring down at their phones, Snap will likely face an uphill battle to take the technology mainstream. To start, the competition is fierce with Meta already in the game and Google (NASDAQ: GOOGL) about to come back in a possibly big way.

The Snapchat network is also quite niche compared to rivals, and more than 50% of its users are under the age of 24. Even if Snap is somehow able to out-innovate much bigger tech giants, it might struggle to gain critical mass with older Millennials and Gen X, which accounts for the biggest share of global spending. The younger Gen Z, which is Snap’s target market, only makes up about 17% of all purchases at the moment.

It’s exactly that limited appeal that may be dampening investor enthusiasm, even though Snap saw solid growth in active monthly users and revenue during the last quarter. The company’s shares have declined 48% over the past year compared to Meta’s gain of 40%, and it’s never turned a profit since it went public in 2017. Spiegel brought up his plans for augmented reality in the last quarterly conference call, but the analysts who tuned in mostly wanted to know about advertising sales.

Snap has a bold vision about the future of computing and how humans will interact with it, but it’s one that’s already being pursued by others with much larger pockets and bigger networks more ripe for scale. That makes Spiegel, who controls the company with special voting shares, look more like a digital Don Quixote—chasing windmills, and maybe just a bit ahead of his time.