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Inside Snap’s Growth Struggles

Last summer, members of Snap’s growth team presented CEO Evan Spiegel and other executives with worrying data showing user growth had slowed sharply. In one week, the company had lost 1 million daily active users, out of its total of around 150 million.

The growth team spelled out to Mr. Spiegel a number of likely causes. Among the top factors was Instagram’s recent launch of its copycat feature Stories, the team said. But Mr. Spiegel initially refused to accept there was a growth problem at all, according to two people familiar with the matter. Instead, he asserted the user slowdown was due entirely to a recent move Snap made to deactivate an old version of the Android app, which meant some Android users had been cut off. He told other executives the data itself was flawed, according to the people.

The Takeaway
Differences between Snap CEO Evan Spiegel and Snap’s growth team slowed the company’s response to early signs that user growth was weakening severely. The differences reflect Mr. Spiegel’s dislike of Silicon Valley’s growth tactics like push notifications. It shows the challenges facing Snap as competition from Facebook intensifies.

The growth team spent the next several weeks working to prove the data was sound and that the mothballed Android app couldn’t have caused the entire slowdown. Mr. Spiegel eventually was convinced that Snap’s growth was indeed decelerating and the company needed to take action. But his response at that point was, in part, to kill a feature he thought annoyed people—Auto Advance, which automatically transitioned one person’s story to the next. One person close to Snap says there was no data suggesting Auto Advance was hurting user growth. 

Mr. Spiegel also focused on a more widely acknowledged problem: reducing glitches in the Android version of the app. He went so far as to personally pull engineers off other tasks to work on the Android fix. Snap declined to comment.

The episode shows how a gulf between the CEO and the growth team impeded the company’s response to a critical problem. And it exhibited how data specialists who make up the company’s growth team—charged with monitoring usage trends and recommending ways to increase the user base—have felt marginalized and out of sync with the CEO.

Snap’s growth in daily active users remains weak, rising to 5% in the first quarter from the fourth quarter, up only slightly from a 3% rate in the previous quarter. Uncertainty about growth has unnerved some investors since Snap went public in early March, keeping the stock trading well below the highs it reached on its first day. Despite Mr. Spiegel’s initial reluctance to concede that Instagram was a threat, Snap did acknowledge in its IPO filing that copycats posed a problem.

People involved with Snap say that the company could have done more in response to the slowdown, including more testing to understand the cause better. Or it could have embraced more aggressive push notifications to users to prompt them to use the app. But Mr. Spiegel has made plain that he dislikes such tactics.

He told Wall Street analysts on a conference call earlier this month that so-called “growth hacking” tactics—such as push notifications—are “unnatural” efforts to get users more engaged. His concern is that heavy use of notifications could annoy heavy users and prompt them to abandon the app.

Bad Chemistry 

Part of the problem last year was that Mr. Spiegel didn’t jell with the growth team leader at the time, Brian Theisen, a former strategy consultant hired by onetime COO Emily White. For example, in meetings Mr. Theisen occasionally used Silicon Valley jargon like “growth engine” that Mr. Spiegel would instinctively recoil from, according to a person familiar with the matter.

During the research into last year’s slowdown, Mr. Theisen pushed the team to create a 100-plus-page packet of their findings for Mr. Spiegel. On the day of the presentation, the walls of the room were plastered with charts and other data, even though other members of the growth team worried that Mr. Spiegel would lose interest in such a lengthy presentation.

Mr. Theisen, who had broad responsibilities, gave up oversight of the growth team last fall. He recently left the company for mobile gaming publisher King. Mr. Theisen didn’t respond to an email message seeking a comment. A person close to Snap said Mr. Spiegel respects the growth team. He sent thank-you notes to the team after the presentation and flowers to Mr. Theisen, the person said.

But the issue was deeper than Mr. Theisen. Culturally, the data-focused growth team at Snap didn’t fit well with a company where product design drives most decisions.

That mismatch surfaced last fall, around the time Snap’s vice president of product, Tom Conrad, took control of the growth team. Mr. Conrad decided the growth team should sit in the same part of the office as the designers. The growth team moved in on a Monday with a happy hour mixer planned for later in the week. But before the mixer occurred it was cancelled and the growth team members were told to move to a different floor. A few days later they moved to a different building entirely. (Snap occupies several buildings in the Venice Beach area of Los Angeles.)

As Mr. Conrad later explained to the team, Mr. Spiegel had nixed the idea because he wanted designers to have their own space. The implication to the growth team was more clear: The designers were his people and he only felt creatively free to be himself among that group, according to two people familiar with the matter.

The growth team has also been buffeted by management changes. Mr. Conrad only directly managed the team for a few months before it was handed off to a member of Snap’s design team, Jacob Andreou.

Mr. Andreou’s appointment to the job has been an encouraging sign to some. Mr. Spiegel tends to trust his designers implicitly, and having someone from that team as head of growth, showing that the CEO is putting the group closer to people who can make product decisions, is a shift. Already there are signs that the company is getting more aggressive in boosting growth. It is testing new features more than in the past. It has also rolled out local versions of the app with special lenses designed for different countries.

Mr. Spiegel has a tendency to rely heavily on gut instinct and personal anecdotes, rather than data, to drive decisions.

Japan Slowdown

One of the markets showing strong growth in the first half of last year was Japan. While it had never been a big market for Snapchat, it suddenly saw a surge in downloads and activity. But when employees began looking into causes of the global slowdown last summer, some noticed a striking trend in Japan. The surge in growth had reversed itself very quickly.

An internal chart of user growth in Japan looked like a steep mountain, with usage quickly peaking then plummeting, according to two people who saw the chart. The rise and fall is evident from external data: In May 2016, Snapchat cracked into the top 10 iOS apps in Japan but a month later had dropped out of the top 50, according to AppAnnie. It’s currently around the 200th most downloaded iOS app in Japan.

Snap’s data indicated that most of the usage growth was coming from people who would download the app to play with the filters and then, unable to find their friends, abandon it, according to people who looked at the data. Another suspected culprit was the rise of Snow, a Korean Snapchat clone that had lens features similar to those in Snapchat, the people said. 

To be sure, the app’s performance in Japan wasn’t a big contributor to its overall growth. But Snap’s experience there was a warning sign, showing how easily people can abandon the app. That worried employees concerned about the app’s overall growth.

Spurring Engagement

Over the past year, in response to growth concerns generally, employees have discussed various ideas to spur engagement for Snap’s users globally. They included creating a version of the app for users who don’t have registered accounts, so they could see Snaps from friends. Other ideas batted around included a desktop version of Snapchat, which would make it easier for users to check their Snap messages while at work. So far neither of these ideas have been implemented. One issue has been concern among employees about putting forward ideas they think Mr. Spiegel won’t like, said people with knowledge of the situation.  

Another idea, increasing the level of push notifications, has also struggled to catch on. While apps like Facebook and Instagram relentlessly send alerts to people who haven’t been engaged in a while—perhaps in excess—Snap largely abstains, at Mr. Spiegel’s insistence. (The app does send push notifications, like for unopened Snaps or when someone is typing a message in the chat window. It also sends alerts for greeting card animations from “Team Snap,” although data shows that those Snaps do little to drive long-term engagement, according to a person familiar with the matter.)

Mr. Spiegel is so opposed to adding more notifications that employees have stopped suggesting the idea, according to three former employees. People close to Mr. Spiegel—such as members of the design team—would routinely advise other employees to avoid pitching these and other more aggressive growth ideas in meetings altogether.

That resistance to notifications may reflect Mr. Spiegel’s broader concern that the app could become too “spammy” and turn off core Snapchat users. Instead, most new friend notifications are done with a subtle alert within the app. But some employees have argued that Mr. Spiegel’s strong distaste about new friend notifications reflects the fact that the CEO, who has the username “Evan,” gets far more requests than the average user.

People close to Snap say Mr. Spiegel has a tendency to rely heavily on gut instinct and personal anecdotes, rather than data, to drive decisions. Last year, for instance, he complained to engineers that the app was taking too long to import people’s address books. It’s a critical part of how users find friends on the app. His critique was spurred by a dinner he’d had with his fiancee Miranda Kerr and the actress Gwyneth Paltrow, when he had tried to get Ms. Paltrow to download Snapchat. It took a long time to sync her address book, according to a person briefed on Mr. Spiegel’s complaints. The person noted that Ms. Paltrow likely has a bigger than usual address book. A spokesman for Ms. Paltrow didn’t respond to a request for comment.

Other people at the company note that Mr. Spiegel isn’t dismissive of all data; he often asks insightful questions about the information employees present him. These people blame miscommunication for the perception that he isn’t interested in data.

Optimists within the company argue that Mr. Spiegel’s deputizing Mr. Andreou to oversee growth means it ties the data-centric purview of the growth team with the resources and clout given to design. Mr. Andreou is among a small circle of people within the company who understand the nuances of pitching to Mr. Spiegel, employees said.

The question, though, is how patient investors will be if Snap’s user growth numbers don’t start to improve. Analysts are likely to focus on Snap’s performance this summer to see whether last year’s summer slowdown recurs. It could be the best indication yet whether Snap’s growth strategies—whatever they may entail in the coming months—can pay off.

Tom Dotan joined the Information in 2014 covering the media, advertising and streaming video businesses. He is based in San Francisco and can be found on Twitter at @cityofthetown.