It's worth pointing out that, historically speaking [0], we're not an in era of particularly high interest rates yet, just not absurdly low ones.
As I was looking at the chart, I noticed there was a big bump from 1994 to 1995 (like from 3% to 6%). What happened then? Was it inflation? I recall rates were about 6ish since when I was in undergrad. I guess Greenspan/Y2K/dot com days.
Edited: found the answer and it is intriguing: https://markets.businessinsider.com/news/bonds/federal-reser....
The stock market craziness continued even with high rates .. wow .. didn't expect that.
The question is what is the right level of interest rate in 2023 as compared to say 1960.
19060s were boom time with GI bills, lots of new industries started by veterans, a booming suburban household, booming number of children. People and companies of the time had very low debt aka there was room for them to take on more debt. All of this leads to rising credit, which requires a higher interest rates to keep inflation low.
2023 is an anomalous post-pandemic boom coming from trillions added to US government debt. There is no population boom, no business boom, no new tech boom (excluding the AI stuff going on now). Nobody can take on more debt as most people/companies are completely tapped out. This actually requires lower interest rates but we have high inflation so the FED is keeping interest rates artificially high.
This is to say, that companies like SNAP just cannot continue to exist in a higher interest rate environment. Neither can companies like Meta, Uber, Google, Microsoft without cutting costs somewhere or without letting the stock collapse.
A recession is the only way out because companies will NEVER let the stock collapse in favor of saving their employees.
Since 2008, the interest rate was much lower and nobody _quite_ cared, now both inflation and interest rate are higher and the ECB widened the window they consider for their average substantially to straighten things out even though they're way about 2% now.
Still, there has been a shift in the finance world, and the target seems to be 2%. Having interest rates and/or inflation at twice that (or more!) seems to justify the label "high" to me.
So the current hike shouldn’t have been surprising at all.
By that point you already had: 1. Facebook, obviously 2. Google+ 3. Twitter 4. Tumblr 5. Foursquare/Swarm 6. MySpace 7. Friendster 8. Orkut etc
The only real innovation they brought was the ability to parlay teens sending each other legally dubious dick pics by deleting them almost immediately into venture funding and then an IPO.
I don't think it's so much that Snap hasn't figured out a business model - they make a billion dollars in revenue per quarter, how many companies can claim that? - it's that Snap hasn't developed a rational balance sheet due to excessive SBC. If it wasn't for SBC, they would be making money hand over fist.
Snap & PINS are two interesting case studies in how companies in a similarly challenging ad market can have potentially different strategies and outcomes. Both have very depressed stock prices, but both have a clear path to having a sustainable and highly profitable business.
Again, interest rates seem pretty irrelevant to the fate of both companies, only as much as low interest rates encourage economic investment and can fuel the digital ad market.
Also X is now worth 4 billion so apparently it's at the very least, not a growth industry.
Snap (and others) just continue to bet on the wrong things
People think Zucc just acquired his way to the top when Meta has probably been the top 3, if not best, run company in the past decade.
Had Evan sold Snap to Facebook back in the day, I'm fairly confident it would be valued at least 10x what it is now.
Some other large companies (can't mention names) have also done layoffs targetting genAI recently. I was surprised by this.
Is it really startups eating their lunch???
Snap’s biggest problem is it’s a crummy place to work with too many… let’s say personalities that are not commensurate to what they deliver. Same could be said of Amazon, though they have a far higher revenue ad product than Snap ever had, so shows how much those two are related.
To this specific quote: Generative AI meaning image generators are anticipated to replace creative agencies for display ads.
They are not good ads right now. Mondelez and Unilever who are trying this for example have not found a big breakthrough. Part of this is that neither of the two latent diffusion models create sufficiently creative creatives. You need programmers with art backgrounds to master these and the brands have neither of these. They’re super rare generally, you cannot just pull them out of the professional recruiting pool, and they most definitely do not want to work for brands or Snap.
However the appeal is in the race to the bottom costs. Hard to compete with “free.”
These AR experiences still require opinionated creative development which Snap, its agencies and the brands lack. So that’s really what ARES in particular failed.
The product people want is “Ads people like.” That’s expensive to make, which is the opposite of the incentives for creative production in the ecosystem.
That said I have found success creating and supporting interactive, instant streaming games as branded destinations for Meta and TikTok. Try the one I made for Hyundai: https://appmana.com/watch/virtualtestdrive - tap drive and see for yourself. This isn’t meant to be self promotion so much to prove that I dogfood my opinions into a proven, factual reality. You can see more at AppMana.com for huge brands like Nike, VISA, etc.
The AR experiences people make are too “2D” IMO; also they are not that fun. They might hit 15s of engagement on average, and most of that is spent loading, so it’s kind of a fake number compared to that virtual test drive which has instant loading and average engagement measure in minutes at million-visitor scales. Video ads have a median zero watch time and mean of 2.1s so there’s lot of opportunities for “marginally” better. Ultimately it comes down to costs.
It's not really just startups - honestly I think 99% of those startups will fail.
The problem with generative AI as a business is basically what that leaked Google memo said, which was something along the lines of: "OpenAI doesn't really have a moat, but neither do we."
There are a few large companies who are creating these successful models (OpenAI, Microsoft, Google, Meta, perhaps Amazon with their Anthropic investment), but there are tons of other startups that are trying to come up with "individual products around AI", and I think it will be incredibly hard for them to differentiate. That is, for a lot of the "dedicated" early-stage products I've seen, I've thought "I can pretty much do this all with ChatGPT, maybe ChatGPT with plugins - why would I want to download your special app?"
I don't think all of these companies are doomed to fail (for example, I think Harvey AI was smart to focus on a very specific, profitable niche: lawyers have a lot of money to spend on this stuff, and they have specific needs e.g. around compliance, auditability, privacy, etc. that you could see a specific legal-focused AI tool addressing), but I think a lot of them are.
Even more fundamentally, they're putting the cart before the horse. They're making the classic mistake: Taking a tool/technology, and then searching for a problem to solve with it, rather than starting with the problem. I agree a lot of these companies are doomed to fail for the same reason companies founded to "Figure out what to do with blockchain" were doomed to fail. They'll no doubt suck down plenty of funding while failing though.
> The company made the decision that building up ARES would take “significant” investment and it couldn’t continue to fund those efforts.
Well, which is it? Is it so trivial that anyone can compete, or is it too costly to build it?
I think that's the wrong "either/or" framing in this case. It's not that building competing tech would be trivially cheap, but it's something around which Snap would not likely have a moat or any sort of competitive advantage. It's also in a business area that's pretty unrelated to their core offering.
https://investor.snap.com/news/news-details/2023/Snap-Inc.-A...
Of course it's mostly gone. My mother is a painter so I always appreciated the artform, but I found a new way to appreciate it that day.
