Snap Inc., once seen as a viable competitor to Facebook, is struggling after the CEO Evan Spiegel ignored warnings about a redesign that proved unpopular. Earlier this year, Snap Inc. chief Evan Spiegel was pressing his team to launch a redesign of the company’s Snapchat app. The executives and designers repeatedly responded with an urgent message: We need more time.
Mr. Spiegel had unexpectedly dropped the redesign plan on them in late 2017. After a visit to China, he decided the messaging app needed an overhaul inspired by trends he saw there. It was a quintessential Spiegel decree, say people familiar with the episode—a gut decision without seeking input from most of his team, presented as a done deal.
He set a punishing timeline and dismissed concerns among senior executives and key designers that the new look wasn’t testing well, say some of the people. He rejected his team’s pleas for more time.
It was a debacle. When the redesign made its debut in February, users widely panned it. Snap lost users for the first time in its history over the next quarter. Its revenue, which comes mostly from advertising, continued to rise. But its share price has fallen roughly 76% since its February peak, reaching an all-time closing low of $4.99 Friday and reducing Snap’s market capitalization from nearly $25.5 billion to about $6.5 billion.
Snapchat’s popularity among young people and celebrities once helped give its owner a peak valuation of about $31 billion after its March 2017 initial public offering. The messaging app, which lets a person send a friend “snaps”—photos and videos that can disappear seconds after the recipient views them—once looked capable of becoming a viable social-media competitor to Facebook Inc.
The redesign mess adds to troubles swirling around Snap and raises questions about whether Mr. Spiegel’s management instincts can help it pull through. His style—trust instincts, take control of details, ignore naysayers—paid off during Snap’s meteoric rise after its 2011 founding.
Mr. Spiegel has publicly said it is his “stretch” goal for Snap to be profitable next year.
But Mr. Spiegel has lost credibility with some on Wall Street, says Youssef Squali, lead internet analyst at investment bank SunTrust Robinson Humphrey , who projects Snap will run at a loss until 2021. Of Mr. Spiegel’s decision-making, he says: “He is doing this not just to make money, but to try to prove that he is right.”
Snap Chairman Michael Lynton calls Mr. Spiegel “a brilliant, responsible and thoughtful leader,” adding that “Evan’s decisions on how best to grow Snap are exactly what has created such a positive user experience.”
A picture of Snap’s troubles emerges from interviews with current and former Snap employees, advisers and people who have worked with the company and Mr. Spiegel. Former employees say they fear talking publicly about their experiences, because Snap’s lawyers have threatened workers with jail time if they talk to the media.
Mr. Spiegel is an intensely private man who says little publicly about his company. That may be hurting Snap, says Chris Paradysz, CEO of digital-marketing firm PMX Agency, which has bought ads on Snapchat for clients. “Advertisers want to hear from Evan,” he says. “Leadership matters in a time of transition, and Snap is still in a time of transition.”
Unlike many tech executives, Mr. Spiegel, 28, hasn’t relied heavily on data for most of his decisions. He considers himself a designer, say some former employees, and often responds better to presentations rooted in emotional responses to the company’s products and strategy rather than numbers.
He often discounts the views of those around him—or doesn’t seek them. He pushed continued spending on hardware, in the form of video-recording sunglasses named Spectacles, over the concerns of the chief financial officer at the time, a person familiar with the decision says. The Spectacles sold poorly and resulted in a write-off of nearly $40 million.
He has left much of his board out of some decisions. In mid 2016, he dismissed approaches from Mark Zuckerberg about the Facebook CEO’s interest in buying Snap, say people familiar with the overtures, which haven’t previously been disclosed and which Mr. Spiegel didn’t report to the entire board.
Separately, Facebook Chief Operating Officer Sheryl Sandberg reached out to members of Snap’s board to gauge their interest. The Facebook executives never specified prices. At the time, Snap was expected to achieve a value in excess of $25 billion for its IPO. A person familiar with Mr. Spiegel’s thinking says there was never a formal offer to take to the full board and he doesn’t regret turning down the overtures.
In 2013, the Journal reported that Mr. Zuckerberg offered Mr. Spiegel about $3 billion for Snap.
Meanwhile, Federal Bureau of Investigation agents about a year ago showed up unannounced on the doorsteps of former employees of Snap to question them about how Snap collected and reported user statistics, according to people familiar with the questioning. Former employees have also met with Justice Department attorneys, they say.
Snap disclosed last month it received subpoenas from the DOJ and Securities and Exchange Commission. The company in a statement said: “Snap believes the DOJ inquiry is now focused on our IPO disclosures about Instagram competition.” Instagram, Facebook’s photo-sharing app, has mimicked many of Snapchat’s most popular features. The SEC, FBI and DOJ declined to comment.
Snap is also in arbitration with its former head of growth, Anthony Pompliano, who alleges Snap wrongfully terminated him for raising concerns it misled investors with false metrics ahead of its IPO. “We are continuing to pursue all of his legal claims,” says Mr. Pompliano’s lawyer, Christopher LaVigne. Snap faces two class-action lawsuits from shareholders based in part on Mr. Pompliano’s allegations.
The company in its statement said the allegations “stem from an employee who worked at Snap for just 3 weeks more than 3 years ago—long before the IPO—and whose claims are demonstrably wrong.”
Mr. Spiegel has maintained an unusual level of control. In Snap’s IPO, he didn’t allow public shareholders to have votes as part of their ownership. Nearly all senior executives who worked with him before the IPO are gone, and more than 10 senior employees have departed in the past year. Aloof leader. Mr. Spiegel co-founded Snap while a design student at Stanford University, where he was a fraternity party planner and used his sense of how young people communicate to design the early versions of Snapchat.
From the beginning, he exerted control over minutiae, regularly weighing in on fonts and colors. Mr. Spiegel often reports glitches in software and once said he was surprised his name wasn’t on a leaderboard Snap kept of who spotted the most bugs. After that, Mr. Spiegel frequently appeared as No. 1.
Many employees saw Mr. Spiegel as an aloof leader. During Snap’s roadshow to meet investors in the weeks before its IPO, he took a private jet rather than flying with bankers, landing next to the plane used by the others.
Those tendencies have become more pronounced, particularly since he married supermodel Miranda Kerr in 2017 and then became a father, people who have worked with him say. In a new Santa Monica office, Mr. Spiegel sits with two assistants on the top floor of what employees call the “ivory tower.” Other executives have desks on that floor but sit with their teams on other floors.
Mr. Spiegel has been accompanied by heavy security when he travels, even to other Snap offices. A team of security people have often inspected New York offices ahead of his visits and cleared out many floors before he arrives. Mr. Spiegel asked for full-time armed security personnel in Snap’s offices following violent incidents in the neighborhood, but executives pushed back because of other security concerns that would come with an outside team of people with guns.
In May, Snap’s chief financial officer, Drew Vollero, left the position after clashing with Mr. Spiegel about the company’s spending on hardware, including Spectacles, say people familiar with the conversations. In November, Snap’s No. 2, Chief Strategy Officer Imran Khan, left and Nick Bell, who helped Mr. Spiegel conceive the redesign and was considered one of his closest allies, announced he was leaving.
Some former employees say Mr. Spiegel’s management stifles dissent and can hurt Snap in ways the redesign illustrates. “As soon as people speak up, Snap won’t listen to them, and they lose status in the company and get bullied out,” says Joe Hood, an early video editor who says Snap fired him in 2014.
Redesign troubles. The redesign became a lightning rod. Mr. Spiegel in October 2017 met in China with executives of a news-aggregator app popular there. He thought he could try a similar design—one that made a tailored news feed for users based on habits—in hopes of differentiating Snapchat from Instagram, say people familiar with his thinking.
He also believed Snapchat users would be more comfortable expressing themselves on his platform if it separated the social aspect of the app from the news. The change reduced the number of panels in Snap’s app and put content from friends far away from content from publishers and social-media influencers.
Snap turned a hangar-like building in Venice, Calif., into a redesign war room. Engineers were instructed to work through Thanksgiving weekend. Mr. Spiegel set the goal of getting the app to students by the time they returned home for the holidays, when Snapchat usage typically spikes.
The team didn’t meet that goal. And early tests in Australia and New Zealand came back inconclusive—it wasn’t clear if some users didn’t like the new design or were frustrated by the glitches in it.
More than a dozen senior-level employees and many on the design team began approaching Mr. Spiegel to tell him they felt the app wasn’t ready. Snap called a “council,” a meeting where employees talk about their feelings, for designers to meet with Mr. Spiegel to air their frustrations. In January, the executives tried to convince Mr. Spiegel they needed more time. On Mr. Spiegel’s insistence, Snap rolled out the new app version in February.
Users reacted swiftly, and negatively. More than 1.2 million signed a petition to roll back the revamp. Many users say they couldn’t find messages from their friends because the new inbox reordered content. Celebrity Kylie Jenner tweeted: “sooo does anyone else not open Snapchat anymore?”
Snap executives had expected disruption, but were surprised by the level of frustration among users. Snap publicly pledged to redesign the redesign to make it simpler to navigate, rolling it out in May. The company says that in the third quarter, ended Sept. 30, users watched premium content more than previously. A Snap spokeswoman says the company is making progress in improving its Android app, which hasn’t worked as well as its iPhone app, to attract more users in developing countries where Android is more common.
Snap is also working to make up for the years it underinvested in data collection and beef up information it collects, say people familiar with the effort. Snap’s revenue grew to nearly $298 million in the third quarter, up about 43% from a year earlier—something people who work with Mr. Spiegel say indicates his commitment to Snap as a business rather than just to the product’s success.
Advertisers want Snap to succeed as a counterweight to ad behemoths like Facebook, says Mr. Paradysz, the ad executive. “You shouldn’t be saying ‘no’ to Snap, because Facebook and Instagram have so much of advertiser budgets.”
Mr. Spiegel has acknowledged mistakes in the revamp. “We rushed our redesign, solving one problem but creating many others,” he wrote in a memo this autumn to employees. “We learned that moving really fast can help move us in the right direction, but we also need to take the time to rest and reassess.” There are signs Mr. Spiegel is shifting his style. For the past seven months, he has held monthly employee town-hall meetings in the Santa Monica office.
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“I don’t think there is one way to win as CEO,” says Michael Jones, former CEO of Myspace, the early social-media startup that faded in the shadow of Facebook. He is now CEO of Los Angeles venture fund Science Inc. and is an acquaintance of Mr. Spiegel’s. “Evan has a way he is obviously behaving now, and my hope is that he finds product-market fit and continues to scale Snap, and that that management style works.”