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Snapchat’s Reliance on Google Cloud Raises Concerns Following IPO Filing

| by James Chesters Follow 2 Followers on Feb 09, 2017. Estimated reading time: 3 minutes |

Snap Inc., the company responsible for Snapchat, has prompted questions around its reliance on Google Cloud, following its $3 billion IPO filing.

Reporting 158 million average daily active users, annual revenue of $404.4 million, and a stockmarket valuation reported to be in the region of $25 billion, the company this year entered into an agreement with Google to purchase at least $400 million of cloud services in each year of the five year agreement.

Snap's prospectus specifically mentions Google Cloud as a risk, saying:

We rely on Google Cloud for the vast majority of our computing, storage, bandwidth, and other services. Any disruption of or interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our business.

Snap's decision to use Google for infrastructure sets it apart from heavy hitters. In the article Behind Snap’s Marriage to Google and the Cloud, Amir Efrati writes "Snap is thus an outlier among its peers. All of the big consumer web brands that came before it— Yahoo, Amazon, Google, Facebook, Twitter and Uber—built infrastructure in-house, including designing servers and other hardware to run in their data centers, and they’re quite proud of it."

Efrati also notes that Google gives Snap at least 50% discounts to keep its marquee client, and that "Just as important as price, Snap is getting 24/7 access to what’s called a site reliability engineering team at Google Cloud Platform to handle any problems that come up, however small, and to review code that Snap is ready to publish to update Snapchat."

A notable exception to the club is Dropbox, who in 2015 moved from Amazon Web Services to their own data centres to allow them to optimise for their specific use case. Preslav Le, a software engineer at Dropbox, talked to InfoQ about how Dropbox moved from AWS.

It has also been noted that despite its impressive growth in revenue, Snap also lost $520.4 million in 2016. Snap attributes, in part, "technical issues" to slower growth in Q3 2016, saying the launch of several products and multiple updates resulted in diminished performance for Snapchat, and that the company believes "these performance issues resulted in a reduction in growth of Daily Active Users in the latter part of the quarter."

Snap also remains wary of its competitors, specifically mentioning Instagram's “stories” feature that "largely mimics" Snapchat's Stories feature.

In the Bloomberg tech article Snapchat's Performance Doesn't Match IPO Hype, Leonid Bershidsky also warns that because of hosting costs, Facebook still has an advantage over rival Snapchat:

On the big social media companies' enormous scale, own servers make more economic sense. Facebook's cost of revenue -- of which computing power is a major part -- reached $3.8 billion in 2016, about $0.14 per $1 of revenue or $2 per monthly active user. Snapchat's cost of revenue, at $452 million, reached $1.11 per $1 of revenue and $3 per monthly active user.

Starting life in 2011 as Picaboo, a simple iOS picture messaging app, Snapchat's revenue has grown from $58 million in 2015 to over $400 million in 2016, and the company has already expanded into wearable tech with its Spectacles -- sunglasses that sync video and pictures to Snapchat on mobile.

Describing itself in its prospectus as a "camera company", Snap says "We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate. Our products empower people to express themselves, live in the moment, learn about the world, and have fun together."

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