What changed in this filing

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Item 1. Business

2021-02-05 compared with 2020-02-05 · 87 added, 56 removed, 99 unchanged (59% of the section changed)

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By opening directly to the camera, we empower users to express themselves instantly.

Snaps are deleted by default, so there is a lot less pressure to look pretty or perfect when creating and sending images on Snapchat.

Snaps are deleted by default, so there is less pressure to look pretty or perfect when creating and sending images on Snapchat.

By reducing the friction typically associated with creating and sharing content, Snapchat has become one of the most used cameras in the world.

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Given the magnitude of this opportunity, we invest heavily and take big risks in an attempt to create innovative and differentiated camera products that are better able to reflect and improve our life experiences.

Snapchat is our core mobile device application and contains five distinct tabs, complemented by additional tools that function outside of the application.

With a breadth of visual communication and content experiences available within the application, Snapchatters can interact with all five, or a subset of those five tabs.

The Camera is the starting point for creation in Snapchat.

Snapchat opens directly to the Camera, making it easy to create a Snap and send it to friends.

We offer a wide variety of creative tools, created by both us and our community, to make it easy for people to personalize and add context to their Snaps.

Additionally, we also offer contextually relevant content and creative tools based on things like time, location, and objects.

The first version of our application was a chat service that made it easy to send Snaps back and forth with friends—hence the name “Snapchat.” Interacting with friends on Snapchat now includes creating and watching Stories, chatting with Groups, making voice and video calls, and communicating through a wide range of contextual stickers and Bitmojis.

The content and ordering of the Chat page reflects the user’s relationships with their friends and family.

With so many Snaps created every day around the world, Discover helps surface the most interesting Stories and Shows from publishers, creators, and the community, based on a user’s subscriptions and interests.

Pulling down on the Camera screen brings you to a live map of your location, showing nearby friends, popular stories, and a heatmap of recent Snaps posted to Our Story.

It’s a great way to see what your friends are doing and explore what is going on around the world.

Users can choose to save the Snaps they create in a searchable personal collection called Memories.

Memories also lets users create Snaps and Stories from their saved Snaps as well as their camera roll.

One of the best ways to create Memories is by using Spectacles, our sunglasses that make Snaps.

Spectacles connect seamlessly with Snapchat and capture video from a human perspective.

We generate revenue primarily through advertising.

Advertising Products :

Our augmented reality, or AR, capabilities within our Camera allow for creativity and self-expression.

We offer millions of Lenses, created by both us and our community, along with creative tools and licensed music, which make it easy for people to personalize and contextualize their Snaps.

We also offer voice and scanning technology within our Camera.

While Snaps are deleted by default, users can save their creativity through a searchable collection of Memories stored on both their Snapchat account and their mobile device.

A user can also create Snaps on our wearable devices, Spectacles.

Spectacles connect seamlessly with Snapchat and capture photos and video from a human perspective.

Communication :

Communication allows users to send Snaps to friends collectively or individually, through our ephemeral, efficient messaging architecture.

Within Communication, users can send messages through text, Snaps, and voice or video calling.

They can also communicate with our proprietary personalized avatar tool, Bitmoji, and its associated contextual stickers and images, which integrate seamlessly into both mobile devices and desktop browsers.

Further, users can communicate by playing one of our Games together, many of which allow a user’s avatar to be their Bitmoji, and through Minis, which bring bite-sized utility experiences to our community inside Snapchat.

Snap Map is a live and highly personalized map that allows Snapchatters to connect with friends and explore what is going on in their local area.

Snap Map makes it easy to locate nearby friends who choose to share their location, view a heatmap of recent Snaps posted to Our Story by location, and locate local businesses.

Places, rich profiles of local businesses that include information such as store hours and reviews, allow Snapchatters to take direct actions from Map, such as sharing a favorite store, ordering takeout, or making a reservation.

Stories feature content from a Snapchatter’s friends, our community, and our content partners.

The Discover section of this tab displays content based on a Snapchatter’s subscriptions and interests, and features news and entertainment from both our creator community and publisher partners, as well as original content in Snap Originals.

We also offer Brand Profiles, as a way for our advertising partners to memorialize and scale their content on our platform, as well as Public Profiles for our creator community.

Spotlight is a way to broadly share user-generated content with the entire Snapchat community.

Here we surface the most entertaining Snaps from our community all in one place, which becomes tailored to each Snapchatter over time based on their preferences and favorites.

Our Partner Ecosystem

Many elements and features of Snapchat are enhanced by our expansive partner ecosystem that includes developers, creators, publishers, and advertisers, among others.

We help them create and bring content and experiences into Snapchat, leverage Snapchat capabilities in their own applications and websites, and use advertising to promote these and other experiences to our large, engaged, and differentiated user base.

Our Advertising Products

We connect both brand and direct response advertisers to Snapchatters globally.

Our ad products are built on the same foundation that makes our consumer products successful.

This means that we can take the things we learn while creating our consumer products and apply them to building innovative and engaging advertising products familiar to our community.

Sponsored Lenses take advantage of the reach and scale of our augmented reality platform to create visually engaging 3D experiences.

Snap Ads let advertisers tell their stories the same way our users do, using full screen videos with sound.

Snap Ads also allow advertisers to integrate additional experiences and actions directly within these ad units, including watching a long-form video, visiting a website, or installing an app.

Advertising through Snap’s AR tools unlocks the ability to reach a unique audience in a highly differentiated way.

Ads can be served as Sponsored Lenses or Sponsored Filters.

Lenses are designed through our camera to take advantage of the reach and scale of our augmented reality platform to create visually engaging 3D experiences.

Filters are entertaining, artistic overlays that appear after you take a Snap.

These Lenses and Filters can be memorialized on Snapchat, through Brand Profiles that aggregate content, filters, and lenses in a single, easy to find place.

We let advertisers tell their stories the same way our users do, using full screen videos with sound.

These also allow advertisers to integrate additional experiences and actions directly within these advertisements, including watching a long-form video, visiting a website, or installing an app.

Snap Ads include the following:

Single Image or Video Ads:

These are full screen ads that are skippable, and can contain an attachment to enable Snapchatters to swipe up and take action.

Story Ads are branded tiles that live within the Discover section of the Stories tab that can be either video ads or a series of 3 to 20 images.

Collection Ads:

Collection Ads feature four tappable tiles to showcase multiple products, giving Snapchatters a frictionless way to browse and buy.

Dynamic ads leverage our machine learning algorithm to match a product catalog to serve the right ad to the right Snapchatter at the right time.

Commercials are non-skippable for six seconds, but can last up to three minutes.

These ads appear within Snapchat’s curated content.

Campaign Management and Delivery :

We are always working to improve the way ads are bought and delivered.

We are investing heavily in our self-serve tools, which provide for automated, sophisticated, and scalable ad buying and campaign management.

This helps advertisers increase their return on investment by providing more refined targeting, the ability to test and learn with different creatives or campaign attributes in real time, and the dynamics of our self-serve pricing.

We aim to continually improve the way ads are purchased and delivered.

We have invested heavily to build our self-serve advertising platform, which provides automated, sophisticated, and scalable ad buying and campaign management.

We offer the ability to bid for advertisements that are designated to drive Snapchatters to:

visit a website, visit a local business, call or text a business, download an app, or return to an app.

Additionally, our delivery framework continues to optimize relevance of ads across the entire platform by determining the best ad to show to any given user based on their real-time and historical attributes and activity.

This decreases the number of wasted impressions while improving the effectiveness of the ads that are shown to our community.

Measuring Advertising Effectiveness :

We offer a broad range of third-party and first-party solutions to provide analytics on campaign attributes like reach, frequency, demographics, and viewability;

We offer third-party and first-party solutions to provide a vast array of analytics on campaign attributes like reach, frequency, demographics, and viewability;

changes in perceptions like brand favorability or purchase intent;

and lifts in actual behavior like purchases, foot traffic, app installs, and online purchases.

We are constantly expanding our ability to provide more transparency to advertisers.

Our strategy is to invest in product innovation and take risks to improve our camera platform.

We do this in an effort to drive user engagement, which we can then monetize through advertising.

We use the revenue we generate to fund future product innovation to grow our business.

We believe that the best way to compete in a world of widely distributed mobile applications is innovating to create the most engaging products.

New mobile software is available to everyone immediately, and usually for free.

While not all of our investments will pay off in the long run, we are willing to take risks in an attempt to create the best and most differentiated products on the market.

Visual communication and augmented reality require intensive processing and generate high bandwidth consumption by our users.

As a result, our existing users tend to come from developed countries with high-end mobile devices and high-speed cellular internet.

These markets also tend to have cheaper bandwidth costs, meaning that it is less expensive to serve our community in these countries.

As we continue to grow in more markets around the world, we are investing heavily in making our service and technology more performant on lower end devices and working with carriers and other infrastructure partners to provide our service at a lower cost to our community.

Substantially all of our revenue comes from advertising, so our ability to generate revenue in a particular region depends on the size of its advertising market.

Global advertising spend—especially mobile advertising spend—is extremely concentrated among top markets, and we see a high correlation between markets with significant and developed advertising markets and those that have a deep penetration of high-end mobile devices and high-speed cellular internet access.

As such, we benefit greatly from the fact that many of our users are in markets where we have the highest capital efficiency and monetization potential, allowing us to generate revenue and cash flow that we can then invest into future product innovation.

Our research and development efforts focus on product development, advertising technology, and large-scale infrastructure.

Product Development :

We work relentlessly and invest heavily to create and improve products for our community and our partners.

We develop a wide range of products related to visual communication and storytelling that are powered by a variety of new technologies.

Advertising Technology :

We constantly develop and expand our advertising products and technology.

In an effort to provide a strong and scalable return on investment to our advertisers, our advertising technology roadmap centers around improving our delivery framework, measurement capabilities, and self-serve tools.

Large-scale Infrastructure :

We spend considerable resources and investment on the underlying architecture that powers our products, such as optimizing the delivery of billions of videos to millions of people around the world every day.

We currently partner with providers like Google and Amazon to support the infrastructure for our growing needs.

These partnerships have allowed us to scale quickly without upfront infrastructure costs, allowing us to focus our efforts on product innovation.

Employees and Culture

We seek to be a force for good through our products, our work to strengthen our communities, our efforts to make a positive impact on the planet, and our inclusive workplace.

Supporting Our Team :

Our values at Snap are being kind, smart, and creative, and we put those values into action through how we support our team and how our team supports one another.

Our practice of Council, which is a practice of active listening that promotes open-mindedness and cultivates empathy and compassion among participants, helps us build and sustain a community steeped in integrity, connection, collaboration, creativity, and kindness.

Our talent development programs seek to unlock potential by helping team members advance, learn, and grow in a fair and equitable way at Snap.

We focus on the health and well-being of our employees through programs and benefits that support their physical, emotional, and financial fitness.

To attract and retain the best talent, we aim to offer challenging work in an environment that enables our employees to have a direct meaningful contribution to new and exciting projects.

Underlying these values is our commitment to ethical conduct where we work to instill in our team that acting with integrity means being your whole self, being honest, and doing the right thing.

Diversity, Equity, and Inclusion :

Snap has long supported a Diversity, Equity and Inclusion, or DEI, program, and we have made progress on a number of fronts, including diversifying our board of directors and executive leadership, introducing new accountability around DEI outcomes, rolling out an allyship program to inspire a more inclusive culture, and enhancing our recruiting process to continue driving diverse hiring.

To aid in our mission, we published our first Diversity Annual Report in 2020 to discuss our goals with respect to diversity, equity, and inclusion efforts.

This report outlines our beliefs around the idea that an inclusive workplace and inclusive products are central to achieving that purpose.

This report is part of our larger Citizen Snap Report that details the work we’re doing to support our communities, our planet, and our team, and is available on our website at www.snap.com.

Human Capital :

As part of our human capital resource objectives, we seek to recruit, retain, and incentivize our highly talented existing and future employees.

We believe that creating an inclusive environment where team members can grow, develop, and be their true selves is critical to attracting and retaining talent.

Our compensation philosophies also align to that belief.

Our compensation philosophy is based around building a culture of ownership and high performance by putting both impact and our values at the center of our performance feedback process and pay outcomes.

We utilize equity as part of our compensation practices to drive a long term orientation and have committed to paying a minimum living wage for all employees globally.

As of December 31, 2020, we had approximately 3,863 full-time employees, of whom approximately 54% are in engineering roles involved in the design, development, support, and manufacture of new and existing products and processes.

Our Commitment to Privacy

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We’ve also created a robust Privacy Center where we show that context and choice are more than talking points.

There, we point out the many ways that users can control who sees their Snaps and Stories, we explain how long content will remain on our servers, how users can manage the information that we do have about them, and much more.

There, you’ll also find our Transparency Report.

There, we point out the many ways that users can control who sees their Snaps and Stories, and explain how long content will remain on our servers, how users can manage the information that we do have about them, and much more.

This is where you’ll also find our Transparency Report.

We also understand that privacy policies—no matter how ambitious—are only as good as the people and practices behind those policies.

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Given the breadth of our product offerings, we also compete with companies that develop products or otherwise operate in the mobile, camera, communication, content, and advertising industries that offer, or will offer, products and services that may compete with Snapchat features or offerings.

Our competitors span from internet technology companies and digital platforms, including advertising-supported video on demand platforms (such as Quibi), to traditional companies in print, radio, and television sectors to underlying technologies like default smartphone cameras and messaging.

Our competitors span from internet technology companies and digital platforms, including advertising-supported video on demand platforms, to traditional companies in print, radio, and television sectors to underlying technologies like default smartphone cameras and messaging.

Additionally, our competition for engagement varies by region.

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Finally, we compete to attract and retain highly talented individuals, including software engineers, designers, and product managers.

Our headquarters in Santa Monica, California offers certain advantages, such as lower local recruiting competition from other companies and providing an enticing location to live, as well as certain disadvantages such as the need to recruit remotely and the need for employees to relocate to the Los Angeles area.

In addition to providing competitive compensation packages, we compete for talent by fostering a culture of working hard to create great products and experiences and allowing our employees to have a direct meaningful contribution to new and exciting projects.

We had 3,195 employees as of December 31, 2019.

Our research and development efforts focus on product development, advertising technology, and large-scale infrastructure.

Product Development :

We work relentlessly and invest heavily to create and improve products for our community and our partners.

We develop a wide range of products related to visual communication and storytelling that are powered by a variety of new technologies.

Advertising Technology :

We constantly develop and expand our advertising products and technology.

Large-scale Infrastructure :

We currently partner with providers like Google and Amazon to support the infrastructure for our growing needs.

These partnerships have allowed us to scale quickly without upfront infrastructure costs, letting us focus our efforts on product innovation.

Our research and development expenses were $883.5 million, $772.2 million, and $1.5 billion in 2019, 2018, and 2017, respectively.

For information about our research and development expenses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Research and Development Expenses” of this Annual Report on Form 10-K.

Seasonality in Our Business

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We have also experienced seasonality in our user engagement, generally seeing lower engagement during summer months and higher engagement in December.

Key Customers

No individual customer represented more than 10% of our revenues in 2019, 2018, or 2017.

Intellectual Property

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We also enter into confidentiality and invention assignment agreements with our employees and contractors and sign confidentiality agreements with third parties.

Our internal controls restrict access to proprietary technology.

Our internal controls are designed to restrict access to proprietary technology.

As of December 31, 2020, we had approximately 872 issued patents and approximately 1,661 filed patent applications in the United States and foreign countries relating to our camera platform and other technologies.

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These laws and regulations are constantly evolving and may be interpreted, applied, created, or amended in a manner that could harm our business.

Compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, and competitive position as compared to prior periods, and we do not currently anticipate material capital expenditures for environmental control facilities.

In December 2014, the Federal Trade Commission resolved an investigation into some of our early practices by handing down a final order.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business