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Snap’s AI Push: A Struggle to Compete with Meta

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Snap Inc., led by CEO Evan Spiegel, is making a significant push into artificial intelligence, emulating strategies employed by Meta Platforms. Spiegel, in a recent interview with Bloomberg, acknowledged that Snap had fallen “behind the curve” on machine learning while dealing with advertising challenges exacerbated by Apple’s privacy policies. This lag has put Snap at a disadvantage compared to Meta, which has successfully integrated AI and related technologies into its offerings.

Snap’s pivot to AI is part of a broader strategy to attract advertisers, particularly small and medium-sized businesses, a demographic heavily targeted by Meta’s Facebook and Instagram. This effort appears promising, with Snap’s revenue increasing by 21% year-over-year to $1.2 billion in the first quarter of 2024, marking its best growth rate since early 2022.

However, Snap’s financial constraints are evident in its AI investment strategy. The company’s infrastructure spending has risen sharply, from 59 cents per daily active user in the first quarter of 2023 to an expected 85 cents per user each quarter this year. With analysts projecting 442 million global users for Snap in 2024, this translates to approximately $1.5 billion in infrastructure spending. Additionally, Snap anticipates $1.3 billion in research and development costs, totalling over half of its expected revenue for the year.

In contrast, Meta’s substantial financial resources allow for a much more aggressive approach. Meta’s cost of revenue is projected to be 19% of its total revenue in 2024, and the company plans up to $40 billion in capital expenditures. Meta’s free cash flow nearly doubled year-over-year to $12.5 billion in the first quarter, dwarfing Snap’s $38 million.

Meta’s deep pockets have facilitated innovations that overshadow Snap’s efforts. After Snap introduced its Spectacles, Meta launched its own smart glasses in partnership with Ray-Ban. Similarly, Meta’s Instagram adopted a disappearing message feature similar to Snap’s core product. Despite these challenges, Snap’s stock has surged 69% over the past year, indicating some market confidence in Spiegel’s strategies.

Spiegel’s efforts to follow in Zuckerberg’s footsteps highlight the resource disparity between Snap and Meta. The company has reported improved revenue growth and plans substantial spending on infrastructure and R&D to bolster its AI capabilities. Despite these efforts, Snap faces significant challenges in matching the scale and impact of Meta’s investments in similar technologies.

Source: Reuter

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