Snapchat relies on AWS and Google Cloud

CashThe company behind Snapchat has filed to go public. Here are some interesting tidbits from the company’s filing with the Securities and Exchange Commission.

1. Snap will continue to prioritize development of it’s iOS application over the Android version. The company plans to make the Android version of Snapchat up to date with the iOS version.

The majority of our user engagement is on smartphones with iOS operating systems. As a result, although our products work with Android mobile devices, we have prioritized development of our products to operate with

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iOS operating systems rather than smartphones with Android operating systems. To continue growth in user engagement, we will need to prioritize development of our products to operate on smartphones with Android operating systems. If we are unable to improve operability of our products on smartphones with Android operating systems, and those smartphones become more popular and fewer people use smartphones with iOS operating systems, our business could be seriously harmed.

2. Snap uses mostly Google Cloud for its service

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.

Google provides a distributed computing infrastructure platform for business operations, or what is commonly referred to as a “cloud” computing service, and we currently run the vast majority of our computing on Google Cloud.

Any transition of the cloud services currently provided by Google Cloud to another cloud provider would be difficult to implement and will cause us to incur significant time and expense. We have committed to spend $2 billion with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google, some of which do not have an alternative in the market. Given this, any significant disruption of or interference with our use of Google Cloud would negatively impact our operations and our business would be seriously harmed. If our users or partners are not able to access Snapchat through Google Cloud or encounter difficulties in doing so, we may lose users, partners, or advertising revenue. The level of service provided by Google Cloud may also impact the usage of and our users’, advertisers’, and partners’ satisfaction with Snapchat and could seriously harm our business and reputation. If Google Cloud experiences interruptions in service regularly or for a prolonged basis, or other similar issues, our business would be seriously harmed. Hosting costs will also increase as our user base and user engagement grows and may seriously harm our business if we are unable to grow our revenues faster than the cost of utilizing the services of Google or similar providers.

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In addition, Google may take actions beyond our control that could seriously harm our business, including:

• discontinuing or limiting our access to its Google Cloud platform;

• increasing pricing terms;

• terminating or seeking to terminate our contractual relationship altogether;

• establishing more favorable relationships with one or more of our competitors; or

• modifying or interpreting its terms of service or other policies in a manner that impacts our ability to run our business and operations.

Google has broad discretion to change and interpret its terms of service and other policies with respect to us, and those actions may be unfavorable to us. Google may also alter how we are able to process data on the Google Cloud platform. If Google makes changes or interpretations that are unfavorable to us, our business would be seriously harmed.

3. Snap has committed itself to spending $2 billion dollars with Google Cloud services.

4. In the amended filing with the SEC. Snap reveals the company also has a contract with Amazon’s AWS service. Snap has committed itself to spending $1 billion dollars with Amazon AWS. This contract is primarily for redundancy against Google Cloud services.

Operating Leverage in Our Business

Our ability to achieve and maintain long term operating leverage depends on our ability to efficiently scale both our advertising business and the infrastructure that supports our growing user engagement. We believe the concentration of our user base among top advertising markets gives us the opportunity to grow our ARPU. While growth in user engagement increases our overall monetization opportunity, it also bears an incremental cost to our business by increasing our hosting costs.

We currently have a capital-light business model because we work with third-party infrastructure partners, primarily Google Cloud, to run and scale our services rather than building our own infrastructure, which would require significant up-front capital and resources. We believe that working with these partners will result in lower costs for us in both the short and long term. Large scale infrastructure providers offer several advantages, including global scale to serve our audience, the ability to handle peak demand more economically, and purchasing power to procure equipment directly from infrastructure equipment vendors that results in lower net costs to us.

We also benefit from the concentration of our users in developed markets because the hosting costs of serving these users is typically lower than in other markets. Our hosting costs may increase significantly in the future because we pay incremental hosting costs for new users and increased engagement. We rely on Google Cloud to host the vast majority of our computing, storage, bandwidth, and other services. Any transition of such services to another cloud provider would be difficult to implement, and may cause us to incur significant time and expense. We have committed to spend $2 billion with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google Cloud, some of which do not have an alternative in the market. We have also committed to spend $1 billion with Amazon Web Services over the next five years for redundant infrastructure support of our business operations. In the future, we may invest in building our own infrastructure to better serve our customers.

Additionally, we face greater challenges optimizing our operating leverage in less-developed markets, resulting in lower operating margins on average in these countries. While the costs of hiring people and building a local sales organization are usually lower in these countries compared to more developed markets, hosting costs tend to be higher. In addition, we also face greater challenges in increasing our ARPU in less-developed markets as their advertising markets tend to be smaller and less developed. For example, many of these markets have not yet seen as strong a shift in attention from traditional forms of media to mobile, meaning there may be a smaller market opportunity for mobile advertising.

We are building many solutions that will help us scale our advertising business. For example, we allow people to buy On-Demand Geofilters through our self-serve platform, and we recently started allowing certain partners to run advertisements on our platform through an API.

5. Snap has less than 2,000 employees.

Investing in Our Team

Our business relies on our ability to attract and retain the right team to create and monetize our products. We invest heavily in hiring and retaining talented people, particularly as we grow our business. Our headcount at December 31, 2016 was 1,859 employees, an increase of approximately 210% compared to December 31, 2015. We expect to continue to expand our team at a rapid pace through hiring and acquisitions to support potential future growth.

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