Snapchat operator Snap (NYSE:SNAP) is reportedly shuffling its hardware team, including its leadership. Bloomberg reports that the leadership changes occurred earlier this month, and the company has laid off approximately a dozen employees within its Spectacles marketing team. The division is now being led by Mark Randall, while previous hardware leader Steve Horowitz has transitioned to a different position at Snap.
Randall has been with the company since May 2016 as VP of operations, and he became VP of hardware in August 2017, according to his LinkedIn profile. He had previously been a supply chain executive at Alphabet subsidiary Google.
Spectacles marketing was successful, but the product is not
For the marketing employees being laid off, the move will sting even more since the marketing campaign late last year was a huge success. Snap was able to generate an incredible amount of hype and interest in its first hardware product, thanks to a combination of artificial scarcity and limited distribution through Snap's eye-catching, bright yellow vending machines that it calls Snapbots. Snap has since expanded distribution, selling Spectacles online on its own site as well as prominent e-commerce channels.
Snap's Spectacles business, on the other hand, is not successful. The company has had two earnings releases as a public company, and Spectacles revenue fell sequentially in the second quarter to $5.4 million. At $129 per pair, that implies approximately 41,900 units sold. Snap loses money on its Spectacles operations, and Spectacles contribute a negligible amount of engagement to the platform. I estimated that Spectacles were responsible for a mere 0.003% of Snaps created in the second quarter -- a literal rounding error.
Why Snap keeps pushing into hardware
While Spectacles are probably a waste of time and money for Snap, investors have to understand why Snap feels so compelled to keep pushing deeper into hardware products. Snap continues to refer to itself as a "camera company," despite the fact that its only camera hardware product does almost nothing for the business. Maybe "camera software company" would be more appropriate.
Regardless, Snap has emerged as a frontrunner for augmented reality (AR) with its live photo/video filters that have become extremely popular. Larger rival Facebook (NASDAQ:FB) wants to supplant Snap and has been aggressively replicating Snapchat's most popular features for years, including said photo/video filters. Mark Zuckerberg declared in April that Facebook was "making the camera the first augmented reality platform." AR is very much about to take off, but largely through the lens of a smartphone's camera.
But eventually, AR will transition to an entirely new product category of smart glasses and AR headsets. The average person isn't quite ready to wear such a device quite yet, but smartphone-based AR hopes to warm them up to AR experiences. Everyone from Facebook to Apple to Amazon.com is working on smart glasses and AR hardware. Snap wants to remain relevant in AR, which means it needs to keep working on hardware, despite the fact that its core ad business is hardly mature.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AAPL and Facebook. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, AAPL, and Facebook. The Motley Fool has a disclosure policy.