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3 Reasons Gaming on Snapchat Might Actually Succeed

Adam Levy, The Motley Fool

Snap (NYSE: SNAP) is planning a gaming platform for Snapchat, according to a report from Cheddar.

It wouldn't be the first time Snap's experimented with games. It currently has Snappables, in which users challenge friends to simple games. Facebook (NASDAQ: FB) offers a similar set of games in Messenger.

But while mini games in Messenger haven't had much of an impact on Facebook's earnings, Snap holds a few advantages that could make them more successful in Snapchat. A successful gaming platform in Snapchat could differentiate the product from Facebook's Stories products and give users a reason to engage with the app.

A woman wearing Snap spectacles on a yellow background

Image source: Snap.

A big investor that knows about gaming

Chinese tech giant Tencent (NASDAQOTH: TCEHY) owns a 12% stake in Snap (among many other minority investments). It invested when Snap was still private in 2013, and it upped its stake in 2017 after the company went public, with non-voting shares.

For readers not familiar with Tencent, it's the owner of China's popular WeChat (Weixin) messaging app. WeChat is like the Swiss Army knife of mobile apps, enabling users to pay for goods and services in stores, order digital goods, hail a taxi, schedule a doctor's appointment, and perform whole host of other useful (and not as useful) tasks. Oh, and you can chat with friends, too.

But where Tencent makes most of its money is in gaming. The company fully acquired mobile game maker Riot Games in 2015, and it also holds minority stakes in Epic Games and Activision Blizzard. Game revenue accounts for the majority of Tencent's value-added services, which in turn account for around two-thirds of the company's revenue.

Last year, Snap CEO Evan Spiegel talked about the potential to add value to Snapchat by following in the footsteps of Tencent. Tencent launched mini games and mini programs in WeChat in January 2018. The company has noticed an increase in engagement -- both time spent in WeChat and daily users as a percentage of monthly users -- attributable to mini games and mini programs. Games in Snapchat could produce a similar result.

Better technology

A lot of Snap's Snappable games are built on its augmented reality (AR) technology. Snap has become a leader in AR. It's played an important role in introducing AR to millions of people through its lenses, and users associate Snapchat with its AR capabilities.

Facebook is investing millions -- if not billions -- in AR technology as well, but it hasn't used that technology for gaming in any way in its family of apps. It's more focused on virtual reality with its Oculus products.

Snap's gaming platform could open its augmented reality technology and social network to dozens of highly creative game developers. That could create some unique games that could capture a lot of attention.

Better brand

Snap's brand is more associated with fun and friends than Facebook's brands. Facebook, Messenger, and WhatsApp are now less about connecting with friends than they are about connecting with anyone. Not that there's no value there, but games are more fun with friends.

Even Instagram is less about friends and more about interests. And for all the success of Instagram Stories, it's about sharing with small groups, not about direct communication.

Snap has built a brand that's about sharing fun pictures and videos one-on-one or with a close group of friends. Games are a natural extension of that behavior.

That said, Snap's brand has suffered some setbacks over the past year. Its botched redesign and buggy Android app pushed a lot of users to Instagram and Facebook's other Stories products.

A big challenge

Snap still faces a major challenge launching a gaming platform. While it has several advantages, including having Tencent in its corner, there's no guarantee of success.

If it can succeed with games, it could be the differentiating factor Snapchat needs to reaccelerate user growth and revenue -- that is, until Facebook finds a way to steal the idea and make it an even bigger success.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Facebook and Tencent Holdings. The Motley Fool owns shares of and recommends ATVI, Facebook, and Tencent Holdings. The Motley Fool has a disclosure policy.