Snap Inc., parent company of Snapchat, announced a new gaming platform that will integrate games into its social platform. Internally dubbed “Project Cognac,” the new platform will open to developers in April. A formal announcement is expected at Snap’s first developer summit on April 4 in Los Angeles.

Project Cognac represents Snap’s largest investment in games to date. Snap acquired Prettygreat (Australian gaming studio known for Fruit Ninja) this year and PlayCanvas (a web-based game engine) in 2018. Snapchat first rolled out mobile AR games in early 2018 but the games were created by Snap and later, a small group of advertisers. Now, Project Cognac opens game production to third-party developers. The new gaming service will further build Snapchat’s platform position Snap to more effectively compete with Facebook, Instagram and TikTok.

Our Analysis

After years of accelerating increases, Snapchat’s user base growth has flatlined. In fact, the platform’s daily active users (DAUs) fell from 187 million in 2017 to 186 million in 2018. Nevertheless, Snap continues to partner with major brands like Nike, Dunkin’ Donuts, NHL and Ariana Grande to create one-of-a-kind marketing campaigns on its platform from exclusive video content to AR lenses to AR products.  As a result, Snap recently reported better-than-expected earnings in 2018 in part due to its innovative advertising platform, which features playable AR ad units.

However, to sustain its future revenue growth, Snapchat needs to start growing its DAUs once again. It’s uncommon for a social media company to report revenue growth with a decline of users and/or engagement. Snap won’t be able to keep the positive trend without a change.

To kickstart growth, Snapchat needs to differentiate from its biggest competitors Instagram and newcomer TikTok. The features that made Snapchat revolutionary have become widespread. Snap has added new features to the platform, including original TV shows, but adding a gaming platform will directly contribute to user-to-user engagement. This may attract new users as the features will likely appeal to some of the Millenials and Gen Zers it lost in the last few years. More games will also contribute to longer sessions length, more ad exposure, and therefore, higher ad revenues.

However, the path forward for the Snapchat gaming platform will not be an easy one. The mobile gaming industry is constantly evolving. For example, mobile esports have blown up with the popularity of Clash Royale, and Google is making mobile gaming a central feature of its new cloud gaming platform, Stadia. Even Nintendo is rumored to be considering manufacturing a gaming smartphone. Snap will now be tasked with remaining innovative and relevant in both the social networking and mobile gaming industries.

Ultimately, Snapchat adding a gaming platform is a key strategic move for the maturing mobile communications and messaging platform. More games would bring significant value to its user base, which Snap is counting on to place it back on the right DAU growth curve.