To become a Vogue Business Member and receive the Technology Edit newsletter, click here.
Just seven months after formally announcing the launch of Ares, a new business arm dedicated to helping apparel, footwear and accessories retailers use its augmented reality technology, Snapchat is closing the division amid both technical and economical challenges.
Brands will still be able to embed Snap’s AR tech in their own operated apps and websites; the difference is that they will no longer be able to pay to access the accompanying dedicated services and an “enterprise manager” dashboard built to help them measure the performance of their 3D assets and more, which Ares, or Augmented Reality Enterprise Services, was designed to offer.
Brands who want to use Snapchat’s AR technology can still use Snapchat’s Camerakit platform (which is what powered Ares), and offer sponsored AR try-on and AR shopping experiences within the Snapchat app. Major brands including Ralph Lauren and Puma use Snapchat-powered AR try-on tech in their apps. However, these tools often require external experts to create and deploy the assets, so the end result of this change could be that it’s more challenging for brands with smaller budgets or capabilities to use Snapchat’s AR technology, and potentially more difficult for brands to manage, measure and optimise their performance.
Easier and faster tools to make realistic 3D assets and the ability to use AR try-on tools within a retailer’s own app are part of a new update from Snapchat.
In a letter announcing the rapid reversal last week, Snap Inc CEO Evan Spiegel nodded to the economic strain facing tech companies: “It became clear that it would take significant incremental investment to grow our enterprise offering for retailers and we simply cannot make that investment at this time,” he wrote. “Our business performance has reduced our capacity to invest in this incremental opportunity as we have had to focus our resources on our core advertising business.”
Additionally, the company believed that it would be able to primarily leverage its existing mobile AR technology, but learned after launching Ares that it needed to invest more to support web-based AR (meaning AR experiences that are accessed via a website rather than an app), which is both more technically complex and less engaging for consumers, he said. Finally, the advent of generative artificial intelligence has made it easier for companies to create try-on experiences and made it harder for Snapchat to differentiate its offering. As a result of the decision, Spiegel said that Snapchat would cut approximately 170 jobs, while some working on Ares would pivot toward working on Camerakit, sponsored AR advertising and more. (Snapchat declined to offer further comment.)
“Snap has hedged its bets on AR, and it was smart for the company to diversify its revenue streams [beyond ad sales to software-as-a-service, or Saas],” says Emarketer principal analyst Jasmine Enberg, who specialises in social media. “But, it’s hard for Snap to justify investments into AR when everyone is focused on AI and its core ad business is struggling. Snap has always been ahead of its time, so to speak, and Ares is another example of that: the technology is impressive, but shopping with AR is not a mainstream activity.”
Generative AI offers a far greater near-term potential return on investment and opportunity for brands compared to immersive reality, says Julie Ask, VP and principal analyst at Forrester. Forrester research suggests that generative AI will deliver returns in the next two years while a positive business impact from AR and virtual reality is more than five years away. “GenAI is consuming everyone,” she says.
The move highlights that, despite increasing momentum toward digital goods and blended-reality experiences, creating and testing these new technologies can still represent a major hurdle to brands and the tech companies they work with. It also points to the relative nascency of AR shopping for most brands. “Snap wants to be a technology company, but it still has a lot to prove with AR,” Emarketer’s Enberg says. “I can imagine it was a tough sell for many brands, considering how few people are shopping with AR regularly and AI is where companies want to be investing right now. If Ares had been bringing in meaningful revenue for Snap, it’s unlikely they would sunset it.”
According to Forrester’s Ask, 27 per cent of US online consumers use AR to consume media and 17 per cent use it to transact. “From a consumer standpoint, it’s not trivial to get consumers to use AR or ‘try-it-on’ tools on retail sites,” she says. Meanwhile, 44 per cent of global retailers say they are building experiences for AR glasses or similar headsets, and 24 per cent have a presence on Snapchat, Ask says.
Early adopters of tools from the Ares Shopping Suite, as it was called, included sunglass brand Goodr (which reported a 59 per cent increase in revenue per visitor, according to Snapchat), women’s clothing brand Princess Polly and knitwear brand Goby Cashmere. They used Ares-provided tools including AR try-on, an interactive 3D product viewer, and Fit Finder (which helps people find the right size).
Brands who are looking for help aren’t totally stranded; there are numerous agencies and SaaS providers with far more scale, Ask points out, especially in response to metaverse buzz in recent years.
The need to diversify
Snapchat, while smaller in terms of users and revenue than Meta-owned Instagram or Bytedance-owned TikTok, has been an early adopter of and investor in AR technology. In its second-quarter earnings call this July, it reported almost 400 million daily active users, and revenue of $1.07 billion, which was up from the first quarter but was lower than the year prior. Snapchat reports that more than 250 million people engage with AR on Snapchat every day. (Meta, which owns Instagram, Whatsapp and Facebook, reported 3.07 billion daily active users, cumulatively, and revenue of $32 billion.) Both have gone after fashion and beauty brands to help scale their ambitions to power virtual goods and experiences, and yet like all social media platforms, they are facing declining advertising revenue.
Snapchat sees that a key way to grow the business is to scale the amount of time that people spend engaging with its AR experiences, by increasing both time spent and the number of people. With Ares, it was hoping to make it easier for brands to use its tools, which would mean, in turn, onboarding new users and facilitating more uses for its technology. It also was hoping to diversify its revenue by selling a Saas offering rather than relying so much on advertising revenue. Brands, it seems, weren’t as eager to pay to try AR.
“The fashion industry is a challenging space for AR due to its slow-changing nature,” says George Yashin, founder of Zero10, an AR tech company that competes with Snapchat in its offering of AR mirrors. Yashin says the company is receiving increasingly more requests, as brands slowly adopt new technologies. Zero10 is actively exploring new applications. “Currently, tech companies and providers are diligently seeking value. The crucial initial steps involve defining the right problem statement and hypothesis, followed by rigorous testing.”
Yashin notes that AR features are better on larger screens, compared to smartphones, which is why Zero10 has focused on smart mirrors in the past year, counting both Coach and Tommy Hilfiger as clients. Snapchat released its own AR mirror in April. Nike used them to add gamification and discounts to physical retail, while Tiffany Co. used one to market its sponsorship of the US Open.
AR glasses, meanwhile, have “yet to achieve mass adoption”, Yashin says — though it could be just a matter of time. Most recently, Meta introduced its second generation of smart glasses, which added the ability to visually perceive what the wearer sees. Snap’s Spectacles smart glasses, which are closer to true AR glasses, have been in ongoing testing by creators.
In the meantime, both fashion and tech companies face economic headwinds. In August of 2022, Snapchat laid off 20 per cent of its more than 6,400 global employees, and during its July earnings call, Spiegel faced questions about how many of the remaining 5,000 employees were devoted to more ambitious long-term pursuits, rather than those that immediately improved the business.
At the time, he said he was “excited about the early progress we are making” with Ares, and that it was helping retailers drive sales and reduce returns. “Things like Spectacles or AR enterprise services build on core investments that we’re making today in our AR platform. That’s driving revenue and engagement on Snapchat right now,” he said. “By building on core strengths in AR, we’re able to make long-term focused investments more efficiently because these efforts represent an extension of our core platform rather than totally new bets.”
In his letter last week, Spiegel worked to assuage any concerns that Snap’s tools would no longer be available to brands, noting that Snap would continue to invest in supporting Camerakit partners, and that it had identified new opportunities to grow its Sponsored AR business on Snapchat.
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
Why Snapchat is giving away its AR try-on shopping tools
