Thank you, Evan. So good to see you. Evan and I do some version of this every year. Sometimes we talk about China, sometimes we talk about business stuff, advertising. Today, we'll just do a little bit of everything.
Perfect. All right. Done.
All right. So, this morning was interesting because Meta came out with a big announcement about their new — I wouldn't even say that they're AR glasses, but they're like AI sort of glasses. You have been on this train for 10 years doing spectacles and now doing Specs launching in 2026. The spatial computing through glasses has been your baby. So what was your reaction to Meta's news today? What do you make of that product?
I'm not surprised. And I think, you know, we've got a long history of really leading in innovative technology, and I think this time is no different. I think what is very helpful is that we've been able over the past 11 years to compound real technical advantages in the space because we've been singularly focused on building see-through glasses that have a computer inside at a time when most technology companies over the last 10 years have been very focused on virtual reality or the metaverse. The idea that we're going to leave the real world and go into this virtual space to interact together. And we've always believed that that was pretty ridiculous because the real world is awesome. And people actually want to spend time in the real world together with their friends. And in fact, they're fed up with using screens for 7 hours a day. So, we spend seven hours a day hunched over these tiny glowing rectangles. And I think people have had enough. I think folks want a totally different form factor that allows them to keep their head up, to be in the world together with their friends, and to share their computing experience. So that's the journey we've been on over the last 11 years. We're so excited to be launching our consumer version next year. But what's been great is developers have already been building such amazing lens experiences with the developer version of Specs that's already out, that came out last year. So if you haven't had a chance to just see what people are building, the easiest way might just be going to the Spectacles Reddit channel and you can just see almost every day people are building amazing stuff. It can give you a flavor for what's coming next year.
I've tried it, moving the jellyfish with my hands while wearing the glasses. Your LinkedIn is so funny because it lists you as the CEO and co-founder of Snap, but you also list yourself as the VP of product for Meta. What do you make of the fact that this is coming out after you've been doing this for 10 years? Like, do you feel like that, you know, this was a whole thing with stories, right? Like they ripped off stories from Snap. They used that to their competitive advantage. Do you worry that that's the same play here?
I think this time is very different, right? When we started Snapchat, we were a late entrant to an already very developed, you know, social media or digital advertising market, right? So, you know, whether it's Google or Instagram or WhatsApp or Twitter, all of those services, Facebook, all of those services came before Snapchat and they already had way more scale. They had already had very well-developed digital advertising platforms. And so just to survive and grow in a market with such massive, you know, trillion dollar competitors, we've had to continually innovate and reinvent ourselves, reinvent our business. And now we're on pace to, you know, reach a billion people using Snapchat next year. But I think this time is very different because it's a totally new device category and technology category. And so, instead of being a late entrant, we're actually the leader in this market. And because we've been investing so consistently in this form factor and in this space for such a long time, we're the only player that actually has a fully integrated stack. So everything from the developer ecosystem, hundreds of thousands of developers build with our developer tools, our own proprietary rendering engine that's been, you know, honed over years and years on low-end smartphones. People use AR on Snapchat 8 billion times a day. Google search, I think, is 14 billion times a day. So just to give you a sense of the scale for how often people are using augmented reality just on the smartphone today. So that rendering engine has, I think, you know, been a big part of our strategy and has been really honed through just so much use over so many years. And then of course we built our own operating system, our own optical engine, meaning that lens, that piece of glass that sits in front of your eye, and that projector system as well. And then of course more surprises coming next year. So, I think, you know, that's a very meaningful advantage and I, you know, we're just so excited to be able to share this product with the broader world soon.
You use the word form factor. I remember when I covered your IPO back in 2018, it said on the S-1, Snapchat is a camera company. Like, is Snapchat still a camera company? Is it a form factor company? Is it a Specs company? What is Snapchat?
I think Snap is a technology company, but now as the company's evolved, we've got a number of different services. We've got, you know, a communication service in Snapchat. With Lens Studio, we have, you know, the world's most advanced augmented reality developer tools. And with Specs, we're trying to make computing more human. So, I think now, you know, we're a multi-product or multi-service company. But, you know, Snap, I guess now you could say, is a technology company, although we are so passionate about the camera.
In terms of competing against folks like Meta, you know, your stock is trading at a very different place than Meta is. I can see one saying it would be very hard to compete financially with Meta. Like what is your plan to be able to do that? Would you ever merge with a company? Would you raise money? Are you raising money?
You know, I think we've been very capital efficient in terms of our investment in the hardware side and again, I think part of that's just being early, right, and being able to consistently invest and compound this advantage. We've definitely explored, you know, ways to accelerate our progress there because we are really at this inflection point. I think partly because of all of the development in artificial intelligence. So, not only do you get a much more human form factor, right? You're not staring at the screen that's blocking you from the world, but AI is able to see and understand the real world around you and also what you're doing on your computer. And so I think that sort of context is very, very powerful in this environment where AI can understand that and then make recommendations to you or otherwise assist you in your daily life overlaid on the real world. So I do think we are at a bit of an inflection point although we certainly have the capital to continue to invest. We generate free cash flow on top of all the investments that we're making in this area. So, I think we're well positioned to win, you know, especially just given our leadership and our long-term focus on the space.
So, no need to raise money or anything like that.
No need to, but I think, you know, if there's an opportunity for us to accelerate, that's something that we could consider.
And then when I think about everything that you guys are doing, you just wrote an investor letter. I thought this was interesting. You called this like a crucible moment. One of the things that you said was that you have to think about how you're going to increase margins to help fund some of these efforts. That's part of being in this crucible moment. And you said that one of the reasons that your margins are down now was because infrastructure costs, payouts to publishers, creators. Like should we expect that in order to increase some of those margins to put Specs where you want it to go and compete that you will, you know, pay creators and publishers less? Like what's this, what is, what should I be making of that note in the letter?
Yeah, the number one way to improve our gross margins is to accelerate revenue growth. So that's primarily where we're focused. But you know, I think one of the things I talk about in the letter is that Snap's a bit of a, you know, what I call a middle child, right, in the sense that we are very large in terms of our scale and our engagement, right, reaching more than 75% of 13 to 34 year olds in over 20 countries including the US on our way to a billion monthly active users next year. And at the same time we have, you know, we generate far less revenue than some of these multi-trillion dollar tech companies. So we're a lot bigger than, you know, smaller players like a Pinterest or a Reddit or something like that. But we have, you know, but we have, I think, less revenue obviously than the bigger players. And so that squeezes our gross margin. So I think it's something, you know, for our team to be aware of. But I think if you looked at where I put gross margin in the list of our priorities, it was certainly far below our revenue acceleration efforts both in terms of advertising but also in terms of our direct revenue business. We now have a subscription business that I think it's about $700 million in annual recurring revenue that we've developed over the last couple years. And so...
That's how many subscribers? 8 million?
