Earlier this month, Snap CEO Evan Spiegel talked about how Spectacles sold more than the iPod did in its first year, hinting that the product had a long life ahead of it. But then it was reported that the company had hundreds of thousands of Spectacles sitting around in a warehouse - and now Snap has revealed this excess inventory has cost it $40 million.
The revelation came in Snap's third quarter 2017 earnings report, which lists $40 million cost in "excess inventory and related charges." Since sales figures for Snap's dancing hot dog Halloween costume didn't make the cut this quarter, the only suspect you could point to is Spectacles.
On the earnings call, Spiegel admits the company probably made a mistake in ordering a large amount of Spectacles too early, Venturebeat reports. "We were very excited about Spectacles and by the initial reception, and because we were so excited I guess we made the wrong decision," Spiegel said.
Spiegel went on confirm the company got excited by the early sales and decided to order a lot of long-lead time components for Spectacles, but then sales tapered off and, well, that's how you get a warehouse filled with unassembled Spectacles.
Combine the overabundance of Spectacles inventory with a user retention rate that is "shockingly low" and you don't have a pretty picture for the future of Spectacles, or Snap's hardware plans. The Silicon Valley cliche of "hardware is hard" is a cliche for a reason, and Snap has unfortunately found out the hard way.
At the moment, it's difficult to tell how the Spectacles problem will affect Snap's broader, and more ambitious, plans for AR smartglasses. We know the company has scrapped plans on its drone, but we don't know what its 150-person hardware team has turned its sights onto next.