How does Snapchat make money?

Snapchat is a mobile app where you can chat with others. The unique feature of this application is that the chat lasts only for a snap. This means, all the text, pictures, videos you sent disappear after a few seconds. This popular app has a very unique business model that is helping them to make money.

Background

Snapchat was started in 2011 by Evan Spiegel as a part of a college project.[i] He formed Snap Inc. and launched the product. The company went public in March 2017 with a market capitalization of $24 billion. The company had initially turned down an offer for $3 billion from Facebook.

Where does the money come from?

The money from the same place where Google and others make money – Advertising!

The company earned a revenue of $824.9 million[ii]in 2017. Most of the money comes from advertisements.

Breakup of Snapchat’s income[iii]

Snapchat’s main source of income is SnapAds, 10-second videos. These videos that are relevant to the snaps are shown and users can expand the video to see the full video. Snap Ads plays a major role in the success of Snapchat.

The Discover feature of Snapchat allows users to see snaps by featured publishers like Buzzfeed, ESPN, Cosmopolitan, etc. These snaps have the same concept as a ‘story’. Snapchat would charge the publisher for this feature. This helps the company to earn revenue.

The SnapAds video and Discover features between them contribute to more than 65% of the total revenue of Snapchat[iv].

An innovative option Snapchat provides is Geofilters. Based on the location, SnapChat automatically would suggest filters for your pictures. Just by posting this picture, you can let people know where you are and what you are doing. This is a powerful feature and used for events like weddings. The company charges a small sum for the use of this feature – $5 per 20,000 square feet of coverage.

Sponsored filters are lens filters for photos that are sponsored by companies. For example, if you visit McDonald’s you can use a McDonald sponsored filter for your picture where you could depict your face as a burger.

Snap Originals are videos available within the app. These videos are created by Viacom and other top media companies. This again would serve as a source of income, as Snapchat would charge the media companies.

Snapchat also offers a store, where they sell merchandise items like T-shirt, cap, etc. This is yet another source of income for the company.

The Challenge of Measurement

When companies invest money in advertisements, they would like to know if the advertisement has been effective or not. Therefore, there is a need to measure the impact of the advertisement. This is a challenge for Snapchat and they have tied up with third-party companies who do such measurements.

Facebook and Google make money by allowing advertisers to show customized ads, based on your browsing history and your areas of interest. However, Snapchat CEO Spiegel is committed to privacy and is not keen on allowing such targeted ads[v]. This is a major source of income, but at present Snapchat is not focusing on this.

Snapchat makes money through advertisements, sponsored features,and the innovative GeoFilter option. These features have been able to help the company earn millions.

[i] https://www.investopedia.com/articles/investing/061915/how-snapchat-makes-money.asp

[ii] https://investor.snap.com/news-releases/2018/02-06-2018-211639653

[iii]https://www.webhostingsecretrevealed.net/blog/web-business-ideas/how-does-snapchat-make-money/

[iv] https://www.statista.com/statistics/276371/snapchat-segment-revenue-usa/

[v]https://www.recode.net/2016/8/17/12504144/how-snapchat-makes-money-from-disappearing-videos