How does Snapchat make money?
Snapchat’s revenue model is based on advertising. The company has called itself a camera company, which allows users to generate content through its AR and story formats. In 2020, Snapchat made over $ 2.5 billion in revenue and over $ 950 million in net losses.
Understanding Snapchat business model
Over the years, Snapchat has had to adjust its business model to find its place in the market.
In its financial data, by 2020, the company highlighted:
Snap Inc. is a camera company. We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate. We contribute to human progress by enabling people to express themselves, live in the moment, learn about the world and have fun together.
The main stakeholders of the company
Most of Snapchat’s revenue is based on advertising, so making sure the Snapchat ad platform attracts a growing number of advertisers is key. Snapchat advertising products consist of two main products:
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What is a business model?
- AR ads, served as Sponsored Lenses or Sponsored Filters, to create engaging 3D experiences.
- E Snap Ads: where advertisers can use full screen video with audio, in various formats (single image or video ads, ad history, collection ads, dynamic ads and commercials).
In addition to that, Snapchat provides advertisers with tools to monitor and improve the performance of their campaigns.
As Snapchat calls itself a camera company, but primarily sells advertising, the platform must continue to attract a growing community of creators. In fact, creators make the platform compelling in the first place, as the content attracts users, thus making the platform more valuable to advertisers, creating a positive cycle or flywheel.
Snapchat mostly depends on the distribution that Google , Apple, and Amazon came from to run its mobile app and service.
Snapchat’s flagship product is a camera application that allows people to communicate visually. While Snap’s format has now been adopted by most social platforms (through so-called stories), Snapchat was among the first platforms to use “snaps” or online stories that were automatically deleted after 24 hours of posting.
This was critical for Snapchat, as this format dramatically reduced the friction for users when creating content!
Inside Snapchat PRODUCTS
Snapchat is made up of a few key products:
- Cameras : Snapchat opens your phone’s camera directly, enhancing it, to create various types of images. And also have AR features in it. This is the starting point of the user’s journey.
- Communication: from there, users can communicate with each other, sending each other images and videos. They can also communicate via the custom avatar tool, Bitmoji.
- Snap Map is an interactive feature, which allows Snapchat users to connect with friends and see what they are doing in their local areas. Thus a sort of local social networking is born.
- Success represent the key feature of the platform, or at least what gave it the initial traction. In fact, this is made up of a discovery tab where you can check out all the content your friends are producing on Snapchat. This idea would be copied by virtually all other social media platforms.
- Reflector is a kind of dedicated bulletin board where the most interesting content is shared between various communities.
Snapchat monetizes primarily through advertising. Advertising products include:
- Snap Ads
- and sponsored creative tools (sponsored lenses and sponsored geofilters)
By 2020, Snapchat had over $ 2.5 billion in revenue and over $ 950 million in net losses.
Revenues are classified in two ways:
- Advertising is sold directly to advertisers, called Snap-sold Sales
- Some partners who deliver content on Snapchat, or content partners, also sell directly to advertisers, referred to as sold partners .
Snap Ads, whether Snap-sold or partner-sold, may be subject to Sales Sharing Agreements between Snapchat and the content partner.
What metrics does Snapchat use to measure success?
Snapchat measures the performance of its advertising business using two key metrics
- ARPU (Average Sales Per User) because it helps Snapchat understand how quickly it monetizes its daily user base. Snapchat defines Quarterly ARPU Sales divided by the average of Daily Active Users. Average Sales Per User, or ARPU, was $ 1.53 in the fourth quarter of 2017, compared to $ 1.05 in the fourth quarter of 2016, up 46% year-over-year.
- Snapchat defines a Daily Active User as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period. DAU o Daily active users, or DAUs, were 187 million in the fourth quarter of 2017, up from 158 million in the fourth quarter of 2016, an increase of 28.8 million or 18% year-over-year.
Snapchat key metrics
According to its financial reports:
- Daily Active Users, or DAUs, increased to 265 million in the fourth quarter of 4, compared to 2020 million in the fourth quarter of 218.
- Average Sales Per User, or ARPU, increased 33% to $ 3.44 in the fourth quarter of 4, compared to $ 2020 in the fourth quarter of 2.58.
The company has more than tripled its revenues compared to 2017. However, its operating income is still quite negative. In a digital marketing industry controlled primarily by the duopoly of Google (Alphabet) and Facebook (Meta), Snapchat is stuck in the middle. Furthermore, its distribution depends mainly on other platforms such as Google , Apple and Amazon. Therefore, the company’s ability to have an AR PRODUCTS consumer is critical to its long-term success.
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