Is Snapchat Scrambling to Implement a Monetization Plan to Avoid Collapse?

Snapchat has grown from strength to strength in the four years it’s been in business becoming a staple in the smartphone of many people and for some, it’s hotter than Facebook.

The privately held firm was recently valued between US$16-19 billion in a recent funding round – nearly double what it’s valuation was just one year ago. This makes it the 3rd most valuable tech startup in history.

And yet, some believe that the app, despite it’s popularity still has the potential to fail.

How is that possible and what is Snapchat doing to try to monetize itself?

snapchat-logo

If you haven’t tried it out yet, it’s a camera app which allows users to take pictures, make small edits (think doodles and drawings) and send them. When the receiver gets them, they have a timed viewing limit, which is normally 10 seconds. The app achieved notoriety in its early days for the popularity of the types pictures people were taking (think beach wear but with less clothes) but has clearly attracted a wider audience than that.

With an app now valued in the region of US$16-19 billion, with thin revenue streams to speak of, how to monetize?

SnapChat-Founders

Snapchat Facts

  • Founded in 2011
  • Creators are Bobby Murphy, Evan Spiegel
  • Almost 200 million monthly active users
  • 58% of users are male
  • 700 million daily snaps
  • 71% of users are 25 years and younger
  • 35% of UK teens use it, 39% of US teens (Q4 ’14)

Snapchat Teen Usage Q4 2014

Snapchat’s Value

Time is Money

Firstly, as the saying goes with the Internet, and now smartphone apps too, if you don’t pay for the product, the product is you.

It’s not in advertising – for now. The app collects very little user data, just a fraction of that of Facebook, Instagram, YouTube, Twitter or others. If Snapchat isn’t collecting users’ data, then how could it attract advertisers?

It does have few other strengths to draw upon. The first, is the time spent on the app. Nearly 200 million users sending almost 700 million snaps per day, means a lot of people are staring at that app on their smartphones every day.

Snapchat User 3 Snapchat User 2

Smartphone screens are a very competitive space. App makers pay smartphone companies undisclosed sums of money to have their apps pre-installed on new devices, like the computer industry has been doing for years, in a bid to make users aware and hopefully for them, more likely to try out their apps.

Also, we have a limited number of hours in a day. So new “hot” apps can’t absorb our time without stealing it from another app. Could that be Facebook? Facebook clearly hoped not, which is why they put in a $3 billion cash bid for the company in 2013, which Snapchat rejected. Staring at an app’s glossy screen for an hour or two (or more) every day is valuable and as Facebook showed, major companies are willing to pay for it.

Brand Influence

Brand influence on Snapchat? Yep. Think Facebook ‘likes’.

Age of Users, July 2014

Snapchat Age Distribution to July 2014

Favoured Brands in the US, August 2014

Snapchat Preferred Brands by Users

Little needs to be said to accompany that chart. It’s clear that companies are willing to pay money to achieve presence – wherever users decide to spend it today or tomorrow or the day after – and as Snapchat’s user growth continues to rocket, so does the brand power potential. Snapchat may know little about its users but it knows what they “like” and shares that with those companies, presumably. It’s really modern marketing, nothing new here.

Monetization

A Picture is Worth a Thousand Bucks

Many tech giants seemingly try so hard to know as much as they can about us. That idea could start and end with Facebook. What company asks users so many questions, which, if asked by a marketer on the street, might be considered rude and excessive (ethnicity, sexual orientation, combine that with all your school details, employment history, friends, everything you “like”…would you have slapped the marketer in the face at that point?). But, the crux of the point is that not only does Snapchat seem to not want to know everything you, but the magic that makes this app different is that it deletes user data, typically within 10 seconds of receiving the message.

So what is to be monetized?

One of the founders, Evan Spiegel said:

In-app transactions will come first…We think we can build really cool stuff people want to pay for. The app is now a part of everyone’s day-to-day lives. That means that they will — I at least would — pay for a more unique experience.

While Spiegel says this would be Phase 1 of Snapchat’s monetization strategy, he’s also said that Snapchat is very interested in native advertising.

In late 2014, the company teamed up with Square to deliver Snapcash, which allows people to send money directly to the bank account of another contact.

Mobile payment has been heating up, especially since Apple joined the space with Apple Pay. It almost doesn’t matter if the space had potential before, as Apple is known to create demand, rather than follow it. But users’ appetite for Apple Pay doesn’t automatically guarantee that Snapcash can get a slice of that cake. It remains to be seen whether this will bring in the cash for the camera app company.

Discover, the News, Again.

Watch the news, on your smartphone in bite-size format. New? Nope.

Sometimes the product doesn’t even matter, it’s the brand popularity and the message that achieves millions of page views for publishing partners. While the jump in mobile data per user tells that users are in fact watching the news, it will need longevity, not just a good launch to add that revenue stream.

Evan Spiegel said of Discover’s popularity:

More people are watching college football on Snapchat than they are on television.

Data Consumption After Discover Launch

Snapchat Mobile Data Consumption After Discover

Snapchat’s lowdown on Discover:

Hard or Soft Landing?

The tech world adores innovative startups that attractions millions of users. WhatsApp, Flickr, Xiaomi, Dropbox, AirBnB, Pinterest, Spotify, Evernote…But not everyone is convinced that Snapchat can pull it off. Was Snapchat crazy to reject Facebook’s US$3 billion offer? How long can a tech startup run on hot air?

Snapchat Could Become the Biggest Tech Exit in a Decade

Image source: Title, Snapchat founders
Facts: Digital Marketing Ramblings, Statistica (charts)
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