Prior to its IPO in early 2017, Snapchat reported $404M in annual revenue (2016 figure). In 2015, it had made $58M. Where did all that money come from?
In this post, we will explore the monetization strategy of Snap, Inc. which includes deals with brands, on-demand geofilters and even selling hardware (Spectacles).
After this analysis, you should also check out how Snap’s arch-rival Instagram monetizes their users.
How does Snapchat make money?
Here are 5 ways that Snapchat uses to make money:
- In-between Snap Ads
- Sponsored Lenses
- The “Discover” Section
- Branded GeoFilters
- Sports Partnerships
Let’s explore each revenue avenue:
1) Snap ads
The bulk of Snap’s revenue comes from advertising.
One of the most prominent ways for Snap to make money is by showing brand advertisements between your friends’ stories.
More and more advertisers seem to be joining this platform as I have recently seen a very diverse set of ads in my account.
In 2017, Snap reported that 60% of these types of ads are watched with sound. The average bid for a “swipe-up” action is $1-3.
The appeal of these types of ads for marketers is
1) The high engagement since users are more actively looking at their screens than say on Facebook or Instagram
2) The fact that the ad captures 100% of your screen
Related: Here’s how YOU can make money on Snapchat.
2) Sponsored lenses
Following the acquisition of Looksery, Snapchat added these fun augmented reality filters to make your face look cooler. Snapchat charges a flat-fee per day and also offers on-demand filters that start at $5 depending on the duration and audience size.
Do you remember the Taco Bell lenses? It was the most viewed/used ad in Snapchat’s history. Taco Bell spend about $750,000 and got 224M impressions on their lenses. Pretty sweet deal.
Gatorade did a similar face filter deal and got a refreshing 165M views.
The branded lenses may also play a sound to increase the engagement.
Now anyone can create and buy their own custom lenses and filters straight from the app.
3) The “Discover” Section
I used to not go on the Discovery section at all, but now that the latest Snapchat update has merged my friend’s stories and Discovery all in one screen, it is hard to miss.
Snapchat created the Discover section in late 2015, three years after its original launch. The discovery section allows publishers to post on Snapchat in order to entice viewers to consume their content. This interactive form of content delivery has attracted many major content providers such as Buzzfeed, DailyMail, Esquire, and MTV.
Although the company generates a portion of its revenue from the Discover section, the exact revenue numbers haven’t been released. Digiday reported a $0.15 CPV cost per view on Discover ads. (This number makes it an good alternative investment compared to SEO)
The discovery section is now a great place for advertisers since users can now subscribe to different brands and get notified when those brands post new content. It is also a great place for your personal snapchat account to get “discovered” by new fans if you make your stories public. (Related: here’s how to grow your snap account)
4) Branded geofilters
Geofilters are filters that are contained to a particular geographical location. The branded geofilters can be accessed by left-swiping once you’ve taken a picture or recorded a snap.
Snapchat allows anyone to purchase a geofilter on-demand straight from their website.
You can get paid geofilters for a wedding, a party/event, your company or produce free geofilters for your community or city (like a “Los Angeles” tag).
Extra features on Geofilters
A nice addition to the geofilters is now the ability of advertisers to promote different actions like visiting a website or making a purchase.
In fact, the recent Xmen: Apocalypse film purchased X-Men snap filters during its premiere. X Men did not only purchase filters on Snap, but also enabled the ability for users to right swipe to purchase tickets to the fiction movie.
The Hunger Games also followed the lead of X-men and had a good amount of success with this type of filter.
Snapchat views its actionable geofilters as a clever platform for ecommerce that can help them generate additional revenue.
5) Sports Partnerships
Recently Snapchat has been partnering with various Sport organizations such as NFL, MLB, etc.
The idea behind it is to promote attendance to events from millennials and younger folks. We can see how these stories are also attractive to Adidas and Nike, as they can advertise their product to sport fans.
According to AdAge.com, a Live Story on Snapchat can go for $400k to $500k for complete exposure to company’s user base.
6) Selling spectacles (at a loss)
Another method of monetization by Snap was by selling overly-hyped glasses to their users.
These glasses referred to as “spectacles” were first introduced in November 2016. Delivered through a cute yellow dispenser machine that only carried a limited amount, the $130 Spectacles seemed like a hit for the first few weeks.
However, as soon as the early hype faded away, Snap found itself with over $40M in unsold spectacles.
What are other methods that Snapchat can use to make money?
Snapchat can allow businesses to connect and chat directly with customers similarly to what users are used to do when messaging brands through their Facebook pages. They could sell insights about customers to these businesses and thus entice them to up their spend on ads. In this way, Snapchat can become another streamlined avenue for customer service like Whatsapp. (Although their efimeros nature might not be the most adequate when providing support).
Does Snapchat lose money?
Yes, a lot of it.
In fact, the company lost $353 million in Q2 of 2018 despite having made $262M in revenue (oh snap!).
As an analyst, I don’t particularly like SNAP’s stock due to its unclear future growth path.
How much money does Snapchat make?
Snapchat’s Revenue Projection for 2018
Goldman Sachs, one of the banks behind Snap’s failed IPO, offered a growth projection for 2018. They predict a $2 billion revenue for this year. This figure is almost 5 times its sales from 2017. (The actual figure in 2018 is coming quite short of $2B at $1.16B)
Snap had a 500% increase in revenue from 2016 to 2017. The bank is also estimating that Snap will grow its user base by 221 million in 2018, an increase from 2017, where it was at 158 million.
Since the bulk of Snap’s revenue comes from direct advertising, the amount of user growth will determine whether Snap can meet their quarterly revenue projections.
Snapchat revenue projections for 2019 are $1.6B.
What is the valuation of Snapchat (Snap)?
As of January 5, 2018 at $14.50 per share Snapchat had a valuation of $17.4B which is 46% less than its all time high of $31.4B or $28 per share. It seems like pictures aren’t the only thing vanishing at Snapchat. On 8 November 2018, the stock closed at $7.02. (ouch)
As of 2018, the company employs 330 full-time people.
If you want a much more in-depth analysis of $SNAP, I suggest looking on SeekingAlpha.
How much did the Snapchat founders made from the IPO?
Evan Spiegel (Snap’s CEO) and Bobby Murphy (CTO) made about $272M from Snap’s IPO or the equivalent of selling 16 million shares.
How many people use Snapchat?
The monthly active users (MAU) is 330M. The daily active users (DAU) is 188M with people spending over 30 minutes a day on Snapchat. (I probably spend at least 3 hours, fml)
For comparison, Instagram Stories and Whatsapp Stories combined DAU is 300M, more than double of Snapchat’s. Sorry, Evan Spiegel.
Want to make money on Snapchat?
There are several ways to monetize a snapchat account. You don’t even need thousands of followers to start making money.
Here a handful of ways to get some revenue if you only have a handful of followers (mostly just close friends):
- Advertise your own product or brand to your friends
Remember that you can now add (affiliate) links to your Snap masterpieces
- Use snapchat as a way to connect more personally with your followers
If you are a small business owner (like a fitness coach), you can post your daily routine and regularly invite people to interact with your snap story. That way you can build up your trust with them.
- If you have snap followers in the thousands like me (@youngslacker), you can do the following:
- Sell shoutouts
- Partner up with brands and do brand deals
- Sell your own products or do affiliate marketing
Follow my guide to get more Snapchat followers and monetize them.
I hope this post clarified how Snapchat makes money.
In short: Snapchat makes money by working with partnering up with advertisers and big brands and selling intrusive ads.
Although the Snap stock’s performance is pretty deplorable, the company almost reached $1B in revenue in 2017. Still not enough to wow its investors.
Snapchat MAU’s and DAU’s have suffered due to Instagram Stories.
If Snap wants to remain afloat for longer and not become the next Twitter (or even worse, Vine, RIP), it needs to find a way to bring those user numbers up and also make more money. An advertising tool comparable to Facebook Ads needs to be developed if they want more advertisers to join the platform.
Now that you know the details behind Snapchat business model, find out how Facebook makes 99% of its money.
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