We all love talking about quotes that look incredibly stupid in hindsight when compared to the speed of technological developments. Here is my all time favorite:
“I think there is a world market for maybe five computers.” — IBM Chairman Thomas Watson, 1943
Some of the quotes about Snapchat will also be in the same category in 5 years time.
“Snapchat Is A Fad That Will Soon Vanish Itself”
“Snapchat is the next Myspace”
To the uninitiated, Snapchat might feel like it doesn’t fill an important user need like Facebook does — I fully disagree. Snapchat is here to stay with an ever growing influence on our digital lives. The reason is simple, Snapchat fills an important user need that other platforms don’t: The self-destructing transiency of Snapchat is more human in its interaction than Facebook, Instagram or Twitter, something especially important in an age of permanent content and timelines. And it has potential to do a lot more, both in terms of being a great product and a promising business.
There are an abundant number of resources that explain Snapchat’s success, business model and strategy, but most of these articles don’t do a comprehensive job of explaining Snapchat’s product offering to advertisers. Even Snapchat’s own page on advertising is short on details. That’s why I’ve decided to compile the bits and pieces about Snapchat’s monetization and write this blogpost.
What does Snapchat do?
Seriously? If you have read up to this point and don’t know what it does, it’s now time for you to get in on that snap action now. Go download the app and get on board. Be warned, it’s not super-easy to learn, you might need a guide like this to get up to speed.
How does Snapchat make money?
Snapchat is a free to download app (it’s mobile only) and its business model is based on generating revenue from advertising within the app. Snapchat has more than 100M monthly active users (probably close to 200M) with 60% of its users using the app daily, earning Snapchat a seat at the adults table with Facebook and Twitter. Snapchat reportedly hit $100M annual revenue in 2015 with expectations to pass $300M in 2016, on track to earn and increase its estimated valuation of $16B.
More revenue is great and we all know “Revenue solves all known problems” as Eric Schmidt once said. But what does Snapchat offer advertisers to keep its revenue growing at this pace?
What does Snapchat offer advertisers?
- Sponsored Lenses: Lenses lets you take a selfie and then choose one of a handful of face filters to animate your selfie. The lenses pop up automatically when a user’s camera is in selfie mode, and they press and hold down on their face on the screen. Brands can create their own lens and add it to the existing set of Snapchat lenses.
- Sponsored Geofilters: Designed around location themes like a neighborhood or a corporate campus, the filters are sticker-like overlays that users can activate only when using the app in a particular location. Brands can create and sponsor their own geofilter.
- Sponsored Live Stories: Live Stories are compilations of snaps from Snapchatters at events and locations around the world. Live Stories are curated by Snapchat, and typically appear for 24 hours. They can be photo and video montages and serve as look-ins on live events like the Kentucky Derby, Hillary Clinton’s presidential campaign rally or the Wimbledon. Advertisers can sponsor a Live Story around a particular event.
- Discover: In its Discover section, Snapchat hosts publisher content from major publishers like CNN, Mashable or National Geographic that is tailored and built for Snapchat. Ads are built in between the user-initiated transitions (swipes or taps) in Discover channels. Snapchat splits revenue on ads sold with those publishing partners.
Ad Formats, Targeting and Pricing
Ad Formats
Ad formats that can be used on Snapchat are fairly straightforward: Vertical Video (Technically, vertical static images would also work). This is an integral part of Snapchat’s entire offering to advertisers — The 3V Advertising: Vertical, Video, Views.
Targeting
Targeting options for Snapchat used to be fairly limited until recently when Snapchat decided to increase its targeting options. Here are some of the ad targeting options that can now be used with Discover ads:
- Age — When users sign up for the app, Snapchat asks for their birthday and has age data on every user. Currently, Snapchat is only giving the option to opt only to target users who are 18+ or 21+, making it very useful for ads from industries like alcohol producers. I would be fair to expect this to be opened up to target specific age groups.
- Gender — Snapchatters don’t provide this information, it is inferred and validated via Millward Brown.
- Device — Advertisers can target against a mobile operating system or a device manufacturer.
- Location — This option can be as wide as a country, state, or city and as specific as a movie theater or a college campus. Advertisers can also target against a specific event its Live section is covering, like a festival or an NFL game.
- Context — Advertisers can target a specific publisher in Snapchat’s Discover section. Or they can target audience “bundles”, which are pre-packaged Discover channels that are grouped by a theme. (e.g. “World news and culture” bundle that contains CNN, Mashable, Vice, and National Geographic.)
Pricing
Prices for Snapchat ads seem to have changed a lot since the Ads program launched last year. Since currently ads are deal-based and managed through Snapchat’s ad sales team, there is no rate card and it’s impossible to get exact figures. However doing a online research yields reported results that gives us an idea on prices: Advertisers say getting inside a “Live Story” runs about $250,000. The “takeover” of a Snapchat Discover publisher channel can be had for $50,000.
Most of the ad products (Lenses, Geofilters and Live Stories) are priced as daily takeovers with cost-per-day pricing. Geofilters have recently expanded from being exclusive to big brands to any business that wishes to create a geofilter for longer than an hour. For ads in Discover channels, Snapchat offers a CPV (cost-per-view) based pricing method. The prices for Discover content depend on what the publisher is requesting, leading to a wide range in CPVs from 2 cents to 15 cents.
One important fact to note is that Snapchat only shows ads next to either premium (generated by editorial partners like MTV) or Snapchat curated content. This means there are no ads in-between user generated content, which is something that other social media platforms don’t do, and is potentially a good sell for cautious brand advertisers.
Future for Snapchat
Even though Snapchat is relatively new to selling advertising, with its explosively growing user base, native ad formats and new targeting options, it already offers a strong value proposition for advertisers. Snapchat is only cracking the surface of what it can do. There are many more opportunities that Snapchat can leverage as it scales its advertising business — which is the topic of my next post. Check it out here!
