Monetizing Snapchat
My take on how the ephemeral messaging app can make money
Background
If you didn’t know by now, Snapchat is a messaging application that allows users to take photos, record videos, add text and drawings, and send them to friends. These sent photographs and videos are known as “Snaps” that users set a time limit for how long recipients can view their Snaps (ranging from 1 to 10 seconds). After the time has expired, they will be hidden from the recipient’s device and deleted from Snapchat’s servers. (Modified from Snapchat’s wikipedia.)
Snapchat has really gained momentum over the past year or so, and recently boasted that its users are now sharing a combined 400 million snaps per day. Till date (at the writing of this post), Snapchat has raised a total of $123M in funding, while reportedly receiving offers from Facebook and Google for $3B and $4B, respectively (both of which were turned down by Snapchat). This raised many eyebrows as to how a startup which hasn’t generated a single penny could turn down billions of dollars.
Snapchat recently hired Emily White as their COO. Prior to joining Snapchat, Emily was the Instagram’s Director of Business Operations, where she was tasked with shipping Instagram’s first ad products. Putting two and two together, it doesn’t take a rocket scientist to figure out that Snapchat is working on a business model around some form of advertisement revenue.
After using Snapchat for over 6 months now, here’s my take on how Snapchat can generate revenue.
- Sponsored Snaps
- Sponsored Stories
- Premium Features
Where the first 2 relate to tools catered towards advertisers and the last one relates to new and existing consumer users.
Sponsored Snaps
Notifications for Snaps on Snapchat demand action.
Its the uncertainty of not knowing what silly picture/video is going to greet you once you press hold your finger down on the screen that invites you to reveal the Snap.
This sort of immediate attention is something that advertisers crave! Imagine getting the following notification:
“McDonalds has sent you a picture!”
As you open it, it reveals a coupon for a free drink or fries. The user then takes a screenshot and redeems the coupon at their local McDonalds restaurant.
Get a free Medium French Fries at your local McDonalds!
As a consumer, the chance of you going to a McDonalds and just redeeming your free fries, without purchasing anything else is slim to none.
Snapchat can become a medium for advertisers to distribute content, deals and incentives to a customer base that demands immediacy with instant gratification and rewards.
Snapchat will be able to charge advertisers for a suite of tools to help manage their snaps, coupons and other metrics, such as ‘print screen rate’, coupon redemption rate and more. Not to mention the ad revenue generated from the initial push notification advertisement in the form of a Snap, that Snapchat would be able to charge.
Sponsored Stories
In the beginning of October, Snapchat launched Stories:
Stories is a collection of snaps that can be compiled one after an other and can be viewed by friends on your list as many times as they wish for 24 hours.
This has the potential to be an advertising gold mine, that builds on the Sponsored Snaps feature. Stories are much more passive than Snaps — stories which are published do not yield a notification. You only see them once you’re in the app and toggle to view stories. This means that viewing stories is opt-in only. The user wants to view stories from their friends and contacts and hence they go to the Stories screen.
If crafted correctly, advertisers can use Sponsored Stories as medium to enhance their brand identity and begin to humanize their brand. It is like putting advertisements that users want to see and aren’t being forced to see (in the case of Facebook, Twitter, etc), due to the opt-in nature of the Stories feature. Moreover, the user has to keep their finger pressed to the screen to keep watching the ad — adding to the opt-in nature of Stories.
Premium Features
Since the beginning Snapchat has awarded points to its users for sending and receiving Snaps. However, these points continue to accumulate for users without any sort of use for them. What if these points became SnapBucks or Snapchat Bucks — a virtual currency exclusive to Snapchat.
Users current points balance would be converted to SnapBucks and they would continue to accumulate SnapBucks just by using Snapchat or by purchasing SnapBucks through in-app purchases. SnapBucks could be used to purchase features to enhance the user’s Snapchat experience. These features could build upon the recently launched filters and replay features.
Japanese messaging app, LINE has validated the in-app purchases of stickers and virtual goods market, bringing in $100M a quarter. Snapchat is uniquely positioned to take advantage of this through SnapBucks.
Currently, Snapchat allows users to replay one Snap per day (in its recent update). Replays allow the user to, as the name suggests, replay a Snap once after the alloted time for the Snap has expired. Using SnapBucks, users could purchase additional Replays or Replay Daypasses (unlimited replays for a day), if they run out of the one per day quota. Considering Sponsored Snaps, could increase the use of Replays — if you missed a coupon, because you weren’t able to grab a screenshot quickly enough, you can Replay it again!
Additional visual filters is another possibility of premium features that could be purchased through SnapBucks.
I’m sure there are many people smarter than me working on the problem of monetizing Snapchat, but as an user of Snapchat, these are some of my thoughts on things Snapchat can do to generate revenue.
What do you think — how would you monetize Snapchat?
Shubham Datta is passionate about technology, startups , sports, and investing. Shubham is a B.Math from the University of Waterloo and is an aspiring CPA at KPMG. You can find out more at www.about.me/ShubhamDatta.
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