How Does Snapchat Make Money
Evan Speigel, the CEO of Snapchat, turned down a $3 billion acquisition offer from Facebook in 2013.
It was not the first time that Facebook tried to buy out a startup. In 2016 Facebook was interested in buying the upstart social media competitor.
Like its counterpart, Snapchat decided to chase its destiny. We can assess whether the decision was the right one based on its current financial standing and future potential.
That is what we are going to do in this blog. The first thing we will do is look at how Snapchat makes money. We will see whether or not Snapchat is profitable or not, and how strongly it is positioned amidst the increasing competition in the digital advertising industry. The first thing we need to do is set up some context by looking at the founding and growth of the company.
Similar to many popular tech success stories, Evan Spiegel, Reggie Brown, and Bobby Murph founded Snapchat.
The concept of sharing and saving photo memories was the main focus of popular social media platforms around the time of the founding of Snapchat.
Explaining the rationale behind the idea in the first-ever post on the company’s website, Evan Spiegel, after hearing stories about emergency detagging of Facebook photos before job interviews and photoshopping out of candid shots before they hit the internet made me laugh out loud.
Snapchat Business Model
Digital advertising is the main source of revenue for the company. Advertising revenue accounted for 99%, 99%, and 98% of the total revenue in the year. The remaining income is from the sale of Spectacles, which are smart glasses.
Advertising services are divided into three categories:
- Augmented reality ads
- Snap ads
- Effectiveness measurement services.
The company made $4.1 billion in revenue but lost $700 million in 2012. since 2017 company revenue is increasing and losses are decreasing in the financials.
The geographical distribution of the revenue came from North America, Europe, and the rest of the world in 2021. In the fourth quarter of 2021, the highest-ever average revenue per user was $4.06.
How Does Snapchat Make Money?
The company has an active user base of over 231 million. In 2021, the market value will be $100 billion. A net worth of $5 billion was shown.
Half of 15 to 25-year-olds in the United States use it regularly, as of 2020, because of the company’s growth. It gives tough competition to giants because of its user-friendly business strategies and potent revenue model.
How Does Snapchat Earn?
A lot of the revenue comes from advertisements. 99% of Snapchat’s revenue comes from sponsored ads and the rest from other sources.
These ads are camouflaged in the form of user-friendly updates because the teams that design consumer products also run advertising initiatives. They don’t know that they are ads and engage with them.
Sources of How Does Snapchat Make Money?
The augmented reality-generated snaps appeal to the young as they are fun to use and fun. Every week, brands pay to have a lens tailored to their needs because Snapchat updates its lenses every week. In the past, companies such as Gatorade and Taco Bell. They were able to see a huge surge in their user engagement because of the sponsored lenses they were using.
People attending a particular event at a particular place can use custom filters created by companies. Disney California Adventure Park has its design.
Companies can promote their brands among the younger generation with the help of On-demand Geofilters.
Brand advertisements are placed in the stories section so that users engage with them while reading their friend’s stories.
Discover is another source of revenue for the company. Publishers who partner with the company to have their content featured on Discover are required to pay a lot of money. If they show any sponsored content or advertisements, they split the revenue with them.
Brands are ready to pay a lot of money for partnering with Snapchat. One of the most successful integrations has to be with Shazam.
Bitmoji clothes, snap streak hats, Winkface sweatshirts, dog lens tee, etc. are some of the exclusive merchandise that can be found in the Snap Store. Here the company takes advantage of the scarcity principle.
Spectacles are smart glasses that can be used in augmented reality. They have cameras that users can use to take pictures and videos of what they are looking at. Users will be able to directly upload snaps to their accounts if they sync their phones with their accounts.
How Does it Spend?
Research and Development:
A camera company that believes in reinventing the camera and revolutionizing the way people click photos to facilitate better and more effective communication is the parent company of Snapchat. Research and development is the most expensive part of the cost. The company spent almost a billion dollars on R&D in the last year.
Cost of Revenue:
The cost of revenue is the total cost incurred by a company to produce, market, and distribute its products. Infrastructure and marketing are the main things that Snapchat spends money on. In the first two quarters of 2020, the cost of revenue was $489 million.
Snapchat launched Spotlight in November 2020 and announced that it would pay the creators of the most viewed videos each day from a $1 million pool. The payout is determined after comparing the number of views of a video with that of other viewed content.
Snapchat still is not profitable. Its periods of profit are mostly losses. It had a net loss of over $1 billion in the fiscal year 2020.
However, it has a lot of potentials to grow. It caters to the needs of everyone. It has a variety of features that differentiate it from its competitors. The two companies offered $4 billion and $3 billion for their acquisition. The proposal was rejected by the CEO, Evan Spiegel, who is still building the business model.