How Does Snapchat Make Money?

Snapchat revenue model is based on advertising. The company defined itself as a camera company that enables users to generate content through its AR and stories format. In 2023, Snapchat made over $4.6 billion in revenues and over $1.3 billion in net losses.

Business Model Element	Analysis	Implications	Examples
Value Proposition	Snap Inc.’s value proposition is built on: – Multimedia Messaging: Allows users to send photos, videos, and messages that disappear after viewing. – Augmented Reality: Offers AR lenses and filters for creative and fun content creation. – Stories and Discover: Provides a platform for sharing stories and discovering content from friends and publishers. – Privacy-Centric: Focuses on privacy with self-destructing messages and limited data collection. – Authentic Communication: Emphasizes real and unfiltered interactions. Snap Inc. empowers users to express themselves creatively, authentically, and privately.	Provides a unique multimedia messaging experience with disappearing content. Offers augmented reality features for creative self-expression. Promotes stories and content discovery within the platform. Prioritizes user privacy and authenticity in communication. Appeals to a wide range of users seeking creative and private messaging experiences.	– Disappearing multimedia messaging. – Augmented reality lenses and filters. – Stories and content discovery. – Privacy-centric approach to messaging. – Emphasis on authentic communication. – Attracting users seeking creative and private messaging experiences.
Customer Segments	Snap Inc. serves various customer segments, including: 1. Snapchatters: Individuals of all ages looking for a fun and creative way to communicate. 2. Content Creators: Users interested in creating and sharing multimedia content. 3. Advertisers: Businesses seeking to reach a younger and engaged audience. 4. Publishers: Media companies and influencers using Discover to distribute content. Snap Inc. caters to a diverse user base and partners.	Addresses the communication needs of individuals with creative and expressive tendencies. Provides a platform for content creators to engage with their audience. Attracts advertisers aiming to reach a younger demographic. Partners with publishers and influencers to distribute content to a wide audience. Customizes offerings for various user segments.	– Meeting communication needs for creative individuals. – Providing a platform for content creators. – Attracting advertisers targeting a younger audience. – Partnering with publishers and influencers for content distribution. – Customizing offerings for diverse user preferences.
Distribution Strategy	Snap Inc.’s distribution strategy includes several key elements: – Mobile App Stores: Offers the Snapchat app on iOS and Android platforms for download. – Partnerships: Collaborates with mobile device manufacturers for pre-installed apps and content integrations. – User-Generated Content: Encourages users to create and share content, expanding the platform’s reach organically. – Discover Platform: Partners with media companies and influencers for content distribution. Snap Inc. ensures accessibility and engagement through various distribution channels.	Provides the Snapchat app on popular mobile platforms for accessibility. Collaborates with device manufacturers to expand its presence. Leverages user-generated content for organic growth and engagement. Partners with media companies and influencers for content distribution. Prioritizes accessibility and user engagement in its distribution strategy.	– Offering Snapchat on iOS and Android platforms. – Collaborating with device manufacturers for pre-installed apps. – Encouraging user-generated content for organic growth. – Partnering with media companies and influencers for content distribution. – Prioritizing accessibility and engagement through distribution channels.
Revenue Streams	Snap Inc. generates revenue through the following sources: 1. Advertising: Offers various ad formats, including Snap Ads, Stories Ads, and Sponsored Lenses, to businesses and advertisers. 2. Premium Features: Offers additional features and content through in-app purchases. 3. Spectacles: Sells wearable camera glasses, Spectacles, for users to capture and share content. 4. Discover Partnerships: Collaborates with publishers and media companies for content distribution on Discover. Diversifies income sources across advertising, premium features, hardware, and content partnerships.	Relies on advertising as a primary revenue source, offering various ad formats. Generates income through premium features and in-app purchases. Sells hardware, Spectacles, as a niche product for content creation. Collaborates with publishers for content distribution on Discover. Diversifies income streams for financial stability.	– Earnings from advertising, including Snap Ads and Sponsored Lenses. – Revenue from premium features and in-app purchases. – Sales of Spectacles wearable camera glasses. – Income from Discover partnerships with publishers. – Diversifying income sources for financial stability.
Marketing Strategy	Snap Inc.’s marketing strategy focuses on the following elements: – User Engagement: Encourages users to create and share content to drive engagement. – Exclusive Content: Partners with publishers, influencers, and celebrities for exclusive content. – Sponsored Events: Promotes events and sponsored content within the app. – Augmented Reality: Showcases the fun and creative potential of AR lenses and filters. – User Community: Builds a sense of community and belonging among Snapchatters. Snap Inc. prioritizes user engagement, exclusive content, sponsored events, AR, and community building in its marketing efforts.	Motivates users to actively create and share content to enhance user engagement. Partners with influencers and celebrities to offer exclusive content. Promotes sponsored events and content within the app for user participation. Highlights the creative possibilities of AR lenses and filters. Nurtures a sense of community and belonging among Snapchatters. Prioritizes user engagement and creativity in its marketing strategy.	– Motivating user-generated content for engagement. – Offering exclusive content through partnerships. – Promoting sponsored events and content participation. – Showcasing creative potential with AR. – Building a sense of community among Snapchatters. – Prioritizing user engagement and creativity in marketing.
Organization Structure	Snap Inc. operates with a functional organizational structure: – Leadership Team: Led by the CEO and top executives responsible for strategic direction. – Technology and Product Development: Focuses on app development, AR features, and content creation tools. – Sales and Partnerships: Drives advertiser relationships and partnerships. – Content and Discover: Manages content distribution and collaborations with publishers. – User Support: Ensures user satisfaction and support. Snap Inc.’s structure emphasizes functional specialization and creativity.	Employs a functional structure with clear divisions for efficient operations. Prioritizes app development, AR innovation, advertiser relationships, and content collaborations. Ensures user satisfaction and support. Supports strategic direction and decision-making from top executives. Maintains a focus on functional specialization and creativity in its structure.	– Functional structure with clear divisions. – Prioritizing app development and AR innovation. – Managing advertiser relationships and content collaborations. – Ensuring user satisfaction and support. – Supporting strategic direction from top executives. – Focusing on functional specialization and creativity.
Competitive Advantage	Snap Inc.’s competitive advantage is derived from: – Unique Features: Offers innovative features like disappearing messages and AR lenses. – Engaged User Base: Maintains an active and engaged user community. – Exclusive Content: Partners with publishers and celebrities for exclusive content. – Advertiser Appeal: Attracts advertisers looking to reach a younger demographic. – Privacy Focus: Prioritizes user privacy and limited data collection. Snap Inc. stands out as an innovative and user-centric platform.	Derives a competitive advantage from unique features, user engagement, exclusive content, and advertiser appeal. Maintains an edge by prioritizing user privacy and data protection. Attracts users and advertisers seeking innovative and creative communication channels. Stands out as an innovative and user-centric multimedia messaging platform.	– Innovative features like disappearing messages and AR lenses. – An active and engaged user community. – Exclusive content from publishers and celebrities. – Appeal to advertisers targeting a younger demographic. – Prioritizing user privacy and limited data collection. – Standing out as an innovative and user-centric platform.

Table of Contents

Understanding Snapchat’s business model

Over the years, Snapchat adjusted its business model to find its place in the market.

In its financials, by 2022, the company highlighted:

Snap Inc. is a technology company. We believe the camera presents the greatest opportunity to improve the way people live and communicate. We contribute to human progress by empowering people to express themselves, live in the moment, learn about the world, and have fun together.

And it further explained:

Snapchat is our core mobile device application and contains five distinct tabs, complemented by additional tools that function outside of the application. With a breadth of visual messaging and content experiences available within the application, Snapchatters can interact with all five, or a subset of those five tabs

Those comprise a few primary products and features:

Camera.
Visual Messages.
Snap Map.
Stories.
Spotlight.

The company’s key stakeholders

Advertisers

Most of Snapchat revenues are based on advertising, thus, making sure that the Snapchat ad platform attracts a growing number of advertisers is the key. Advertising products on Snapchat are made of two main products:

AR ads, served as Sponsored Lenses or Sponsored Filters, to create immersive 3D experiences.
And Snap Ads: where advertisers can use full screen videos with sound, in various formats (single image or video ads, story ads, collection ads, dynamic ads, and commercials).

In addition to that, Snapchat provides advertisers with tools to track and improve the performance of their campaigns.

Community

as Snapchat defines itself as a camera company, but it sells primarily advertising, it’s critical that the platform keeps attracting a growing community of creators. In fact, creators make the platform compelling in the first place, as content attracts users, thus making the platform more valuable for advertisers, creating a positive loop or flywheel.

And partners

Snapchat primarily depends upon the distirbution coming from Google, Apple, and Amazon to run its mobile app and and service.

Snapchat flagship product is a camera application which enables people to communicate visually. While Snap’s format has now been adopted by most social platforms (through the so-called stories) Snapchat was among the first platforms who used “snaps” or online stories that got automatically deleted after 24 hours from their publication.

This was critical to Snapchat, as this format drastically reduced the friction for users in creating content!

Inside Snapchat product

Snapchat is made of a few key products:

Camera: Snapchat opens up directly the camera on the phone, enhancing it, to create various types of visuals. And also to have AR features in it. This is the starting point of the user’s journey.
Communication: from there users can communmicate with each others, sending each other images and videos. They can also communicate via the personalized avatar tool, Bitmoji.
Snap Map is an interactive feature, that enables Snapchat users to connect friends and see what they are up to in their local areas. Thus, enaling a sort of local social networking.
Stories represent the core feature of the platform, or at least what gave it intial traction. In fact, this is made of a discovery tab where it’s possible to check all the content friends are producing over Snapchat. This idea would be copied by pretty much all other social media platforms.
Spotlight is a sort of dedicated bacheca where the most interesting content is shared across various communities.

Snapchat monetization strategy

Snapchat monetizes primarily through advertising. The advertising products include:

Snap Ads
and Sponsored Creative Tools (Sponsored Lenses and Sponsored Geofilters)

By 2020, Snapchat recorded over $4.6 billion in revenues and over $1.4 billion in net losses.

Revenues are classified in two ways:

Advertising gets sold directly to advertisers, referred to as Snap-sold revenue
Certain partners that provide content on Snapchat, or content partners, also sell directly to advertisers, referred to as partner-sold revenue

Snap Ads, whether Snap-sold or partner-sold, may be subject to revenue sharing arrangements between Snapchat and the content partner.

What metrics does Snapchat use to assess its success?

Snapchat measures the progress of its advertising business using two key metrics

ARPU (average revenue per user) because it helps Snapchat understand the rate at which it is monetizing the daily user base. Snapchat defines ARPU as quarterly revenue divided by the average Daily Active Usersì ARPU was $3.47 in Q4 2022, compared to $4.06 in Q4 2021.
Snapchat defines a Daily Active User as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period. DAU or Daily Active Users, or DAUs, Snapchat had 375 million daily active users by 2022.

Snapchat key metrics

As per its financial reports:

Daily Active Users, or DAUs, increased to 265 million in Q4 2020, compared to 218 million in Q4 2019.
Average revenue per user, or ARPU, increased 33% to $3.44 in Q4 2020, compared to $2.58 in Q4 2019.

Conclusions

The company has more than tripled its revenues since 2017.
However, its operating income is still quite negative. In a digital marketing industry controlled primarily by the duopoly Google (Alphabet) and Facebook (Meta), Snapchat is stuck in the middle. In additional the digital advertising space is completely getting reshaped, as Google and Facebook are losing hold of their monopoly on ads.
Also, its distribution mainly depends on other platforms like Google, Apple, and Amazon. Therefore, the ability of the company to have a consumer AR product is crucial for its long-term success.