snapchat-business-model

The Snapchat Business Model In A Nutshell

Snapchat is a camera company which business model moves across three industries: social media, content marketing, and AR. Snapchat generates most of its revenue from several ad formats (AR Ads, Snap Ads, Sponsored Geolifters, and Sponsored Lenses). The company also produces Spectacles, a set of AR glasses enabling content creators to produce interactive experiences through Snapchat. 

Origin story

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The initial traction of Snapchat (Source Snap financials).

Back in 2008, Evan Spiegel met Reggie Brown during his freshman year.

The same year they joined together the Kappa Sigma fraternity house at Stanford.

There they met Bobby Murphy. In the spring of 2011, Reggie had this idea – how cool would this be – if the photos he was sending to a girl would soon disappear.

That is how in 2011, the idea behind Snapchat was born. The three young men put together an app which at the time it was called Pictaboo:

pictaboo-snapchat

Sourcetechcrunch.com

By the end of the summer, the app only had 127 users! The name was changed to Snapchat in the fall of 2011. However, the app soon started to get traction.

In less than a year, by the spring of 2012, Snapchat had 100,000 users. The first investment arrived in April 2012, when a venture capital firm made its first seed investment by valuing the company at $4.25 million.

By the spring of 2013, more than 60 million snaps were sent daily.

The pace of growth accelerated in June 2013 the valuation of the company (after the other two investment rounds) grew to $800 million. Snapchat added new features (like Snapchat stories), which made the company grow even faster.

The incredible thing about this story is that Mark Zuckerberg is reported to have offered $3 billion to acquire Snapchat,  although at the time, the company didn’t turn a dollar in revenue.

In December 2013, the company’s valuation reached $2 billion.

By the same time, Snapchat had over 4.6 million users. Finally, on June 2015, Snapchat came up with its first monetization strategy.

The uses of Geofilters allow businesses to brand themselves through advertising.

Just like Google allows businesses to bet on keywords. Businesses can create their Geofilters based on location and track the results of those Ggeofilters.

snapchat-data

Sourceblog.bufferapp.com

By March 2017, the company IPOed, closing the first day of trading with 44%, valuing the company at $33 billion. 

Since its inception, Snapchat has been a very innovative player in the social media space.

If at all, Mark Zuckerberg tried to acquire Snapchat over the years, but Facebook was turned down more than once.

This eventually led to Facebook copying many of Snapchat’s features (among the most successful ones was Stories) in its other products, like Instagram. 

Indeed, if we look at Snapchat’s product development, the company already looked into innovative products, like spectacles, back in 2017.

As they pointed out at the time, “Our latest effort to reinvent the camera is Spectacles, our sunglasses that make Snaps. Spectacles connect seamlessly with Snapchat and are the best way to make Memories because they capture video from a human perspective. For example, the wide-angle lens is designed to mimic the way the human eye sees the world so that viewing a Memory later makes a person feel like they are reliving the experience.”

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Source: Snapchat Prospectus

As further explained: 

Spectacles capture everything the lens sees using our Circular Video format, which can later be viewed in full screen on any device, in any orientation. Circular Video represents the evolution of our thinking around mobile video and the progression beyond our first vertical video format.

As of 2021, Snapchat is already working on its new generation of Spectacles: 

For the company to manufacture a device that enables creators to build content on the platform directly is critical for both distribution and growth of its digital advertising segment. 

By 2022, AR is still among the core strategy for Snapchat, which is focusing on three prioritizes: 

  • Growing its community and deepening its engagement with its products,
  • Accelerating and diversifying revenue growth,
  • And investing in the future of augmented reality. 

How does Snapchat work? 

The Snapchat interface is made of three main parts:

  • Snapchat application, the camera app to create snaps. 
  • Publishers Tools to publish Publisher Stories
  • and Spectacles, which is the hardware part that enables creators to create Snaps. 

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Image Source: Snapchat Financials

The workflow is pretty straightforward.

The Snapchat app opens up directly the camera app on a smartphone. From there, it opens up the Snap lenses, through which it is possible to manipulate images, and create enhanced photos and augmented visualizations. 

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Image Source: Snapchat Financials

The lenses are really the creative tools, that enable creators to interact with reality, thus creating, interactive, and immersive content. 

From there, users can create Geofilters (pretty much local filters), and Bitmojis (cartoonized versions of users), which can be shared as snaps. 

Content can be created in two ways: 

  • Either through the mobile camera
  • Or through Spectacles  

How does Snapchat make money? Inside Snapchat’s Ad Formats

For a bit of context, by 2022, Snapchat generated $4.6 billion in revenues and over $1.4 billion in net losses. 

Snap Ads

As the company highlighted: 

When we first started experimenting with advertising, we decided to try placing Snaps created by advertisers in Stories. We thought this would be a good way to build a scalable advertising business because there are so many people watching billions of Snaps in Stories every day. Advertising in Stories made sense because it meant that our advertising partners had an opportunity to use sight, sound, and motion to tell a story about their brand and products.

How does Snap Ads placement work?

Snap Ads can be placed across various parts of a live, publisher, or user story: 

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Image Source: Snapchat Financials

To which they can also create attachments. 

Snap Ads formats comprise: 

  • Single Image or Video Ads.
  • Story Ads.
  • Collection Ads.
  • Dynamic Ads.
  • Commercials.

AR Ads & Sponsored Lenses

AR Ads can be served as Sponsored Lenses or Sponsored Filters.

Lenses are designed to offer augmented and 3D experiences.

In the sponsored lenses format, advertisers can provide branded Lens experiences by purchasing Sponsored Lenses, thus creating interactive Sponsored Experiences, where it’s possible to enhance and augment reality, thus providing AR ads as well. 

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Image Source: Snapchat Financials

In the Sponsored Geolifter format users can be targeted geographically by locations (from individual buildings to entire countries). 

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Image Source: Snapchat Financials

Snapchat’s angle? Investing in AR for creators

The angle that Snapchat takes when it comes to its target audience is to build tools for creators. 

One of the latest examples is the drone, which is a tool to enable creators to build incredible content:  

As per its latest financial reports, Snapchat is investing massively in AR experiences.

As the company highlighted “over 250 million Snapchatters engaged with augmented reality every day on average.” 

Indeed, the company has developed the Snapchat Lens Studio, which the company describes as “a powerful application designed for artists and developers to build augmented reality experiences for hundreds of millions of Snapchatters. With a huge set of built-in features including custom shaders and advanced tracking technology, the possibilities are endless.”

An example of a Snapchat experience developed through Lens Studio enables developers on top of the platform to build custom experiences for millions of users on Snapchat.

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Mark Zuckerberg Empire

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Mark Zuckerberg is the principal shareholder of the company. Not only he retains ownership and control of the company. Facebook, like Google, has issued two kinds of common stocks, Class A and Class B. Where the holders of Class B common stocks are entitled to ten votes per share, and holders of our Class A common stocks are entitled to one vote per share. Mark Zuckerberg has a total voting power of 57.9%. 

Attention-Merchants Business Model

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In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

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In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

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Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

Facebook ARPU

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The ARPU, or average revenue per user, is a key metric to track the success of Facebook – now Meta – family of products. For instance, by the end of 2022, Meta’s ARPU worldwide was $10.86. While in US & Canada, it was $58.77; in Europe, it was $17.29; in Asia, $4.61 and in the rest of the world, it was $3.52.

Facebook Organizational Structure

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Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organizational structure is organized around the leadership of Mark Zuckerberg and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Metaverse Supply Chain

facebook-metaverse

Google Business Model

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A hidden revenue business model is a pattern for revenue generation that keeps users out of the equation, so they don’t pay for the service or product offered. For instance, Google’s users don’t pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.

TikTok Business Model

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TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

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Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

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YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it generated more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

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Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

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