How does Snapchat make money? A peek into success

Snapchat logo

Introduction

Snapchat was initially released in 2011. It was an exciting time and the app took the world by storm. I still remember how quickly its popularity grew around my school and friend groups. Eventually everybody had it installed on their phones. It was truly revolutionary, and none of us had seen an app like it. I can’t say any similar apps have had the same impression on us since. That’s why today we are going to take a look at how exactly Snapchat makes money.

But enough with personal anecdotes. Today we’re going to take a look at how this social app earns its keep. That’s right, we’re going to be taking a look at the question “How does Snapchat make money”.

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About Snapchat

As mentioned previously, Snapchat was founded in 2011, July to be exact. But it wasn’t known as Snapchat until September that year. Before it became known as Snapchat, it was launched as “Picaboo”. 

Snapchat was founded by Reggie Brown with the idea, Evan Spiegel with the business experience and Bobby Murphy with the coding knowledge. They were all students at Stanford University at the time. The iconic ghost mascot was designed by Brown and named Ghostface Chillah. The name comes from the rapper Ghostface Killah of the hip-hop group Wu-Tang Clan.

How does Snapchat work

Snapchat is a multimedia messaging app, and the main concept of the app is that messages are “in the moment”. You send a picture to a friend along with a caption, but they can only see the picture and read the message for 10 seconds after opening it. Then it disappears, forever.

The app originally focused on person-to-person photo messages, but eventually expanded to chats, videos, stories, and a discovery tab.

Stories are like a personal feed where you upload the “snaps” you would normally send your friends. These can be viewed by all your friends any number of times for 24 hours. It’s a great way to share events like concerts or parties with all your friends

A discovery tab is a place for brands and influencers to share the news with you.

How does Snapchat make money

Snapchat’s business model is quite simple. There’s no In-app purchases or products being sold to users, it’s all free-to-use.

Advertising

Snapchat is using the previously mentioned “Discovery tab” and “stories” to show advertisements to its users. It can best be described as “In-between content ads”, where you’ll occasionally be shown an ad while browsing organic content. 

Then there are also major companies like BBC, CNN, National Geographic, and many others who started serving ads in forms of stories and daily updates on the discovery tab.

The ads first started out as quite general until the company eventually employed an advertisement strategy that their CEO, Spiegel, finds “creepy” The strategy uses a technology called a “pixel”, which allows to track user’s interests and give them the ability to serve more targeted advertisements. 

Advertising campaigns on Snapchat start at $5 and are usually around 5-6 seconds long, so they pretty much look like a “snap”. The goal of these ads is to bring the user to a landing page, where an app installation or more long-form content awaits them.

There are also sponsored lenses, which serve as another form of advertising.

Fundraising

Snapchat went an unusual route. A lot of startups sit along waiting for an investor to pick up their “idea” before they actually get to work. Snapchat was the complete opposite and decided to get things done instead. Over the years they gained a lot of traction and attracted attention from some big-time investors, like members of the Saudi royal family and Yahoo Inc.

But the first money received from the outside came from Barry and Jeremy Liew, who approached the founders of Snapchat with an amount of $480k.

When did Snapchat start making money

For this question, I think it’s better to focus on the advertisement side of things since funding can’t really be considered revenue in the same sense.

Snapchat showed its first native ad to the world in 2014. It was a trailer for the movie “Oujia” which was posted under the apps’ “Recent Updates” section.

How much money does Snapchat make

Snapchat has actually been in the red for a few years, and is only now starting to make back what they’re spending. The important thing though, is that they’re out there, and they’re on the grind. 

In 2019, Snapchat made an astonishing $1.7 billion in revenue, 98% of which came from advertising. In 2018, it made $1.18 billion, so it’s growing fast. It’s still not entirely profitable, but as mentioned before the spending has leveled out.

Who owns Snapchat

Snapchat is officially owned by Snap Inc. (previously Snapchat Inc.), but the voting power is almost entirely with two of the founders, Evan Spiegel and Bobby Murphy. Together, they hold 95.8% voting power, which is undiluted and transferable to the other of the two should something happen to one of them.

But other than the founders, there are some interesting co-owners of the app. For example, Saudi royal prince Al-Waleed Talal who owns a 2.3% stake, in return for investing $250 million in 2018.

Can I make money with Snapchat

Not directly, no. Snapchat is not serving as a middleman for serving advertisements like for example Youtube does. But, like with any other social media, you could potentially make a lot of money as long as you have a following. The following in turn becomes your “product” that you can offer to companies for brand deals and custom made advertisements. You can also use it as a way to direct traffic to your website, product, or youtube channel.

And that’s about it for this article. I’ve written a bunch of similar articles, you can find them in the business category.

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