Slow and Steady Snapchat
If you don't know Snapchat, your children do. It is one of the world's biggest social media platforms, with 293 million daily active users as of January 2022.
Snapchat launched in 2011 with Evan Spiegel, Reggie Brown, and Bobby Murphy. A simple app where you could upload a video for 10 seconds.
Snapchat is the great new phenomenon of its time. It is great and great for one reason only: your social media history will not come back to haunt you, you will not have a digital footprint!
Snapchat has continuously innovated since 2011 with ‘Stories’ (a feature that allows users to post photos and videos on a feed for 24 hours), and ‘Memories’ (which reminds users of an event a year later.
As popular as the app is and with all this constant innovation one could assume that Snapchat has been generating a staggering amount of income for quite some time now right? Well if that is what you thought you would be wrong, surprisingly the last quarter of 2021 was the first time Snapchat had ever posted a profit.
How is this possible? How could an app that is so popular only generate profit for the first time at the end of 2021.
Snapchat makes money through advertising, ‘Snap Ads’ work by showing 10 second advertisements, these ads are interactive and the user can swipe up to access more content.
Snapchat also makes money through ‘Geofilters’. A Geofilter is an exclusive filter that varies based on the user's location. For example, Users who travelled to the Eiffel Tower would have access to an Eiffel Tower or Paris filter in the surrounding land mass. Although the use of this filter is free, you can only create them using snapchats tools. Snapchat will charge you for the landmass ( area) that the snap will take up and the duration of the Geofilter.
Along with Geofilters there's also Sponsored lens Filters, for example Taco Bell once had a Sponsored lens filter which turned users into a Taco. Taco Bell paid more than £600,000 for this however 224 million people interacted with it.
Snapchat also makes money from Sports Partnerships, the NHL, NFL and the MLB all have a ‘Live Stories’ moment during sporting events in order to reach more people in the social space.
In 2021 snapchat generated revenue, reporting a revenue of roughly £1.05 billion.
In 2021 however they always had substantial costs. Despite their first time recording profit in a quarter, for the whole year they still lost roughly £393.5 million.
The reason for this success is due to Snapchat raising their Daily Active Users (DAU) to 319 million which was an increase of 13 million for the second straight quarter. In 2021 DAUs increased by 20%. The rise in DAU’s can be accredited to their ‘Spotlight’.
With all these different methods of generating income it's surprising that Snapchat only posted a profit in the final quarter of 2021. This was most likely due to their high cost of revenue. With all of their users sending messages everyday, Snapchat spends a lot of money on cloud-computing power in order to handle this. In 2017 they committed to spending £1.6 billion dollars to Google.
To conclude, despite being very popular they still were only able to record profits in the last quarter of 2021. While generating a lot of revenue through advertising they still had costs which prevented profit. They countered this by constantly innovating and introducing features that increased their Daily Active Users.