Traditionally, social media and messaging companies have produced stellar growth and connected hundreds of millions of users across the globe. However, monetising these users has proved more challenging, particularly in a way which does not detract from the overall experience of using the platform.
With the launch last week of Snapchat Discover, we thought it would be interesting to consider each of the major social media and messaging platforms and their efforts to monetise users, both via advertising and using other methods.
This time we look at Snapchat.
In one sentence: Snapchat is a messaging app that allows users to take photos and record videos and send to their contacts; uniquely, this content expires and is deleted after a pre-set period of up to 10 seconds.
Active monthly users: 100 million (August 2014)
Monetisation efforts: Having spurned a $3 billion acquisition offer from Facebook in November 2013, Snapchat has since been under scrutiny as the market attempts to assess whether this was simply stubborness on the part of Evan Spiegel, Snapchat’s CEO and Founder, or a shrewd business decision with an underlying, longer term strategy which will show Facebook’s valuation to be significantly lacking.
Winding forward to today, Snapchat has recently closed a new round of funding valuing the company at $10 billion, causing the market to celebrate Spiegel as one of today’s leading entrepreneurs, despite being only 24.
So what has caused a valuation of this scale to attach itself to a company which is barely 3 years old? Investors have been impressed with not only the platform’s growth but also its novel approach at monetising its audience of young adults, a target market, the loyalty of which has proven notoriously difficult for brands to retain. Unlike Facebook and twitter, both of which took years to move from a “growth at all costs” strategy to one of effectively monetising their users and stored data assets (see our later profiles to understand their monetisation efforts to date), Snapchat has managed to develop a monetisation strategy which appears, in its early stages, to be effective at raising revenue but has not led to user dissatisfaction.
A new approach
Snapchat’s goal is to return advertising to a non-intrusive, positive experience. In their own words:
The best advertisements tell you more about stuff that actually interests you. Some companies spend a lot of time and collect a lot of data about you to figure that out. The product we’re releasing today is a lot simpler. An advertisement will appear in your Recent Updates from time to time, and you can choose if you want to watch it. No biggie. It goes away after you view it or within 24 hours, just like Stories.
We won’t put advertisements in your personal communication – things like Snaps or Chats. That would be totally rude. We want to see if we can deliver an experience that’s fun and informative, the way ads used to be, before they got creepy and targeted. It’s nice when all of the brilliant creative minds out there get our attention with terrific content.
One of the big elements of the new approach is the use of Snapchat’s “disappearing” mantra and its application to advertising. Adverts will run for up to 20 seconds as part of a Brand Story and will be interspersed within the content itself. Snapchat is also only selling advertising in 24 hour chunks; and a flat rate of $750,000 per day applies across the board for each of these chunks. By way of comparison, a masthead on YouTube costs around $500,000 per day. Although some advertisers have baulked at this price, claiming difficulty in justifying the high cost for an unproven advertising platform running for such a short period of time, a recent report from Millward Brown focussing on the first adverts to run on Snapchat reported user enjoyment figures of 60%, around 3x that of a standard advertising campaign.
Discovering new content
The second string to Snapchat’s monetisation bow is Discover – a new platform which allows for users to access curated news from selected sources, reformatted and rethought to work natively on a mobile platform. The content is arranged into channels for the given news source, and within this into stories, designed to create a flow to the content to retain interest. In Snapchat’s words:
This time we built the technology to serve the art: each edition includes full screen photos and videos, awesome long form layouts, and gorgeous advertising.
Clearly this offers an excellent opportunity for brands to engage directly with the difficult millenial target audience. Staying true to its ephemeral nature, all content disappears and is refreshed every 24 hours, encouraging its users to return and explore what is new on a daily basis.
Is it working?
At this stage it is too early to tell. Snapchat is still very much in its infancy as a monetised, advertising supported platform. However, it has moved from growth at all costs to this next phase at a much earlier stage in its lifecycle than other social media platforms and is adopting a very different approach to advertising – folding it into its products as part of the platform itself rather than attempting to retrofit advertising to its existing offering as an afterthought.
It will be an interesting journey for Snapchat over the next 12 months as it moves to a revenue generation model and we will be eagerly watching to see whether it can use its currently untapped potential to justify the huge valuations it has recently obtained and what new and different advertising approaches it develops in that time; we expect that Discover will not be the last innovation we see from Snapchat. Watch this space.