Snapchat’s Innovative Revenue Model
Just how does this seemingly simple app bring in so much cash?
Everyone agrees that social media represents mega business in the internet age. Many of the multi-billionaire dollar and hugely influential companies we all know today—think Facebook, Tinder, Airbnb, and Instagram—barely existed a decade ago. Today, they’ve done nothing short of change the world and made billions of dollars in the process.
But one of the charges that’s often levied at these companies, particularly social media networks, is that their sky-high valuations don’t actually live up to their earning potential. Instead, they seem to rely on the promise of eyeballs and influence, believing that as long as they can continue to drive traffic to their platform and grow their usership, the necessary funding will magically follow.
For example, when Twitter launched its much-anticipated IPO in 2013 with a valuation of $14.2 billion, they didn’t have a reliable business model. Sure, selling ads or offering sponsored Tweets brings in cash, but time has proven that it doesn’t do so at the rate that’s needed to fuel a company’s steady growth in a reliable, sustainable way.
Breaking The Mold
However, one social media stalwart that seems to be breaking away from the ‘eyeballs first, business-model later’ trend is Snapchat, which just rolled out a custom filters function that could provide a feasible revenue model for the company. According to the Guardian, in finding “a way to earn revenue directly from everyday users by getting them to pay to create their own content,” Snapchat is one of the first social media platforms to have “developed a profit center that is really intended to scale through lots of individual users, rather than selling services or products to companies.”
The geofilters are personalized, location-based graphics that users can put on top of photos or videos. It’s an appealing way for users to personalize certain events they want to post on Snapchat, such as weddings, birthdays, or proposals. The price, which varies from just $5 to the thousands, is based on the length of time the filter will appear for and how wide the geographical area chosen for the filter is.
Geofilters
This move taps into one of the main reasons people use Snapchat, which is to share the events of their life in real-time with their followers. Unlike creating a digital scrap book for posterity—such as the likes of Instagram and Facebook—Snapchat users are more interesting in celebrating and personalizing the moments in their life as they happen, which makes personalized geofilters an appealing and hyper-personal option.
But perhaps the smarter business move for Snapchat is opening up the geofilters for brands to use. Conferences, concerts, festivals, and corporate sponsors of events can buy their own filters and insert them into their snaps, thereby creating very low cost advertising impressions by way of Snapchat views. In The Guardian, the social network confirmed that “weddings, events and local business ads are the most popular on-demand geofilters so far.”
Will It Last?
The question is, could this represent a long-term revenue model for Snapchat’s bottom line? With 100 million active users per day the platform is still growing, but it could be subject to the same growth plateaux and growing pains that we see on other social networks once they become a few years old. In addition, Snapchat has been criticized for directly inserting ads into content, which is something that could quickly become unpopular with users if paid filters become too ubiquitous.
Just as every network seems to be trying to strike the right balance between revenue generation and an appealing user experience, Snapchat seems to be toeing that line. But, at least they can say they’ve come up with a workable revenue stream in the process.