From Teen Playground to Profit Hub
Snapchat’s journey from a teen-centric app to a potential profit powerhouse has reached a critical juncture. When Snapchat announced last month that it had reached 5 million paying subscribers for its Snapchat+ service, it seemed like a stunning achievement. The milestone marked the halfway point to the 10 million subscriber number that CEO Evan Spiegel had just months earlier identified as a “medium-term” goal. The service’s success in just 15 months after launching proved that despite Snapchat’s reputation as an app used mainly by teens, users are willing to cough up money for a premium experience on the platform. At 5 million subscribers paying $3.99 per month, Snapchat+ is set to earn around $239 million in annual revenue.
The Challenge of Monetizing Growth
Snapchat’s surging user base hasn’t been mirrored in revenue growth. In the first six months of this year, sales dipped by more than 5% compared to the year-ago period, and it posted an operating loss of $769 million. Snap’s (SNAP) shares are down more than 11% since this time last year. The sales declines come as Snapchat, like other platforms, works to update its advertising business to cope with changes to Apple’s app tracking policies. And it comes as the company funnels money into innovations in artificial intelligence and augmented reality. Snap has also faced lawsuits from parents alleging the app contributed to their children’s mental health struggles or enabled them to buy illicit drugs, with sometimes fatal outcomes. Still, analysts say Snap’s user growth continues to represent a major opportunity for the company.
Unique Focus Amidst Competition
Despite its reputation as a platform mainly for young people with less reach and cultural relevance than rivals like TikTok, Instagram, and Facebook, Snapchat’s core mission is to allow users to have more private conversations with their friends. This unique focus on interpersonal and small group interactions is essential, especially to younger social media users who don’t want to broadcast their entire lives to mass audiences as they would on TikTok or Instagram.
Aiming to overtake TikTok
Snapchat says that much of its daily user base is distinct from other platforms, according to a study of 10,000 users conducted on Snap’s behalf by market research firm GWI during the first half of 2023. The group found that 43% of the people aged 16-64 who used Snapchat did not use TikTok, and more than half of daily Snapchatters in the same age range were not using YouTube on a daily basis.
Monetizing a Messaging Platform
Monetizing a messaging platform like Snapchat is a significant challenge. Unlike platforms like Instagram and TikTok, where users frequently discuss specific products, Snapchat has traditionally leaned more heavily into brand awareness. While there still is brand advertising online, there are many challenges and discussions about what this looks like going forward. Snapchat’s emphasis on user privacy may be a boon to users but a challenge for advertising. Additionally, Snapchat’s lower user engagement time, compared to rivals, impacts its advertising potential. The average Snapchat user in the third quarter of 2023 spent just 19 minutes per day on the app, compared to 103 minutes per day on TikTok, 60 minutes per day on Instagram, and 28 minutes per day on X.
Promising Signs and Future Prospects
Snapchat’s task now is to make a meaningful profit from all of those users. Despite the challenges of monetizing messaging platforms, Snap is actively investing in improving its direct response advertising business. Snap’s active advertisers were up 20% year-over-year, showing promising signs. Snapchat’s frequent user check-ins, around 40 times a day, show potential for engagement. Snapchat is committed to enhancing its ad platform, poised to capitalize on the growing user base in the future.