Snapchat is currently one of the hottest, if not the hottest, startup in Los Angeles’ “Silicon Beach” tech scene. The mobile messaging company whose platform leaves no text or image “paper trail” is very popular with younger users, as they feel secure in expressing themselves more freely. It was founded in 2011 by Stanford classmates Evan Spiegel, Josh Meyers & others. The popularity of the free app has certainly caught the attention of the tech and VC communities, as a recent $10 billion valuation (despite zero revenue) will demonstrate.
In short, Snapchat needs to (now quickly) evolve from a popular, rapidly growing fascination into a serious company that makes money. Previous predictions of an in-app purchase monetization strategy have not yet materialized. And so it was recently confirmed by Spiegel that Snapchat is planning to introduce paid advertising on its messaging app (see linked articles below). Although there were few details on how the ads will work or be presented, Spiegel did indicate that the ads will be essentially content based, and will involve “stories,” a content product of which Snapchat users view over 500 million per day.
Although this development is no surprise – most free social media and mobile messaging app companies reveal their “secret” monetization strategies to be some form of paid ads – the interesting thing here will be if Snapchat can somehow create a “game-changing” monetization system where the ad product is intertwined with great content and user-driven threads. This element is critical for it to appeal to young users who are turned off by traditional display-based brand advertising. Yet as the below articles (from Ad Age and Adweek) on this subject hint, a good ad-based monetization strategy can still be a clever, creative, highly nuanced art form. It will have to be, seeing how the ads themselves will probably disappear as quickly as the messages – after about 10 seconds – not what you want if you’re an advertiser.
Clearly, Snapchat is highly focused on monetizing its platform: it has made some notable hires of former Facebook execs, one of the better examples of a company that has effectively monetized its user-generated content. Some say this new & evolving business model will require “brands..to figure out how to get super-creative” (Shafqat Islam, NewsCred), but I feel that the onus will be much more placed on Snapchat itself. It will need to create a killer advertising product that is deeply rooted in (disguised as?) engaging content that resonates with Snapchat’s millennial user base.
If that approach can be successfully executed (a big if…), major brands will follow and the business model will get real traction. Then the $10 billion valuation will quickly start to look very reasonable.
Read these pieces (links below) describing Snapchat’s first advertising strategies; let me know if you think they are on the right track.
Ad Age article: http://adage.com/article/digital/snapchat-ads-coming-ceo-spiegel/295345/
Adweek article: http://www.adweek.com/news/technology/snapchat-will-reportedly-debut-ads-and-videos-159605