Snapchat profits from advertising, and as per the newest data, the app is responsible for around 0.6% of the global ad revenue. This may seem like little, but since Snapchat debuted in 2011, it has come a long way to now compete with the likes of Instagram and WhatsApp.
In addition to advertising, the app relies on other revenue sources like premium subscriptions and investments in startups, making people curious to dive into its business model and learn how exactly Snapchat makes money.
Scroll down to explore how this instant messaging app generates income and look at some key strategies it’s pursuing to drive revenues.
The Snapchat Business Model
Snapchat’s business model is primarily based on advertising revenue. The company earns money by allowing advertisers to create and display ads on its platform, which reaches a large user base of over 300 million daily active users.
The camera company also monetizes on AR tools and features, which are central to its business model. These are made available to creators with whom Snapchat enters into partnerships.
And finally, since Snapchat is predominantly used by younger audiences, ensuring a safe experience for everyone involved is another crucial element of its business model.
Having explained Snapchat’s business model, let’s take a closer look at how each segment works.
Augmented Reality
Disappearing messages and stories was how it all started for Snapchat. However, one of its major competitors, Instagram, reproduced this feature, so Snapchat began looking for other ways to add value to its users and focused on AR.
From 2015 to 2017, Snapchat acquired several startups working on augmented reality, including the Ukrainian startup Looksery and Cimagine, a product that enables users to visualize products and place them where they intend to use or wear them.
Snapchat also bought Vergence Labs, which helped it launch its first Spectacle glasses, and later on purchased the company that developed its Bitmoji avatars.
This enabled Snapchat to create and develop multiple unique AR products to make the platform stand out from its competitors, attract more users, and serve more ads. Currently, Snapchat has over three million Lenses created by a growing community of more than 300,000 Lens creators and developers.
Creators
Similar to Tik Tok’s business model, Snapchat creators play a vital role in keeping the app’s user base engaged and active, and they have the potential to reach millions of people with their content. Creators use the app’s features, such as filters, lenses, and stickers, to create unique and engaging content for their followers.
From celebrities and influencers to regular users who have developed a following through their content, anyone can be a Snapchat creator. Using the designated ‘Discover’ section, users can find content created by publishers, media companies, and influencers, but there are also various tools and features to help them grow their following and engage with their audience.
Additionally, Snapchat offers monetization opportunities for creators through its ‘Snapchat Spotlight’ feature, which allows users to submit their short-form videos and a chance to earn money based on the number of views.
Localization and Partnerships
After being reluctant about branching out to other markets, Snapchat finally decided to localize the app for each language to provide users with a more personalized experience and set up shop in Mumbai, India. This brought the platform new users and resulted in the signing of valuable partnerships with Android phone manufacturers, including Samsung.
Another addition to Snapchat’s revenue model was when the company sealed a deal with Indian Flipkart to develop AR experiences so that their products are directly available for purchase as part of the Snapchat app. To honor its partners and keep them informed about ongoing and upcoming developments, Snap Inc. now also hosts the annual Snap Partner Summit.
Safety
Snapchat’s safety value is a crucial component of its business model. As a social media platform that makes messages automatically disappear, its success depends on the trust and safety of its users. If users don’t feel safe using the platform, they will stop using it, and the company’s revenue will suffer.
From an in-app family center that enables parents to check who their kids exchange messages with to a Crisis Text Line for anyone who feels down or unwelcomed and even stickers and the Here for You dedicated mental health channel, Snapchat really walks an extra mile when it comes to safety.
By prioritizing safety and privacy, Snapchat not only retains its users but also continues to be an attractive space for teenagers.
How Does Snapchat Make Money?
Snapchat makes money by showing ads and getting people to pay for extra features. The company also makes money from investments in other companies, selling hardware and premium subscriptions. Snapchat ads come in various formats, such as sponsored lenses, filters, and geo-filters, that allow brands to reach users and get them to interact with them.
To better understand how the company leverages its business model to make money, here’s a breakdown of Snapchat’s revenue sources.
Advertising
Ads are a vital revenue source for Snapchat and comprise 99% of its earnings. Moreover, the global revenue of Snapchat from advertising is expected to reach $4.18 billion in 2023, up from $3.63 billion in 2022. What’s more, projections are that Snapchat’s global advertising revenue will reach an astonishing $5.9 billion by 2026.
Statistics also reveal that the company is responsible for roughly 0.6% of the global ad revenue. This puts Snapchat ahead of Pinterest, which relies on a similar revenue model and is currently responsible for 0.5% of the worldwide ad revenue. So what makes its advertising strategy so successful, and how does Snapchat make money from ads?
In general, Snapchat ads can be divided into two categories.
AR Ads
These ads aim to create immersive 3D experiences and can be served to users as either Sponsored Lenses or Sponsored Filters.
Sponsored Lenses are animated filters that users can add to their snaps. Advertisers can create custom lenses with their branding, which users can share with friends.
Sponsored geo ads are location-based filters that users can add to their snaps when they’re in a specific country, city, or area. These enable advertisers to create custom filters for events or specific locations, such as store openings or festivals.
Snap Ads
This category of ads enables advertisers to use full-screen videos with sound in various formats (single image or video ads, story ads, collection ads, dynamic ads, and commercials). They can be served between users’ stories or in the ‘Discover’ section of Snapchat and perform excellently in driving website traffic or increasing brand awareness. Moreover, brands using Snap ads may achieve up to 20% ROI.
Hardware Sales
Snapchat debuted its first hardware device in 2016 with the launch of its camera-powered glasses called the Spectacles. The glasses feature a camera lens, enabling users to record video and upload it directly to the platform.
And while the first edition of Spectacles was not as successful as the company hoped, it still contributed to the Snapchat revenue streams.
In May 2017, the company reported that the ‘other revenue’ category, including hardware sales, earned them $8.3 million. Until today, Snapchat has released three versions of Spectacles and continues to focus on finding ways to enrich the experiences of its users with AR.
Snapchat+
In 2022, Snap Inc. introduced Snapchat Plus, which costs $3.99 per month or $39.99 per year. By subscribing to Snapchat+, users get new Bitmoji backgrounds, the option to replace the default Snapchat icon, access to Snapchat messages from the web, and the ability to see where friends who’ve shared their location have been in the past 24 hours and more.
According to reports, within two months of launching Snapchat+, the company managed to gain one million subscribers, and at the beginning of 2013, this number reached two million.
Moreover, it appears that Snapchat’s premium pricing strategy aiming to diversify its revenue pipelines has so far been successful.
Data shows that at the end of 2022, Snapchat+ made $5.6 million in net revenue from the App Store alone, representing an increase of 27% since August 2022. Also, at the end of February, net income from subscriptions increased by an additional 21% reaching $6.8 million.
Investments
In 2018, Snapchat launched the Yellow startup accelerator, through which it invested $150,000 in up to ten startups. This helped Snapchat make strategic investments, expand its offerings, and enhance user engagement, but it also provided an opportunity to increase its revenue in the long run.
So far, Snapchat has invested in 15 companies, including Zenly, a social mapping app, and Vurb, a search engine that provides recommendations for places to go and things to do. And even though this program is presently on hold, Snapchat can still profit from the investments and get access to its KPIs which it can use for its benefit.
How Much Money Does Snapchat Make?
Snapchat made an annual revenue of nearly $4.6 billion in 2022, up from $4.1 billion the year before. However, the company also reported an increased net loss of $1.4 billion in 2022, significantly higher than the $489 million reported in 2021.
On the upside, Snapchat has maintained the number of daily active users growing, reaching a solid 375 million at the end of 2022 compared to 363 million recorded in 2021. This means that despite the losses and economic difficulties it’s facing, which forced it to shut down its Yellow program, there is still a lot of potential for the app to monetize its user base and drive revenue.