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How does snap make money?

How does snap make money?

Snapchat has become one of the most popular social media platforms, especially among younger users. The app allows users to share photos, videos, and messages that disappear after being viewed. While Snapchat started as a free app, over the years it has developed various ways to generate revenue. Here is an in-depth look at how Snapchat makes money.

Advertising

The majority of Snapchat’s revenue comes from advertising. Snap sells ad space through its Snap Ads platform, allowing companies to show ads to Snapchat’s 186 million daily active users. There are three main types of ads on Snapchat:

  • Snap Ads – These are full-screen video ads that appear between stories and other content. Advertisers pay based on impressions.
  • Sponsored Lenses – Companies can sponsor AR lenses that overlay effects on a user’s photos or videos. These are popular for brands trying to engage users.
  • Sponsored Filters – Sponsored filters allow users to add branded overlays and effects to their snaps. Advertisers pay for these filters to increase brand awareness.

Snap Ads make up the bulk of Snapchat’s revenue. Snapchat charges advertisers high rates due to its valuable user demographics, with 75% of users being between the ages of 13 and 34. Snap Ads allow brands to tell stories using photos, videos, gifs, and more. The vertical full screen format makes them hard to ignore. Snapchat says its ads are 6x more likely to drive action than traditional social media ads.

In addition to commercial advertising, Snapchat also generates revenue from political advertising. However, this remains a small portion of revenue. The company faced scrutiny for allowing false political ads in the past, but says it has strengthened its political ad policies since.

Sponsored Lenses and Filters

Sponsored lenses and filters offer a unique interactive advertising opportunity for brands on Snapchat. There are two main options brands can choose from to sponsor AR experiences on Snapchat:

  • Sponsored Lenses – Brands create custom AR lenses that transform the look of a user’s selfie photo or video. When users engage with a sponsored lens, the brand pays Snapchat. Top sponsored lenses get billions of views.
  • Sponsored Filters – Sponsored filters add branded overlays and frames to a user’s photo. Users can browse sponsored filters and choose to add them to their photos before sharing. Each sponsored filter has a cost per view.

According to Snapchat, 60% of daily active users play with lenses every day on average. This high engagement makes sponsored lenses and filters valuable for brands trying to drive awareness, especially among younger demographics. Major brands like Coca-Cola, Netflix, Starbucks and more have run sponsored lenses and filters.

Other Revenue Streams

While advertising makes up the majority of Snap’s revenue, the company has been expanding its revenue streams over the past few years.

Spectacles

In 2016, Snapchat released its first hardware product – Spectacles. These sunglasses contain a built-in camera that can record circular videos in first-person to share on Snapchat. While Spectacles have not become a major revenue driver, they demonstrate Snap’s efforts to expand its product ecosystem.

Snap Publisher Network

The Snap Publisher Network allows publishers and content creators to monetize their content on Snapchat. Publishers can earn revenue by including Snap ads between content that they produce. Snapchat launched this program in 2018 and it remains relatively small revenue-wise.

Commerce Partnerships

Recently, Snap has been testing ecommerce capabilities that allow users to easily shop and make purchases within the Snapchat app. For example, Snapchat launched shoppable AR lenses that let users browsing sneakers try on shoes virtually. While still in early stages, commerce initiatives present additional revenue potential for Snapchat moving forward through partnerships and revenue sharing with brands.

App Internal Purchases

Within the Snapchat app, users can purchase additional filters, lenses, and features for a small fee. This includes things like custom Geofilters for parties and events. These in-app purchases and subscriptions currently make up a very small portion of Snapchat’s revenue.

Snapchat User Statistics

Here is an overview of some key Snapchat user statistics that give insight into its popularity:

Total Daily Active Users 186 million (Q3 2022)
Monthly Active Users 363 million (Q3 2022)
Average Minutes Per Day 30+ minutes (2021)
Age Distribution 90% 18-34 years old
75% 13-34 years old
Countries with Most Users US, India, Brazil

These stats help highlight Snapchat’s popularity and reach, especially among younger users who are valuable for advertisers. The over 30 minutes of daily usage demonstrates the strong engagement Snapchat has with its user base.

Financial Performance

Here is an overview of Snap Inc.’s recent financial results:

CY 2020 Revenue $2.5 billion
CY 2020 Net Loss $944 million
Q3 2022 Revenue $1.13 billion
Q3 2022 Net Loss $360 million

While Snapchat continues to experience losses, its revenue has been growing steadily. Revenue was up 57% year-over-year in Q3 2022. The company generates the majority of its revenue from North America and Europe. Snap is focused on growing its user base in strategic markets like India to tap into additional ad revenue opportunities.

Future Outlook

Snapchat is expected to continue increasing its revenue through advertising, augmented reality, and global user growth. However, it faces strong competition from rivals like TikTok and Instagram. Additionally, economic challenges and advertiser budget cuts could impact revenue. Snapchat is focused on product innovation, improving ad targeting capabilities, and rolling out new ad formats to reach its goal of becoming a mainstream advertising platform.

Key Opportunities

  • Augmented reality presents unique advertising and commerce opportunities
  • Additional revenue potential through premium features and in-app purchases
  • Global expansion in untapped high growth markets
  • New innovative ad units and advertising experiences

Key Challenges

  • Heavy competition from other social/messaging apps
  • Uncertainty in global economic environment
  • Regulatory changes around data privacy
  • Difficulty reaching older demographics

Conclusion

Snapchat has built a thriving business and become a mainstream advertising platform leveraging its popularity among younger demographics. It has successfully diversified its revenue streams beyond just advertising through initiatives likeSpectacles and content partnerships. However, it still has plenty of room to grow its global user base and continue innovating with new ad formats and augmented reality technology. While competitive and economic pressures persist, Snapchat is positioned to open up additional revenue opportunities in the future.