Snapchat has become increasingly ad-supported in recent years. Where once ads on the platform were limited, now they are highly prevalent throughout the app. This has led many users to ask: why does Snapchat have so many ads now?
There are a few key reasons behind Snapchat’s shift to hosting more advertisements:
- Snapchat is seeking revenue. As a free app, Snapchat must generate income through ads in order to keep the platform running. More ads mean more revenue.
- Snapchat has a large, engaged user base. Over 265 million people use Snapchat every day. This makes the app highly appealing to advertisers looking to reach a young demographic.
- Snapchat ads are video-centric. Video ads tend to have much higher engagement and recall compared to static image ads. This makes them valuable to advertisers.
Essentially, Snapchat has ramped up its advertising efforts in order to monetize its huge user base. While this may be frustrating for some users, ads are the tradeoff that allows them to use Snapchat for free.
The Growth of Snapchat
To understand why Snapchat relies on advertising today, it’s helpful to look at the app’s growth over time.
Snapchat first launched in 2011 as an ephemeral messaging app where photos would disappear after being viewed. The app quickly became popular among teenagers and young adults as a fun, casual way to communicate.
By 2012, Snapchat was processing over 20 million photos per day. And by the end of that year, the app had over 1 million daily active users.
Snapchat’s growth only accelerated from there:
| Year | Monthly Active Users |
|---|---|
| 2013 | 200 million |
| 2014 | 500 million |
| 2015 | 100 million (daily) |
| 2016 | 150 million (daily) |
As these numbers show, Snapchat experienced enormous growth in its first 5 years. And that growth has continued: today Snapchat has over 265 million daily active users.
This type of exponential growth is what made Snapchat so appealing to advertisers. The app’s young user base represented a highly valuable demographic that could be reached at scale.
But sustaining that growth and maintaining Snapchat’s product offering also required new sources of revenue. That imperative ultimately led Snapchat to welcome more ads.
Snapchat’s Revenue Needs
For any social media platform to survive, it needs to generate revenue. Companies incur major costs in areas like:
- Product development
- User support
- Content licensing
- Server infrastructure
- Operating costs
When Snapchat first launched, these costs were minimal. But as the app grew, so too did its expenses.
By 2016, Snapchat had over 150 million daily active users. And the company employed over 1,500 people to support its operations.
As Snapchat’s costs grew, advertising revenue became critical to keep the business afloat. Otherwise, the company would have had to start charging users (and likely lose many in the process).
Some key financial developments include:
- 2014 – Snapchat started allowing ads by paying brands.
- 2015 – The company earned an estimated $50 million in revenue.
- 2016 – Revenue jumped to over $350 million.
- 2017 – Snapchat went public, trading on the US stock exchange.
This need to satisfy investors and profit as a public company has also driven Snapchat’s push into advertising.
In short, Snapchat had to start making much more money through ads in order to support its growth. Without that ad revenue, Snapchat likely wouldn’t exist today.
The Value of Snapchat’s Audience
The core reason Snapchat is able to generate so much ad revenue? Its valuable user base.
Snapchat’s users tend to beyoung, affluent, and active on mobile devices. This makes them highly appealing to advertisers:
- Over 70% of Snapchat users are under 34 years old.
- Roughly 90% of daily active users engage with the app via mobile.
- Snapchat reaches over 90% of 13-24 year-olds in the United States.
- Snapchat users are estimated to have over $2,000 in disposable annual income.
Essentially, Snapchat offers advertisers access to the coveted youth demographic, who often hard to reach through traditional media platforms.
Brands are willing to pay more to advertise on Snapchat since they know their ads will reach a large, targeted audience. The unique video ad formats on Snapchat also make the ads more engaging.
As Snapchat’s own advertising blog notes:
“Snapchatters are the most authentic, engaged, and influential group of mobile first consumers. They’re eager to discover new products and share their experiences with brands they relate to and trust.”
This gives Snapchat incredible leverage in ramping up ad sales and ad prices. The more advertisers compete for access to Snapchat’s users, the more revenue the company generates.
Snapchat’s Valuable Ad Formats
Beyond its audience base, Snapchat offers advertising experiences that users actively enjoy and engage with. Snapchat has innovated with a range of video ad options.
Some of the most popular Snapchat ad products include:
Snap Ads – Full-screen video ads that appear between stories and content. Snap Ads can be up to 180 seconds long.
Sponsored Lenses – Special AR lenses that feature branded content. Popular examples include the taco bell Cinco de Mayo lens.
Filters and Geofilters – Location-based filters sponsored by brands that users can add to their content.
3D World Lenses – Interactive, augmented reality lenses that use 3D space. Allows for immersive branded content.
Collection Ads – Scrollable feeds where users can browse products and make purchases right in the ad unit, without leaving the app.
Story Ads – Video ads up to 20 seconds long that run within a user’s story feed.
The interactive, engrossing nature of these ad formats allows brands to make a bigger impression on Snapchat’s audience compared to static ads. They feel like natural extensions of the app experience.
This clever advertising approach helps justify Snapchat’s surging revenue, even if it contributes to the increase in ads users now see.
How Snapchat Sells Ads
So how does Snapchat actually make money from advertising? The company uses a combination of self-serve platforms along with direct sales.
Any brand can sign up for Snapchat’s self-serve ad manager to start running Snap Ads and story ads targeted by location, demographics, and other factors. This makes Snapchat ads easily accessible to businesses of all sizes.
But Snapchat also has an in-house sales team that pitched bespoke advertising packages to Fortune 500 brands and other big advertisers. For very large brands, Snapchat even builds custom ad experiences like lenses and filters.
According to Snapchat, they focus ad sales on categories like:
- Entertainment
- Restaurants
- Retail
- Technology
- Consumer Packaged Goods
- Travel
These categories likely offer the highest potential payout, given the disposable income Snapchat users have.
Snapchat charges advertisers based on a fixed cost per impression, though minimum ad spends may apply. The average eCPM (cost per 1000 views) ranges from $4-$8 on Snapchat according to estimates.
The company is also exploring other ad formats like these:
- Shoppable posts – Allowing purchases directly within the app
- Sponsor tags – Promoted influencer content
- Curated stories – Brand takeovers of certain stories
As Snapchat’s ad offerings expand, it’s likely that ads will only proliferate further on the platform. But for now, the company seems to have found an advertising model that satisfies both its balance sheet and its users – even if begrudgingly.
The Benefits of Advertising for Snapchat
It’s clear how advertising generates substantial revenue for Snapchat. But increased ads also come with non-financial benefits for Snapchat as a product.
More advertisements help Snapchat improve its service in areas like:
Funding Innovation – Revenue from ads allows Snapchat to invest in new features and experiences. Recent examples include Snap Map and augmented reality lenses. Without ads, development could slow.
Maintaining Relevance – The influx of ad money means Snapchat can continue to adapt to shifting user behaviors. For example, embracing advertising may have helped Snapchat avoid the fate of faded competitors like Peach.
Fostering Competition – Snapchat’s growth pushes competitors like Instagram to innovate with their own offerings, improving the overall social media landscape. The competition breeds better experiences.
Enhanced Targeting – By analyzing ad performance, Snapchat can improve its understanding of different user demographics. This allows both ads and content to become more relevant over time.
While increased advertisements may frustrate some users, they ultimately allow Snapchat to survive and thrive as a platform. The revenues fund Snapchat’s evolution as a product – which in turn benefits its user base.
It’s the classic tradeoff social platforms have to make. And for now, Snapchat seems to have struck the right balance.
User Perceptions of Snapchat’s Advertising Growth
Despite the logical reasons for Snapchat’s ad push, many users still complain about the influx of ads on the platform. Some common grievances include:
- “The ads interrupt my experience.”
- “I see the same ads over and over.”
- “Ads take up space where I could see my friends’ stories.”
- “The ads aren’t relevant to me.”
- “Some ads are too long or intrusive.”
Essentially, while users understand why Snapchat relies on advertising, that doesn’t mean they have to enjoy the experience. The level of ads feels disruptive relative to Snapchat’s earlier days.
Interestingly, sentiments seem most negative among Snapchat’s longtime users. Those who joined the app back when it was ad-free tend to perceive the increase in ads most unfavorably.
This reaction is natural among loyal users who remember an app’s beginnings. Any major evolution takes time to accept.
Snapchat may be able to win over veteran users by:
- Explaining why ads are critical for Snapchat’s future
- Showing how ad revenue improves Snapchat’s offerings
- Giving users ad controls like frequency caps
- Making ads as relevant and unobtrusive as possible
Adapting to user feedback can help smooth over tensions as Snapchat charts its advertising-centric course. But the company has clearly placed its bets on advertising moving forward.
The Outlook for Snapchat’s Advertising Growth
Given the strong financial incentives and product benefits, Snapchat is unlikely to pull back on advertising anytime soon. More likely, ads will only become more pervasive on the platform.
Snapchat itself has openly acknowledged that reaching profitability depends on increased monetization of its user base.
Some signals point to Snapchat’s continued embrace of advertising:
- Snapchat recently acquired Fit Analytics, a company focused on shopping-related ad technologies.
- The company is hiring extensively for its Snapchat Business Platform division focused on ad offerings.
- Snapchat founder Evan Spiegel has stressed the importance of growing Snapchat’s ad business.
- Snapchat is expanding its partnerships with third-party analytics firms to improve ad measurement.
Barring any major changes, expect ads on Snapchat to only grow in terms of volume, variety, and prominence. The revenue potential is simply too alluring for Snapchat to pass up.
Users may have to learn to tolerate ads as the cost of using a beloved app that would struggle to survive otherwise. And ideally, Snapchat can make those ads as minimally disruptive as possible.
But Snapchat will have to walk a tricky tightrope to balance user experience with ever-growing revenue. Managing that balance may be the app’s biggest challenge in the years ahead.
Conclusion
In summary, Snapchat relies so heavily on advertising today for a few key reasons:
- Advertising revenue allows Snapchat to remain free while covering its operating costs.
- Snapchat has a highly lucrative user base that brands will pay to access.
- Unique ad products like lenses and filters provide engaging marketing opportunities.
- More ads means Snapchat can fund innovation and stave off competition.
While existing users may dislike it, welcoming more ads became a necessary step as Snapchat scaled its business. And the advertising strategy Snapchat has pursued has clearly paid financial dividends thus far.
Looking ahead, Snapchat will likely push further into shoppable ads while developing more video content and authoring tools. The end goal is converting its core asset – Snapchat’s vibrant user base – into recurring revenue.
Balancing the user experience with business incentives will remain an obstacle. But for now, Snapchat seems to have embraced advertising as its pathway to profitability. The app may look very different than early adopters remember – but the Snapchat of today owes its existence to the allure of advertising revenue.