Snapchat was launched in September 2011. It is a mobile app you can download to your iPhone or Android smartphone, which you can then use to “chat” with friends through photos, videos and captions (so called “snaps”). An unique feature of Snapchat is that these photos or videos are “self-destructing”. After a few seconds after it’s been opened by the recipient, it gets deleted instantly (Moreau, 2016).
Another social media application is Facebook. Launched in 2004 by Mark Zuckerberg, more than ten years later it reported a revenue of 17.93 billion US dollars and an accumulated net income of 3.69 billion US dollars over 2015 (source: Statista). Like Facebook Snapchat is charging no costs to users. But a big difference lies in the fact that Snapchat didn’t had a clear business model. Years after the launch, people had no clue were Snapchat was planning to make money with. Therefore it was a big surprise that it had turned down a 3 billion US dollars offer from Facebook (Fiegerman, 2014), because Snapchat didn’t earned a dollar yet. At Snapchat they could only dream of revenues like Facebook had.
So why did Evan Spiegel, founder of Snapchat, refused this offer? The answer lies in the power of the network. Nowadays almost everybody has a smartphone and carries it everywhere at all time. Users are able to download Snapchat for free, making it very accessible. This resulted in a large user base of 200 million users. Compare that with other big social media platforms as Instagram (300 million), Twitter (302 million), LinkedIn (364 million) and Facebook’s (1.4 billion), and everybody will agree that Snapchat created an interesting and promising network (source: Investopia). The users of snapchat use the app a lot. Snapchat reported 100 million daily active users worldwide in May 2015 (source: Statista). The network is an essential part of the success of Snapchat and provide us with a good example of the network effect. The network effect is a phenomenon whereby a service becomes more valuable when more people use it (source: Investopedia).
After acquire such a large user base, Snapchat improved their app and service in such a way that money could be made. In an effort to move beyond just messaging, Snapchat introduced a new featured in early 2015 called “Discover”. After this update, the platform of Snapchat provides two services. First, there is the possibility for people to send each other snaps. Here users rapidly switch between the role of sender and receiver. Secondly, snapchat makes it possible for media publishers to send content to their large user base, using Discover. Here the role of sender and receiver are changeless. Discover allows media publishers to have daily content featured on the app. In this way Snapchat can make money, using the user base they built up.
Only a short time after Snapchat has launched Discover, it has been asking some top brands to pay $750,000 a day for placement (Adweek, 2014). In May 2015, only months after launching Discover, Snapchat was valued at 16 billion US dollars (Kosoff, 2016). Snapchat only provides the network, which illustrates the power of their network and Platform Mediated Networks in general.
BIBLIOGRAPHY:
Fiegerman, 2014:
http://mashable.com/2014/01/06/snapchat-facebook-acquisition-2/#S_oEAssOXmqj
Moreau, 2016:
http://webtrends.about.com/od/Iphone-Apps/a/What-Is-Snapchat.htm
Adweek, 2014:
http://www.adweek.com/news/technology/snapchat-asks-brands-750000-advertise-and-wont-budge-162359
Kosoff, 2016:
http://www.vanityfair.com/news/2016/03/why-snapchats-valuation-is-better-than-it-looks
Investopedia:
http://www.investopedia.com/articles/investing/061915/how-snapchat-makes-money.asp
http://www.investopedia.com/terms/n/network-effect.asp
Statista:
https://www.statista.com/topics/2882/snapchat/
https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/
