Although advertisement on Snap Inc.’s Snapchat application is not a new concept in any way, it has come to my attention that their prioritization has shifted more towards acquiring advertisement revenue rather than customer satisfaction recently. In this blog post I will discuss Snapchat’s functionality, its increased trend towards advertisement revenue and its current state in the market.
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Originally called Pictaboo, the concept behind Snapchat originated in the summer of 2011 by three students that attended Stanford University. Reggie Brown, one of said three students, told his friends that he wished that the pictures that he was sending a current fling would disappear after she had viewed them and thus Snapchat’s key feature was introduced. Due issues between the three, Reggie Brown was removed from the company by the other two students, Evan Spiegel and Bobby Murphy (current CEO and CTO respectively). By fall 2011 Spiegel and Murphy changed the name from Pictaboo to Snapchat, after which point the app started to take off. By early 2017, Snap Inc. valued its Snapchat application around $25 billion (Crook, 2015).
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Until January 2015, Snapchat mainly focused on building and expanding its userbase as much as possible so that future endeavors could reap the benefits of network effects. Snapchat barely had a business model that generated profits for its shareholders, but after in January 2015 they introduced the “discovery” feature. For $100 for every 1000 views generated, companies were enabled to publish their own snap story, which users could choose to watch if they wanted too by opening the discovery feature (Richmond, 2016). The emphasis here lies on the choice to watch advertisement, which was taken away throughout the year 2016 in which snapchat started to incorporate many other means for advertisers to use their platform. By embracing advertisers, Snapchat was finally able to profit from their acquired network effects by becoming a full blown digital platform that had advertisers on the money side and consumers on the subsidy side. It was during this time that SNAP Inc. started showing a major boost in revenue and profits.
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However, over the course of 2017 Snapchat’s worth has dropped on the New York Stock Exchange (NYSE) from $27 billion to approximately $15 billion during September 2017. This immense $12 billion drop in worth is due to their consumers’ pursuit of positive same-side network effects that were being acquired at competing firms such as Google’s Instagram and Facebook. Snapchat has seen its userbase flock back to these platforms, because in addition to their existing features these two platforms have incorporated most of Snapchats features into their platform (Frier, 2017). It turns out that Snapchat’s users had little loyalty towards Snap Inc.’s brand, as it showed that they easily opted for competitors that offered more content. In reaction to this development, Snap Inc. has attempt to regain its popularity through new filters, “Snap Spectacles” and new story features. Will this be enough to reestablish itself as the market leader, or are Google and Facebook simply too strong to have as competitors?
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Personally, I think the latter.
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References:
Crook, J., & Escher, A. (2015). A brief history of Snapchat. Retrieved October 10, 2017, from https://techcrunch.com/gallery/a-brief-history-of-snapchat/
Frier, S. (2017). Snap Misses Growth Estimates as Facebook Copying Takes Toll. Retrieved October 10, 2017, from https://www.bloomberg.com/news/articles/2017-08-10/snap-misses-user-growth- estimate-as-facebook-copying-takes-toll
Richmond, S. (2016). How Snapchat Makes Money (FB, TWTR). Retrieved October 10, 2017, from http://www.investopedia.com/articles/investing/061915/how-snapchat-makes-money.asp
Hey Philip,
I really enjoyed your post. Facebook actually attempted to buy Snapchat for $3 billion in 2013. As Spiegel declined his offer, Zuckerberg created the video and picture functions that Snapchat was famous for in their own social media platforms Facebook and Instagram. Personally, I believe that this lead a lot of people to switch from using Snapchat to solely Facebook and Instagram. This also makes intuitive sense, as the Platform Instagram and Facebook incorporates its traditional business model and just adds another feature. Once cool filters are developed and network effects come in to play Snapchat does not have a lot to compete on against the Zuckerberg empire. This is magnified, as users these days have so many options to choose a certain social media site. Why not incorporate everything in one to make it more simple for everyone?
Hi Philip,
Thanks for mentioning this concept, as I see people (and myself) switching from Snapchat to Instagram. I think Instagram has the advantage of reaching many more people at once, with posting your ‘own story’, compared to Snapchat. In my opinion, the mystory function in FB has been some kind of flop, as none of my friends use it. Moreover, as Johannes also brings up, Facebook and Instagram just add all the functions of snapchat into their own platform, which leads to people not switching anymore between several applications. However, there is one thing that let users stick to Snapchat: the groups. This is advantageous as you can send your picture/movie to a smaller specific group, or to many groups at the same time, without having to switch to the Direct Messages in Facebook or Instagram.
I agree with your last argument, stating that Snapchat is at his end of his “career”, as FB and Instagram are always good in copying features from, for example, Snapchat, leading to one or two applications where you can see/do everything. I think China is already one step further with “WeChat” that has so many features all together. As stated by Chao (2017), U.S. tech companies are already busy with following WeChat’s playbook, and I think it won’t take long until we have some sort of WeChat in Europe.
Chao, E. (2017). How WeChat Became China’s App For Everything | Fast Company. [online] Fast Company. Available at: https://www.fastcompany.com/3065255/china-wechat-tencent-red-envelopes-and-social-money [Accessed 15 Oct. 2017].
Hey Philip,
Interesting Read! I think it is going to be an very interesting fight to follow. Especially since Snapchats audience is such a young one. This audience is very difficult to target with tradition means of advertisement. If a single one company manages to get the clear leadership in this industry they can reap massive benefits.
I also agree with you that I think that Facebook and Google are too strong from snapchat. However Snap inc. will be a very interesting company to follow. Nowadays Snap inc. no longer promotes itself as an social media company but as a camera company. Perhaps they have already given up the fight with Facebook, but maybe they have an interesting new strategy up their sleeves. I guess only time will tell