Snapchat: The Path to Monetization

I’ve been increasingly impressed with Snapchat’s growth over time and its experimentation with revenue. As a result, I wanted to deep dive into its probably paths of monetization and the pros and cons. This is a lengthy read, but if you’re a nerd like me — I think you’ll enjoy it. Please comment or ping me if you have thoughts. Happy reading!

Why Now? Why Snapchat?

Many critics questioned the rise of Snapchat amidst large social media behemoths like Twitter, Instagram, and Facebook. No one expected users to crave another way to share photos with friends with the multitude of options that already existed. However, with the continued advancement of data tracking methodologies, users are smarter about their online presence and have more questions around what is stored or leveraged for advertising purposes. In the last decade, Facebook was disparaged in the media for being opaque about their tracking methodologies and making privacy settings intentionally hard to alter. Snapchat attracted users based on their ephemerality feature alone, a feature that Facebook was essentially barred from leveraging (given the copious amounts of revenue derived from advertisers who depended on this level of data on Facebook’s users.)

Today, consumers have a number of messaging and social apps to choose from — indicating a high degree of multi-homing and an unlikelihood of the market ever tipping to a winner-takes-all. As a result, multiple players will likely continue to exist on the global and local level and the question will shift from “how can I be number one?” to “how can I capture the most share, revenue and engagement amongst users?” While Snapchat has 100M daily active users compared to Facebook’s 1.01BN (as announced in its 3Q15 earnings),(1) Snapchat’s user base is the fastest growing of any social network. In 2014, GlobalWebIndex reports that Snapchat not only has a strong % of teens on its platform but also grew 57% in 2014 vs. the next closest competitor — Facebook Messenger at 50%. Now, defined as a formidable competitor to other social media players, Snapchat must appease financial stakeholders through a clear monetization strategy that does not alienate their strong, engaged user base nor strengthen their competitors.

Snapchat’s Rise to Prominence

When Snapchat first rose to prominence, it conveniently avoided comparisons with Facebook, and ultimately used its stark differences as a competitive strength.

First, Evan Spiegel avoided the media and focused only on quietly engaging the young demographic that had started to virally adopt the app. In fact, up until late 2013, Snapchat was oft in the media for being a new app that young teens were using to send “sexting” messages to each other. The Guardian, aptly claimed that it was: “Snapchat’s quiet revolution that meant people assumed it was for illicit purposes.”(2) For a long time, he didn’t even correct the media’s assumption that Snapchat was trying to be more than a “sexting” app.

Facebook had built its brand on sustaining a platform that would make the world more open and connected. Users were encouraged to update Facebook with major life events and share moments with friends that would last forever. Ephemerality was the last thing Facebook wanted to convince its users to do. Professor Yoffie, of Harvard Business School, writes in “Judo Strategy”: “Competing with a stronger player at what he does best is a losing game. But every champion has areas where he is weak, often precisely because he has invested so heavily in his core strengths.” (3) There was very little Facebook could do to counter Snapchat without risking its own “core strengths.” As a result, Facebook made a famous bid to acquire Snapchat for $3 Billion, which enthralled and excited tech media reporters and clearly made Facebook appear scared and vulnerable to Snapchat’s “attack.”

Did the Unicorn become a Unicorpse? Investors Put Pressure on Snapchat

Snapchat enjoyed a long honeymoon period as it rose to social media prominence, competing with the likes of Facebook, YouTube, and Twitter. In 2015 alone, Snapchat raised more than $1B in venture capital money and its valuation grew from $70M in early 2013 to $16B in May 2015, a whopping 22,757% increase in just over two years.(4) In documents leaked to Gawker on August 19th 2015, Snapchat purportedly made only $3 million of revenue but lost $128 million in 2014.(5)

Today, Snapchat is trying to be two, radically different companies at once. On the one hand, Snapchat is the antithesis of Facebook — a large part of its content disappears and it hopes to make money through creative means like virtual goods and native content rather than traditional ads. On the other hand, it is evolving into another Facebook, doing whatever it can to satisfy advertisers at the expense of its users. Snapchat must pick one sustainable monetization path to scale. If unable to do so, Snapchat threatens to scare away both advertisers and users alike.

Strategy 1: Copy Facebook’s Strategy

Snapchat’s monetization strategy has been multi-faceted. Snapchat has consistently tried various methods like Branded Geofilters, and Ads within Live Stories to monetize so that it does not have to build out a robust data analytics platform like Facebook had to in order to position itself favorably with traditional advertisers. However, without data tracking today, Snapchat’s advertisers are not getting the specific targeting they have come to expect from large social media players, leading Snapchat to have to slash prices from $700K per day just a year ago to under $100K.(6) Today, Snapchat retains photos and videos on its servers until the content is viewed and then deletes it, with no real ability to analyze the user data collected. Comparatively, Facebook’s data tracking infrastructure has gotten stronger. In 2013, Facebook built a homemade query engine called Presto that allowed it to analyze a “250-petabyte-and-growing data warehouse.” A Facebook engineer, Martin Traverso, said in a Gigaom article that “more than 850 Facebook employees use Presto every day…scanning 320 TB each day.”(7)

Second, without a traditional data tracking platform, Snapchat has had to think of creative new ways to advertise which have, in turn, ended up confusing all sides of the platform by diluting the user experience. Originally, Snapchat only had a 1:1 messaging functionality; Today, Snapchat offers 1:1 messaging, Discover Content (featuring 18 publishers), and daily Live Stories. When choosing how many sides to bring on board on a multi-sided platform, Snapchat has attracted too many sides, which has led to confusion and complexity.

Third, by embracing Facebook’s strategy, Snapchat does not have to make dangerous design and pricing decisions that it may have to write off in the future. One example of such a decision was the recent introduction of the Snapchat “Replay” feature for $0.99. Traditionally, users could replay one Snap a day for free. Now, by allowing content consumers to replay content for a price, Snapchat is threatening to anger its content generators, indirectly incentivizing them to create less un-edited and authentic content.

Strategy 2 — Avoid Tit-For-Tat: Leverage Strengths and Build Complements

Rather than match their competitor’s moves, Snapchat should “avoid tit-for-tat” and continue to play to its strengths. Snapchat has the most engaged user base with a unique hold on a young target demographic.

First, while Snapchat’s monetization strategy does not offer granular data or clickable advertising to date, it boasts other important advantages that competitors do not have. Recent surveys have found that consumers 13–24 watch an average of 11.3 hours of online videos per week as opposed to just 8.3 hours of broadcast with 62% reporting that digital content makes them “feel good” compared to just 40% for TV.(8) Snapchat has ushered in this digital shift from online video to mobile, and can continue to charge hefty prices for this engagement. Snapchat’s digital content only lasts for 24 hours, which incentivizes users to view and engage with it more, given its “fleeting” nature. “That one-day life span creates an urgency that’s unprecedented in today’s distraction-filled world. If your email inbox was going to disappear in 24 hours,” said Danielle Mullin in a FastCompany interview, VP of marketing for ABC Family, “you would feel the need to actually read every single email. That’s the genius of Snapchat.(9)

Second, Snapchat’s 3V is well positioned with purely Vertical content, which is “made for mobile — allowing up to 9x the completion rate compared to horizontal mobile video, featuring immersive full-screen Video content, and Views that are full-screen and 100% viewable.”(10) When an ad is shown, users must view the ad in its entirety because it takes over the screen, rather than existing on the sidebar or the bottom of the page where it can be overlooked. The format itself can command higher prices from advertisers despite the lack of sophisticated targeting. Additionally, while users have the option to skip over Snapchat ads right away, the company believes it can provide more nuanced data to its advertisers who would know for sure if an ad was viewed or not. With traditional advertising, brand partners pay for ads but often do not know if they were watched all the way through.


I believe that Snapchat must continue its current strategy and play to its strengths for the following reasons: First, despite Facebook’s size, Snapchat has better excelled at captivating a younger audience. Snapchat is unique in that 60% of its users are under 24 years old and 86% are under 35 years old. Meanwhile, according to comScore, Facebook has the lowest user percentage under 34 years old at 38%.(11) Snapchat has the unique ability to reach a sub-segment of young adults that have become “less interested and more difficult to connect with, capture attention, impress, convince and entertain.”(12) Given short attention spans, increased usage of multi-tasking, and multiple forms of media available, advertisers are constantly struggling to get in front of millennials — a demographic that they are willing to spend 500% more on.(13) Over 65% of the total monthly minutes spent on Snapchat are consumed by those under 24 years old — roughly triple the consumption rate seen across the “Total Internet” according to comScore.(14)

Second, as of May 2014, 700 million snaps are shared each day(15), suggesting 8–10 snaps per average monthly user each day — a very high daily engagement rate. Despite being the youngest company in comparison to WhatsApp, Facebook, Instagram and Flickr, Snapchat comes out on top in terms of photos shared per second per user.(16) Thus, even though Snapchat does not offer what traditional advertisers have come to expect from social media apps, their engagement stats still attract enormous attention. In November 2015, Snapchat announced that 6 billion videos are viewed daily on its app — 3x its rate in May 2015 and just 2 billion shy of Facebook’s 8 billion videos.(17) Specifically, as reported in Fast Company, “advertisers find Snapchat’s demographics and traffic enticing enough.”(18)

Third, while Snapchat began as a multi-sided platform for just two sides (content creators and content consumers), it has allowed more sides onto the platform over time. These sides include content partnerships with media companies, branded virtual goods, and traditional advertising within content. While there are serious drawbacks to attracting too many sides due to the “risk of creating too much complexity and…conflicts of interest between the multiple sides and the MSP,”(19) there are powerful strategic and economic advantages. More sides to the platform engender larger “cross-side network effects”(20) especially when combined with the ownership of powerful and profitable complements such as Snapchat’s recent acquisition of $1 lenses. By continuing to stay the course, Snapchat is evolving into a platform play rather than a product play — encouraging complementary sides to bolster network effects and preventing competition from infringing on its success. A great early result of Snapchat’s platform advantage was the failure of Poke, Facebook’s Snapchat rip-off that gained little steam with users. If Snapchat only focuses on its core product, opponents can attempt to release more innovative or similar products. But a platform has higher barriers of entry that are harder to imitate.

The fourth and last advantage of staying the course and avoiding Facebook’s strategy is that Snapchat can maintain the leverage it used to first rise to social media fame. Spiegel often mentioned how he wanted to change the social media ecosystem to become “more like a conversation”(21) rather than a pedestal piece where we share only the best parts of our life. In “looking forward” to the future to recreate in-person real-life communication, avoiding Facebook’s strategy allows Spiegel to “reason back” to actions necessary to create products committed to this vision. In mimicking Facebook’s strategy, Spiegel would be building a product that did not meet his vision for Snapchat’s future. He would have to start building a robust data analytics platform, one that went directly against his vision for the future of Snapchat — an authentic conversation driver. This move away from the Snapchat brand could scare away young users who have grown fed up of Facebook’s NSA-like qualities. A robust data analytics platform would also counter Snapchat’s often contested privacy policy, a move that could be terrible for Snapchat’s public image. Today, Snapchat’s privacy strategy reads: “Snapchat captures what it’s like to live in the moment. So in many cases the messages sent through our services are automatically deleted from our servers once we detect that they have been viewed or have expired. And again in most cases, the services are programmed to delete a message from the recipient’s device once it’s been viewed or expired as well.”(22) Following Facebook would be a complete 360 degree reversion of these principles, and would incentivize Facebook to strike back. Today, with privacy as Snapchat’s number one goal, Facebook is left vulnerable and unable to change, especially given their millions of dollars of investment in tracking infrastructure.

In conclusion, I believe Snapchat should stay the course and avoid embracing Facebook’s strategy. Snapchat has re-defined what it means to interact with others on mobile, and will continue to push the boundaries of monetization strategies, without discounting the core user.

Note: Endnotes This blog is an excerpt from a term paper my colleague Ariana Fahrney and I wrote for a Science & Technology Strategy class at Harvard Business School.

(1) “Facebook Newsroom,” Facebook Corporate,, accessed December 10, 2015.
(2) Warman, Matt, “Snapchat’s Evan Spiegel: Deleting should be the default,” November 16, 2013, Telegraph,, accessed December 9, 2015.
(3) David B. Yoffie and Mary Kwak, “Judo Strategy: 10 Techniques for Beating a Stronger Opponent,” Business Strategy Review, Volume 13 Issue 1, London Business School, 2002, pp. 22–23.
(4) Roberts, Daniel, “Another Sign of Trouble with the ‘Unicorns’,” November 11, 2015, Fortune,, accessed December 12, 2015.
(5) Biddle, Sam. “Snapchat Lost a Ton of Money Last Year,” August 19, 2015, Gawker,, accessed December 13, 2015.
(6) Sullivan, Mark, “Sources: Snapchat Ad Campaigns Now Start at $100k, down from $700k a year ago,” November 20, 2015, VentureBeat,, accessed December 10, 2015.
(7) Novet, Jordan, “Facebook unveils Presto Engine For Querying 250 PB Data Warehouse,” June 6, 2013, GigaOM,, accessed December 7 2015.
(8) Palermino, Chris Leo, “Millennials Watch More YouTube Than TV, Study Says,” March 7, 2015, Digital Trends,, accessed December 14, 2015.
(9) Carr, Austin, “Inside Snapchat CEO Evan Spiegel’s Entertainment Empire,” Fast Company,, accessed December 10, 2015.
(10) “Snapchat Ads,” Snapchat Corporate Website,, accessed December 3, 2015.
(11) Nield, David, “New Study Shows How Age Affects Your Social Network of Choice,” March 29, 2015, Digital Trends,, accessed December 14, 2015.
(12) Stabler, Peter, Wells Fargo Securities, LLC, “Pinterest and Snapchat Revving Ad Engines,” comScore Media Metrix, September 21, 2015, p. 15, via Thompson, accessed November 20 2015.
(13) Swant, Marty, “Infographic: Marketers are spending 500% more on millennials than all others combined,” November 17, 2015, AdWeek,, accessed December 15, 2015.
(14) Stabler, Peter, Wells Fargo Securities, LLC, “Pinterest and Snapchat Revving Ad Engines,” comScore Media Metrix, September 21, 2015, via Thompson, accessed November 20 2015.
(15) Shontell, Alyson, “5 Months After Turning Down Millions, Snapchat’s Growth Is Still Exploding with 700 Million Photos Shared Per Day,” May 2, 2014, Business Insider,, accessed December 15, 2015.
(16) Morrison, Kimberlee, “How Many Photos Are Uploaded to Snapchat Every Second,” June 9, 2015, AdWeek SocialTimes,, accessed December 15, 2015.
(17) Yeung, Ken, “Snapchat says 6B videos viewed daily on its app, tripling in past five months,” November 8, 2015, VentureBeat,, accessed December 10, 2015.
(18) Carr, Austin, “Inside Snapchat CEO Evan Spiegel’s Entertainment Empire,” Fast Company,, accessed December 10, 2015.
(19) Hagiu, Andrei, “Strategic Decisions for Multisided platforms,” MITSloan Management Review, Vol.55 №2, Winter 2014. p.74.
(20) Ibid.
(21) Warman, Matt, “Snapchat’s Evan Spiegel: Deleting should be the default,” November 16, 2013, Telegraph,, accessed December 9, 2015.
(22) “Snapchat Privacy Policy,” Snapchat Corporate,, accessed December 10, 2015.

Originally published at on September 19, 2016.

GP @CRV, Alum @HarvardHBS @Stanford. I like a bagel with attitude.

GP @CRV, Alum @HarvardHBS @Stanford. I like a bagel with attitude.