How does Snapchat make money?

What does Snapchat do?

Snapchat is a social media app allowing its users to take “snaps,” which are short videos. The user shares their snaps with their followers and friends before the Snap disappears from the user’s profile after 24-hours. The concept of disappearing snaps made the platform unique from other social media sites that store the user’s content on its servers forever.

Users can delete their snaps at any time, encouraging natural interactions between its users. Snapchat targets a youthful audience, with its key demographic being people under 25-years old. Its primary demographic is teenage girls.

It’s well known for integrating AR (Augmented Reality) tech into its offering. Users can choose from various AR personas to add to their snaps, such as bunny ears and animal faces. Its AR feature was the primary driver of growth in its target market.

How does Snapchat work?

Snapchat operates a mobile platform where users can create snaps that they share with their friends and followers. The company uses an in-app advertising model to generate income for its parent company, SNAP.

Snap is a visual platform, allowing users to take photos and videos, and it also offers a chat module. The app is free to download and available for Android and iOS users. It also has a semi-functional desktop application.

Snapchat is free to use, and the company doesn’t have a premium model where it charges users for accessing the platform. Instead, it relies almost solely on advertising revenue to fund its operations. Users can access their friend’s “stories” for 24-hours after posting a snap. When the 24-hour period expires, the platform automatically deletes the Snap.

The discover feature in the app lets users search for related videos and content on the site from their favorite creators. These features drive huge amounts of user engagement to the platform, which Snapchat monetizes through its advertising model, including Snap Ads and Snap AR Ads.

The snap ads model allows advertisers to create similar story-style video ads, leaving a link for users to click through to the advertiser’s site. Snap receives income every time a user clicks on an advertisement on its platform.

How Snapchat makes money?

Snapchat makes money by selling ads to corporate partners.

Ad revenue accounts for more than 99% of its earnings.

A small portion comes from the sale of smartglasses, which allow users to create video Snaps on the go without using their mobile device.

Snapchat divides its ad revenue into three parts: augmented reality (AR) ads, Snap Ads, and its “ad effectiveness measurement services.”

In 2021, Snapchat surprised investors by posting revenue of more than $4 billion, but the company posted a loss of more than $700 million.

As a result, Snapchat remains unprofitable. However, the losses get smaller each fiscal year, and investors expect the company to reach a profitable position by 2025 with its current trajectory.

Future growth engine

Snapchat saw a massive increase in the number of users by taking on large amounts of debt to fund its development and operations.

The company is not profitable.

Although it enjoys “unicorn status” among Silicon Valley startups, investors are concerned about whether the platform will ever be profitable.

Some investors believe that the only way for the company to become profitable is to be acquired by a major tech giant.

However, given that the company turned down a Facebook acquisition, it remains to be seen if they will adopt this strategy in the future.

Competitors

Snapchat competes with other leading social media platforms for market share. Some of its top competitors include the following tech companies.