What is Snapchat?
Snapchat is a US-based multimedia instant messaging app and service. This app operates under Snap Inc., originally known as Snapchat Inc. Currently, it is among the top names in the social networking market with over 300 million daily active users. The company has gone through many ups and downs since its inception. However, it ranks among some of the top names in the industry.
Snapchat started its operations in 2011 under Evan Spiegel, Bobby Murphy and Reggie Brown. They were Stanford University graduates. Initially, Spiegel and Brown met during freshman year in 2008 at a fraternity house of Stanford. There, they also met Bobby Murphy. In 2011, Brown came with an idea for an ephemeral messaging platform. His initial idea was for a social platform where photos disappeared short after delivery.
With this idea, the three friends came up with a base for a social media platform. Initially, they named it Pictaboo in 2011. However, it only accumulated 127 users over time. In 2011, they renamed the app Snapchat. By 2012 and less than a year, the platform had over 100,000 users. Soon, it became a viable idea, and the company started receiving the backing of various investors. However, Spiegel and Murphy forced Brown out of the company subsequently.
By 2013, Snapchat had garnered significant attention. Early that year, Snapchat reported users sent over 60 million snaps daily. Snapchat grew in valuation in the market with these results. During this time, the company also started accumulating more users. Similarly, it introduced new and innovative features, which helped it attract more users. By the end of 2013, Snapchat had reached a market valuation of $2 billion with over 4.6 million users.
Throughout 2014, Snapchat continued developing its platform. During this year, it also made various acquisitions to expand its business. On top of that, it also settled a legal dispute with Reggie Brown to oust him from the company. Similarly, the company made several changes to its product and continued focusing on security. The same continued in 2015, where the company reached over 100 active users.
In 2016, the company continued expanding its reach through acquisitions. Similarly, it changed its product and added more features. During the year, Snapchat also reached 10 billion daily video views. In 2017, Snapchat went public through an initial public offering. By doing so, it sold 200 million shares at $17 per share. This way, the company raised $3.4 billion in revenues.
Throughout the years, Snapchat has experienced various controversies as well. However, it still ranks among the top social media networks. Although its primary market is the US, the company also operates worldwide. The platform is available in over 37 languages on the iOS and Android platforms. In 2021, it generated $2.5 billion in revenues. Its founder Spiegel is the current CEO, while Murphy is the CTO.
How does Snapchat work?
Snapchat works similar to other social media networks. Users can get started by downloading one of its apps from their preferred stores. For Android users, it is the Google Play Store. Apple users, in contrast, can get it from the App Store. Unlike other social media platforms, users cannot use Snapchat through a web version. Therefore, these apps are a crucial part of how Snapchat works.
Once users download the app, they must create an account on the platform. This requirement is similar to other social media networks. Users can create an account on the platform through the app directly. In the app, they must click the sign-up option. From there, they must enter their first and last name. Similarly, the app will require them to provide other details.
The most crucial part of the registration process is choosing a username. This username represents a user and differentiates them from others. However, it cannot be one of the usernames that users have already chosen. Snapchat will also provide recommendations on what it should be, based on the personal information provided. Once users select their username, they must type a password and provide their email address and phone number.
Snapchat will send the user a text with a verification code. Once the user enters this code on their app, they can start using their account. This number also serves as a verification tool if the user loses their password. After that, users can use Snapchat using their provided features. There are several screens that provide access to different parts of the platform.
On top of that, users can also register for a business account. However, it requires them to have a personal profile first. Once they do so, they can head to the Snapchat Ads landing page. From there, they can create an account. The app will prompt them to enter their business name, email address and name. Similarly, they can add an address to their business. Once they do so, they can start using the Business Snapchat account.
What is Snapchat’s business model?
Snapchat uses an e-commerce business model through which it also makes money. With this model, the company uses its platform to attract digital users. The same applies to all competitors that are in the social networking industry. Companies like Facebook, Twitter, Instagram, etc., use it to promote their products and services.
Snapchat also uses a user-generated content business model. This model falls under the C2C business model used by most digital platforms. With this model, the company provides a platform where users contribute. Snapchat itself does not offer its products and services on it. Instead, users put content on the platform, which other users can view.
Snapchat uses a similar business model to other social media networks. However, the above does not explain how it makes money from its business model. Like other social media networks, Snapchat generates revenues through advertising. The company allows various advertisers to market its products and services on its platform. For this service, Snapchat charges a fee. This fee depends on several factors.
Under the advertising model, Snapchat also uses an attention merchant business model. In this model, the company profits from its users’ “attention”. Attention merchant companies allow third parties to interact with their customers. With this feature, Snapchat makes money by providing access to those users. The primary income source, in this case, is the users. Nonetheless, the advertisers pay for it.
How does Snapchat make money?
As mentioned, Snapchat primarily makes money from advertising income. However, the platform does not disclose its income separately. Instead, it operates under Snap Inc., which is its parent company. Snap Inc. is a public company and provides its financial statements to the public. Therefore, it is crucial to study the company to understand how Snapchat makes money.
Snap Inc. makes money through advertising income generated through Snapchat. The company also owns a physical product known as Spectacles. However, the revenues from that segment only constitute a small portion of the total sales. For Snap Inc., Snapchat is the segment that creates a high percentage of its total income, almost 99%.
In 2020, Snap Inc. reported revenues of $2.507 billion. These revenues increased by 46.10% over the $1.716 billion generated in 2019. The $2.507 billion was also the company’s highest revenue to date. Similarly, Snap Inc. reported 99% of these revenues came from Snapchat. In 2019, these revenues included 98% of sales from Snapchat.
Overall, the revenues and incomes generated by Snap Inc. for the last few years are below.
| Year | Revenues In millions USD | Net Income In millions USD |
| 2015 | $59 | ($945) |
| 2016 | $404 | ($1,034) |
| 2017 | $825 | ($1,256) |
| 2018 | $1,180 | ($3,445) |
| 2019 | $1,716 | ($515) |
| 2020 | $2,507 | ($373) |
The above data suggests that although Snap Inc. generates billions in revenues, it is not profitable. The company has suffered from losses over the years. Even generating its highest revenues to date hasn’t helped Snap Inc. recover its losses. Nonetheless, the company has continued decreasing its losses over the last few periods.
Conclusion
Snapchat is a well-known social media platform worldwide and operates under Snap Inc. The company provides a platform where users can interact. In this regard, it is similar to other social media networks. Snapchat uses a business model that resembles other social media networks. The company primarily makes money from advertising income.
