Snapchat operates a multi-sided business model via a photo and video-sharing mobile application, where the shared content is deleted as soon as it is viewed. It also offers a ‘stories’ feature, which allows users to upload photos and videos that can be viewed by their audience numerous times for 24 hours. In a similar vein, Snapchat also allows ‘world-class leaders in media’ including social networks, magazines, and television to post content under the ‘Discovery’ category that can be viewed by all users for 24 hours. The concept seems counterintuitive at first, but as digital photography has become commoditised, the younger generation has grown to find it very appealing. With a minimal interface, users can quickly ‘snap’ a picture or a 10-second video and send it to their friends, without having to worry about repercussions as they ‘self-destruct’ upon viewing. The founder Evan Spiegel claims that: ‘Snapchat isn’t about capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion — not just what appears to be pretty or perfect.’ (Snapchat, 2012)
Snapchat can only be used on Apple and Android devices, with no support for desktop PC planned. Snapchat is soon to be valued at over $20 billion (CNN, 2016).
Started as a conceptual idea by three Stanford fraternity partners in 2011, Snapchat has observed a meteoric growth over the last five years. From just 20 photo shares an hour, Snapchat now experiences 10 billion video views a day (Mashable, 2016).
Snapchat’s first customer group is embodied by a tech-savvy, smartphone-owning audience. The service is free for users to sign up and use without limits. The core offering of Snapchat – namely the vanishing photos and videos – has widely appealed to a Millenial audience.
The free Snapchat offering is cross-subsidized by a second customer-group – advertisers who wish to advertise to the millennial crowd. Snapchat has incorporated a Discover page that holds their advertising partner channels. Rather than displaying banner advertisements that most people either block or ignore, Snapchat users actually connect and engage with the custom-made and interactive advertisements. Early partners include Buzzfeed, Vice Media, MTV, CNN, and People magazine. These ads are isolated to the Discover page within the app.
Additionally, Snapchat has recently started placing engaging video ads within snaps being viewed by people. However, in contrast to most of their Silicon Valley colleagues, all ads can be easily skipped and swiped off the screen.
Learn more about the Multi-sided Business Model
You identify two or more different customer groups; and after interacting with each you design and deliver your goods or services in a manner that connects the two parties.
Engagement — Value Creation Proposition
This commitment to unobtrusive advertising and avoiding collecting vast amounts of user data like Facebook and Google has appealed to many young users. Snapchat increases the attractiveness of its content-sharing interface by offering a range of fun ‘filters’ for its young audience to use. This, in turn, renders the overall experience lively and light-hearted, thus fuelling content-sharing.
Currently there are about 16 million monthly (one-third of UK smartphones users) and 10 million daily Snapchat users in the UK. However, what is most interesting to potential advertisers is the demographics of Snapchat’s user base. With 71% of users under the age of 34 –70% of which are female (WSJ, 2013) – Snapchat claims to reach 30% of all millennials in the US (Omnicore, 2016). This is extremely attractive to advertisers as they are able to reach precisely the generational cohort that proven to be most difficult to sell to.
Even though the ads on Snapchat may not be as finely targeted as they can be with Facebook or Google, Snapchat has the distinct advantage of being able to capture a growing demographic.
Delivery — Value Chain
Beside some strategic acquisitions that have boosted the functionality and options of the Snapchat app, the company has so far managed mostly in-house. Snapchat maintains full control over the user experience, and advertisers must go through Snapchat to reach users. Most advertisers produce ads for the sole purpose of advertising on Snapchat, as the long portrait screens of most smartphones require different framing to traditional widescreen ads.
Monetisation — Value Capture
Unlike the likes of Facebook and Google, Snapchat offers its services to a few large localised advertisers rather than many small ones. This means that most prices are bespoke according to reach and views, as well as the region it will be published in.
CNN, 2016. Snapchat could soon be valued at more than $20 billion. [Online]
Available at: http://money.cnn.com/2016/05/24/technology/snapcha…
Ft.com. (2016). Snapchat an enduring hit with British users — FT.com. [online] Available at: https://www.ft.com/content/f781b74c-243f-11e6-9d4d… [Accessed 10 Aug. 2016].
Mashable, 2016. Snapchat users are watching 10 billion videos a day. [Online]
Available at: http://mashable.com/2016/04/28/snapchat-video-view…
Murdock, R., 2013. Snapchat Is Intrinsically Worthless. [Online]
Available at: http://www.businessinsider.com/snapchat-business-m…
Omnicore, 2016. Snapchat Statistics. [Online]
Available at: http://www.omnicoreagency.com/snapchat-statistics/
Snapchat, 2012. Snapchat Blog – Let’s Chat. [Online]
Available at: http://snapchat-blog.com/post/22756675666/lets-cha…
WSJ, 2013. Snapchat CEO says 70% of users are female. [Online]
Available at: http://blogs.wsj.com/digits/2013/11/20/snapchat-ce…
Disclaimer — Written by Pooja Valechha and edited by Danielle Reza under the direction of Prof Charles Baden-Fuller, Cass Business School, in September 2016. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2017