How Snapchat Is Expanding Its Monetization Arm

Snapchat recently launched in-app purchases for consumers with an expansion in its revenue sources. The article looks at the multiple revenue sources created by the $16 B company

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Do you still have a problem in understanding how Snapchat, the four-year-old ephemeral mobile messaging app works? Then you are probably too old for the app and Facebook would be a better place for you. Snapchat that has a median user age of 18 years, with a majority of its users between 13 and 25 years of age, is built for digital natives; not for the mobile first but the mobile only generation.

The messaging app has more than 200 million average monthly users and was the fastest growing messaging app in 2014. It still remains one of the most popular messaging apps among teens, reported the new survey by global firm Pew Research Centre. “36 percent of smartphone owners report using messaging apps such as WhatsApp, Kik or iMessage. Nearly 17 percent use apps that automatically delete sent messages such as Snapchat or Wickr.”

Now before you shrug it off as another bubble to bust out soon, the youth-centric app is worth $16 billion, has more than 500 employees and this year it got backing from Alibaba in the form of $200 million.

The target audience of the app is very crucial for marketers and at one point it was being reported that brands have been ready to pay $750,000 a day for its ads. All this for one single reason – reaching out to the teenage audience.

However, from the first quarter of 2015, Snapchat has been re-thinking on its ad offerings, from just being a cool app it is now giving the advertisers the hard sell. The re-thinking started when Snapchat stopped selling Brand Stories, the first type of ad it released last fall, according to Re/code.

Launched with Universal Studios, the LA based startup had run the first ad with its users – a movie trailer for an upcoming Universal Pictures horror film “Ouija,” The video ad ran 20 seconds, and Snapchat users had the choice whether or not to watch it. These ads linear to TV or print magazines, let advertisers pay to promote a standalone piece of branded content within the mobile app.

With Brand Stories on hold, AdAge had reported that Snapchat was touting its TV-like Our Story feeds in meetings with media buyers, as well as its magazine-like publisher portal Discover. It was speculated that the company will modify its Our Story feeds, which were rolled out in June 2014 as a way for people at events like music festivals or football games to post on-site snaps that are stitched into a linear feed.

The change happened in July this year, Snapchat did a redesign and placed Discover – the news and entertainment section one swipe away from the main page in the “Stories” section, where Live Stories and updates from friends are located.

The redesign gave brands the required eye balls right at the top of Stories section, which users anyways can’t miss.

With Discover, Snapchat wanted to be more than just a distribution channel; its plan was always to be a publisher itself. Discover is well served with user videos, text and photos from major media companies such as ESPN, MTV, CNN, among others.

Today brands like National Geographic, Daily Mail have full time staff for Snapchat. At the same time Discover has become a place where Comedy Central launches TV shows. CNN has run 10 ad campaigns on its Discover channel since January and will run five more till October.

All this comes for a premium price and brands are not budging.

In addition to this the sudden rise of live streaming videos has also forced Snapchat to look at its Live Story feeds. Advertisers are likely to look at it as the average Live Story garners 20 million daily views, according to several executives.

For this Snapchat is asking marketers to pay between $400,000 and $500,000 for a full takeover of a Live Story feed, which would include a brand mention on the opening title card, as well as branded snaps interspersed throughout the feed, the executives said. But Snapchat is also offering a lower-priced option in which a brand can pay $100,000 for a single branded snap that can run for up to 10 seconds.

Recently Snapchat had an exclusive partnership with Univision Deportes to bring match highlights of the USA-Mexico to the Hispanic audience on social media. The Snapchat Live Story marked it’s first time partnership with a broadcast network and the first time it had covered a U.S. soccer match.

Snapchat is also pitching ads that will run on its more localized Live Stories, such as the ones specific to people on certain college campuses called Campus Stories or in cities like Los Angeles and New York that are called Local Stories. Those localized Live Story ads are said to cost roughly $50,000 a pop.

Videos has been the flavour of 2015 from Facebook to YouTube to Twitter everyone has been aggressive behind the medium. Snapchat isn’t being left behind. June, this year CEO Evan Spiegel released a zero-fun infomercial about Snapchat‘s ads, extolling the virtues of “3V: vertical video views” in a way that would bore most of his users to tears.

In the video Spiegel explains how Snapchat’s full-screen ads slot between its content while Facebook and YouTube’s are either annoying pre-rolls or only fill part of the screen. Snapchat also laid out its nearly 100 million daily active users from lucrative demographics viewing 2 billion videos per day.

Brands like Universal Pictures, Coca-Cola, Victoria’s Secret, and a number of others have been lining up to advertise. Even if the company was charging advertisers for “zero-second video views,” according to industry insiders, who said the pricing system had brands worried that they’re paying for unseen ads.

Recently, the company informed that the app is witnessing 4 billion video views daily, giving company to Facebook. It was reported in April that video on Facebook was getting more than 4 billion views a day.

Adding to the existing revenue sources from brands, Snapchat has introduced in app purchases from consumers – Snapchat Replays. The company that rolled out selfie-altering mode, new product feature called “Lenses”, is now allowing users to buy three snaps for 99 cents to replay them. You’ll be able to use that replay on any message that gets sent to you, but it’s still one-time only.

“I’m really bullish on Snapchat,” said Gian LaVecchia, head of digital content marketing at MEC Network to AdWeek. “It’s not sleeping anymore.”

Snapchat reportedly expects to generate $50 million in revenues this year, according to a Re/code report from July, even if the company had a bad year in terms of revenues.  Anyone still asking – How will Snapchat ever make money?