Snap’s Story — Revenue and Growth
Now that Snap is several months into its lifecycle as a public company, the general public has been looking to the company to show sustained user and revenue growth. As far as the markets are concerned, quarterly revenue gains and the potential for future gains are paramount.
There are two points of focus to get to that revenue growth for a social product like Snapchat:
- User growth with a potentially lower ARPU
- ARPU increase on existing users
On the users front, Snap has chosen to forego targeting the developing world in lieu of a focus on developed countries where high-end mobile devices are the norm. This makes it unlikely that the focus is on #1. That’s not to say Snapchat would not like to have user growth. It just appears that wide reaching user growth is not the main focus (as it was at Facebook).
Snap has chosen to target T1 advertising markets (U.S., Europe, Canada) where the potential for high ARPU is ripest. This is not a bad strategy. According to reports, 70% of advertising spend, and 85% of overall advertising spend, come from. Snapchat is making $2.15 per user in North America, whereas Facebook made $19.81 per user in North America in the same period. 75% of Facebook’s revenues come from the US, Europe and Canada.
Snap will have to increase the CPMs for their current advertising offerings and serve more ads to existing users to reach their revenue goals. Here are a couple ways they can do this:
Prove Ads on Snapchat Drive Better Conversion:
In order to charge higher CPMs, Snap will have to prove that their audience and ad inventory deliver better ROI and results for advertisers and brands. This is possible. Snapchat users are very engaged, and their ad inventory blends seamlessly with their other content due to the interesting video and animation format. Optimizing this purchase experience for users will be very important to Snap’s strategy. This includes working with advertisers to improve their downstream conversion (which is already happening).
Double Down on Media with Snapchat — Content, Content, Content:
Snap has already made a number of partnerships with big media to make their platform more like TV. Currently the “Shows” portion of the app is not front and center, and primarily consists of news snippets, and cursory content. Longer form, quality content, will keep users more engaged, and give Snapchat more Ad Opportunities, which it sorely needs to drum up revenues.
Snap should focus on creating original content that warrants longer watch times, while remaining short enough to be consumed by someone potentially on the go. Serialized TV content (10–15 minute episodes) could work nicely on their platform in a mobile format.
In order to generate content that they know will resonate with users, Snap could also reach out to existing influencers on the platform that already have built in audiences. Snap could build shows around these influencers, either following their lives as usual, or designing an original premise. An example would be putting an influencer with other notable public figures in an interview or adventure format (akin to Comedians in Cars Getting Coffee).
Final Thoughts:
At its core, Snap can differentiate itself by providing a unique media and communication service focused on high-value consumers. Instagram and Facebook have not been able to capture this ability to communicate effectively in a fun way with images and video on a 1:1 basis. And although Facebook is investing in video, they have yet to develop high quality, mobile-first video content that is must-see for consumers. Snap can fill that void, and there is still a lot of runway for the company.
