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Snapchat’s Increasing Ad Revenue

Many tech companies are trying to innovate the methods from which they earn revenue. Specifically, Snapchat, the instant-messaging and social media app, has recently been gaining more and more profits with a very strong 2019 to date. A majority of their profits come from ad revenue, specifically through their “stories” feature. 

In the past few years, Snapchat has added small advertisements in between viewing friends’ stories. As time went on, many online personas began to develop Snapchat exclusive content such as web-blogs and videos. Recently, Snapchat has even developed original video-content, and is almost subtly pivoting into a streaming service for short videos. Users can “subscribe” to certain sources. There are even professional companies from all industries that have Snapchat outlets, such as CBS, CNN, ESPN, MTV, and many others.

It was through this influx of content that Snapchat was able to maximize the potential of the growing user base to their advantage. They now had more natural placements for their advertisements. For example, if you are viewing stories from your friends list on snapchat, there will only be an occasional, skippable ad. On the contrary, if you are viewing content from a more “professional” source, then there will be more frequent advertisements which are often unskippable. 

How does this relate to what we have learned in class? Well, through these subscriptions to certain Snapchat “stories”, Snapchat uses tailored advertisements (as discussed in class) to their users. This benefits both parties since the company who purchased the advertisement is more likely to attract the user, and Snapchat will gain more ad revenue per click.

In addition, it is interesting that Snapchat has their own auction model for selling their ad space to companies. Apparently, Snapchat will vet the advertisements for both quality and fit of advertisement in relation to users. In addition, in order to determine how much to charge companies for advertisements, they run a concept called “Goal-Based Bidding”. Here, they want the advertisers to specify how they wish to pay, whether it’s per number of views or pay-per-clicks (as discussed in class) along with specifying a specified time-frame to run the ad, and the projected audience. Snapchat calculates a custom value based on the goals of the advertisement, the likeliness that the goal is achieved through the users actions, and the overall quality of the advertisement. It is through this system that they determine how much to charge advertisers, rather than using a more common auction system such as first-bid or second-bid.



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October 2019