Snapchat Success in Mobile Payments and The Network Effect
Very recently, Snapchat announced a new feature, Snapcash, that would allow users to send money through the Snapchat App in addition to sending photos, videos, texts, etc. This move comes with the news that Snapchat is partnering with Square, a payment firm, and they would be assisting in securely having this function in the app. There have been several other companies moving in to the mobile payments technology sector. For example, Ebay, which owns Paypal and Venmo and feature mobile payments. Google has also wandered into the sector by adding a payment feature to Gmail. And finally, Facebook has also mentioned that it has been making progress towards allowing payment feature for its mobile app. With that said, all these companies have huge networks and it will be seeing who will come out on top.
This is where the Network Effect comes in to play. It is apparent that all these companies have a huge user base. Snapchat in particular, partnered with Square, which looks like a beneficial move for Square to gain a user base and take advantage of the Network Effect by taking advantage of how many users Snapchat has. The problem I see with this is that Snapchat recently had a privacy scandal in which many users’ accounts were compromised and their private photos were released. Given that many other companies are developing their own version of mobile payments, would the news of Snapchat’s privacy issues effect a potential Snapcash user from going and sharing their debit card information elsewhere? Another thing to consider is the type of user that would utilize a peer-to-peer mobile payment function. Snapchat users are very young, possibly too young, so this could mean that their network is not really defined enough to have the Network Effect benefit them relative to other mobile payment companies.
At the end of the day, I believe two companies have will have the most success in this industry, Facebook and Venmo. Facebook, as a social networking site, has the biggest user base so the Network Effect will be present as they have the potential to get a lot of user very quickly. On the other hand, Venmo has been very successful thus far and specializes in mobile payments. Venmo, however, is affiliated with Ebay which has a vast network of users, so through proper promotion it could have the Network Effect and gain more users.
http://www.forbes.com/sites/chanellebessette/2014/11/17/snapchat-and-square-team-up-to-let-you-send-money-to-friends/