Snapchat, the disappearing-image app that first started gracing smartphones back in 2011, has grown from something of a novelty act to one of the foremost players in the social media app space. The friendly white-and-yellow ghost now boasts some 100 million daily active users, accounting for 18% of all social media users in the US. And their usership isn’t passive, either: 60% of users contribute content on a daily basis, and Snapchat accounts for 5% of selfies shared across all forms of social media. In all, Snapchat users use the app to watch more than 10 billion videos every day. That’s a pretty big impact for an app where nothing lasts more than 24 hours.
Snapchat’s rise in usership has been equaled only by its rise in valuation. Some balked when Snapchat declined a $3 billion buyout offer from Facebook back in 2013, but the ephemeral messaging app has clearly proven its haters wrong. Snapchat took a $175 million funding round back in March, which held with its 2016 valuation of $16 billion steady, but its latest round brings its valuation even higher. TechCrunch reports that Snapchat’s latest funding round, which brought in about $200 million worth of investment, places the company’s valuation somewhere around $20 billion.
Those numbers may be high enough to make your head spin – but if you start to do some comparative math, they make a lot more sense.
As we said, Snapchat’s usership stands at some 100 million daily active users. In comparison, Twitter’s ~300 million users earn it a valuation of just $10 billion. Facebook, now with some 1.65 billion users, recently jumped to a $328 billion valuation, with some analysts saying the company could one day be worth $1 trillion. Proportionally, crediting a $20 billion valuation to Snapchat’s 100 million – and growing – daily active user count doesn’t seem too far-fetched. In fact, it seems about par for the course.
Even with all the positive feedback on the market side, some say Snapchat still has a lot of questions to answer before it’s out of the woods.
We’ve seen the story of a highly-valued social media app come crashing down when it has to put on its big-boy pants and answer to investors play out before, and the Twitter crusade offers some frightening warnings to the still-burgeoning Snapchat. While Twitter once hit a high of a $40 billion valuation, the slide to today’s $10 billion has been meteoric. Some are even forecasting doom for the tech giant, one of the first major “unicorns” to arise from the social media era. This goes to show that sitting high today doesn’t necessarily guarantee safety tomorrow.
For Snapchat’s part, many say it has its own unique challenges to overcome. Snapchat’s new and still unfolding ad platform doesn’t let brands target specific user demographics, and Snapchat charges a premium for its advertisements – two factors that some say signal danger.
The ephemeral and highly personal nature of the platform also makes it difficult to find new content, which may compromise its standings as a broad-ranging social media titan. Add all of this to the fact that it has yet to turn a profit, and that $20 billion valuation seems a little dizzyingly high, after all.
But despite its problems, Snapchat has a lot going for it. It’s active user count is high and growing fast, and those users are remarkably engaged. It’s excelling in the younger teen demographic, which is one of the prime valuable demographics for most social media app-based companies. While it’s a very different platform than established giants like Facebook, its users seem to think it has real staying power.
Even its revenue, which was nominal only recently, is starting to look like a promising story. While Snapchat generated only $3 million in revenue and lost more than $120 million in 2014, it’s estimated to have made some $50 million in 2015 and hit a Q4 run-rate of $100 million in annualized revenue. This means that if it continued its revenue rate in Q4 of 2015, it would have made $100 million this year.
But apparently, its ambitions for 2016 are even greater: Snapchat is reportedly targeting over $300 million in revenue for 2016, and that number may not be unrealistic.
Snapchat’s ad model, as it stands, is fairly unique. Brands have to work with Snapchat directly to purchase ads, and many of the ads that Snapchat sells – like the custom-branded filters that occasionally appear for movie premiers or other company initiatives – are designed by Snapchat developers themselves. This means that Snapchat ads are generally of a higher quality than ads one would expect to see on Facebook, but it hampers Snapchat’s ability to scale its ad business by volume.
But the company is currently in the works to build a new API, or application programming interface, for its massive mobile app user base. This could have a huge impact on its ad platform.
An API allows third-party companies – generally digital ad companies or major brands with in-house mobile app ad development teams – to create ads directly through the interface. For Snapchat, this would mean that brands no longer have to work with the company itself to place an ad – they just have to do it through the API. This automates the process of ordering, purchasing, designing, and launching ads through Snapchat.
Another big advantage is that an API would allow for enhanced targeting, which is really the name of the game when it comes to advertisements in a mobile app or social media environment.
As of now, Snapchat shows ads fairly indiscriminately: there’s not much of a way for brands to target their ads to a specific segment of Snapchat’s user base. With an API, though, brands could be able to focus their ads more narrowly, which would greatly increase the value of advertising through Snapchat. If brands have a better idea of who they’re advertising to and can target those ads to people they believe are more likely to buy, that inherently increases the value of the advertisements.
Combine this factor with the automation and scaling that an API allows for, and all of a sudden the once-meager advertising platform of Snapchat starts to look like a bona fide player in the mobile app advertising space.
All in all, Snapchat has a great chance of being one of the most profound success stories in the world of social media mobile app companies. What started as an idea for a senior product design thesis has since grown into one of the most highly-valued private companies in the world. So what can we learn from it about the process of developing great mobile apps?
Know Your Users Intimately
Two years ago, Evan Spiegel, CEO of Snapchat, delivered the keynote address at the AXS Partner Summit. Here are a few key excerpts:
“Internet Everywhere means that our old conception of the world separated into an online and an offline space is no longer relevant. Traditional social media required that we live experiences in the offline world, record those experiences, and then post them online to recreate the experience and talk about it.”
“The selfie makes sense as the fundamental unit of communication on Snapchat because it marks the transition between digital media as self-expression and digital media as communication.”
These are words from a man with an incredible knowledge of the cultural surroundings, personal identity, and ultimate desires of his users. Say what you will about Snapchat’s CEO: he understands his users on a level that few other mobile app creators can claim to.
While that’s a merit in itself, the real value in that understanding is that it allows him to do the thing we constantly repeat during Rootstraps: create real value for your users.
This is the true test of mobile app development; the real factor that separates the unicorns who go on to staggering success from the apps that fail before they even launch.
No matter what your monetization model, your user interface, your mobile app development company, or your funding, the law of the land in mobile app development is that you must generate value for your user. This is our North Star during Rootstraps, and it’s the thing we incessantly stress when we’re defining the feature set of a new mobile app or MVP.
Evan Spiegel saw a new era in digital communication, and he built Snapchat to create the platform for it. From the beginning, he’s been able to anticipate the needs and desires of his users and update the platform to accommodate them. This is what creating real value for the user looks like.
If he can keep this up, then the disappearing-act of Snapchat may be here to stay.
Photo Credit: https://www.flickr.com/photos/pestoverde/