To date, investors have been happy to bankroll Snapchat’s growth on the basis of its potential -- with the latest funding round giving it a value of $12 billion. But while Snapchat has been enjoying particular success among the coveted teen audience -- the latest GlobalWebIndex Social report showed that teens over-index more strongly for it than any other app – its promise and popularity alone won’t keep its investors happy forever. They want to see it opening up real, long-term revenue streams -- and quickly. As with so many other apps and services operating in this space, 2015 will be the year when the question of monetisation needs to be addressed.
That Snapchat is acutely aware of this isn’t hard to see. Late last year it poached Emily White, Instagram’s head of business, as COO, while in June it hired Mike Randall, a former Facebook marketing director as VP of business and marketing partnerships.
More recently, Snapchat has been dipping its toes into the world of advertising. Taking a different approach to many of its fellow platforms, users have the choice to view a small group of ads, with a heavy focus on movie content. Snapchat’s CEO Evan Spiegel has claimed that this move effectively skips the need for ad targeting, as only users who are really interested in the ads will view them. But this softly-softly approach means that the type of ad-based revenue streams so crucial to rivals like Facebook are unlikely to form a major part of Snapchat’s strategy.
It’s for this reason that Snapcash is so important. Initially available in the U.S only, it allows members to transfer money to fellow Snapchatters using registered debit cards.
Based on the demographics of the Snapchat audience, it’s a service that’s likely to resonate. In the U.S., a quarter of online 16-24s (and 29% of 16-19s) are using the app, putting Snapchat ahead of Facebook Messenger or WhatsApp among the youngest age groups. Globally, it’s also the fastest-growing social app over the last six months (a story covered in GWI’s Social report).
What’s more, Snapchatters are clearly comfortable with managing their money online. In the last month, 6 in 10 U.S. Snapchatters banked online, while 40% used a banking/financial services app. Other P2P payment apps, like Venmo, Google Wallet and Square (Snapchat’s new partner), have been attempting but so far failing to gain widespread acceptance. Snapchat’s existing popularity may be the key to opening up this market.
Of course, expanding into this area presents a number of serious challenges -- especially with security and privacy such hot topics in the instant messaging world. Anonymous IM app Whisper was recently stung with accusations about data collection, while WhatsApp is introducing an end-to-end encryption in its service. And Snapchat has itself had a difficult year in this respect -- the "Snappening’" leak of tens of thousands of private photos significantly damaged its image, although the app was keen to highlight that it was not at fault for the breach.
Nevertheless, the impact of this on its users’ attitudes is clear: two-thirds of U.S. Snapchatters are worried about how companies are using their personal data. And while younger audiences might be less alarmed by privacy issues than their parents’ generation, it’s still more than 50% of U.S. Snapchatters who say they are concerned about online privacy. In part, the company’s decision to partner with Square is likely to be a response to this; bank details will be held only by Square, adding an important layer of security.
First-mover advantage is also key here; Snapchat needs to act fast to establish a foothold within a market that Facebook Messenger is widely expected to enter too. With half of Snapchat’s U.S. users also being active on Facebook Messenger, neither service will want to be late to the mobile payments party.
Nevertheless, as with so many other aspects of Snapchat, this is a story about potential. If Snapcash proves popular, it’s not hard to see how it could expand into a fully blown e-commerce offering that facilitates online shopping or in-store purchases (trademarks filed by Snapchat back in July hint at the possibility of such plans in the future). Considering that three-quarters of U.S. Snapchatters shopped online last month -- with half buying a product via their mobile specifically -- the revenue streams it could open up here are vast. Snapcash could, quite literally, pay dividends.