Snapchat: how the company that has fallen almost 90% in one year has insane potential

In the past year, Snap Inc. has fallen nearly 90%. One of the leading factors of this fall is the end of the Covid-19 era. The global pandemic that destroyed many people’s lives also gave many others an enormous amount of free time to spend at home. This consequently led to a boom in time spent on the internet and social media sites were receiving much more traffic. With the Covid pandemic largely over, less time is now being spent online which is hurting Snapchat as people are also using their social media less.

Why is Snapchat down?

Despite the fall in social media companies across the board, after looking through the financials of Snapchat along with how many daily users they have, it is my firm belief that Snapchat has the potential to easily break its Covid-era highs. This is because of a critical mistake in how Snapchat makes money. (To be clear, I am a frequent user of Snapchat as well as representing one of Snapchat’s main demographics, so my experience using the app is also a good indication of an average user’s experience.)

In 2021, Snapchat made $4.1 billion in revenue, with an average of 319 million daily users. Although this may sound good, when worked out it means that Snapchat only made $0.035 USD per daily user. Snapchat makes the vast majority of its revenue from ads within Snapchat Stories, a feature of the app similar to Youtube Shorts or Tiktoks. Snapchat does not have any other ads outside of Stories and has very few other forms of revenue outside of this.

What changes could be made to improve Snapchat?

As a Snapchat user, I appreciate how I can use the chat functions of the app without having a constant supply of ads forced in front of my face, and see it as one of the main reasons so many people my age use Snapchat. Because of this, I agree that ads should be kept within Snapchat Stories, since forcing ads upon people using the chat function would almost certainly hurt Snapchat’s user base. However, there could definitely be several changes made to streamline Snapchat ad revenue.

1. What is Snapchat's product?

Possibly the biggest mistake that Snapchat seems to be making is what they consider to be their product. If you open Snapchat, the first thing you see is a prompt to open the chat menu. But… the chat doesn’t make any money. Stories do. If someone is opening Snapchat with the intention of going to the chat, they’ll do that anyways regardless of what is open initially. But if someone is just randomly scrolling through apps and they open Snapchat, the first thing the app tells you to do isn’t related to Stories. Stories are accessible quite easily, by tapping one of the symbols down on the menu, but it should be even easier to find. Chatting with friends may be what draws people to Snapchat, but it isn’t the product. Stories is Snapchat product. And since Snapchat is in the money-making business, (shocker) the first thing that Snapchat users should see upon opening the app is Stories. One great example of why this is important is that I didn’t even know that stories existed until 6 months after getting the app. This would be like having a car dealership but the entire first floor is just giving away free popcorn, and to buy a car you have to go down an unmarked staircase to the basement. In summary, Snapchat Stories should be the first thing you see upon opening the app, and Snapchat as a whole should be more geared towards keeping users on Snapchat Stories for as long as possible.

2. Fix Snapchat+

When I first read about Snapchat+ while researching this product it made me both excited and nervous. As many of you probably already know, I am a big believer in subscription-based services. It allows for reliable fixed income that is easily scaled and social media companies have possibly the easiest subscription service of all time. Offer to remove ads, then calculate how much a usual user makes you and add a profit margin. This has been proven by YouTube’s Premium plan, in which over 23 million people pay $11.99 USD a month to avoid watching ads at the start of videos.

But there are a few key differences between YouTube Premium and Snapchat+. The first and biggest is that it doesn’t get rid of ads. As of now, Snapchat+ users are paying $3.99 a month to access experimental features. Although I am not necessarily opposed to this, Snapchat+ users are effectively paying to beta test features that will be available for everyone in a couple of months, except the free-for-everyone version will be a fully polished feature. Because of this it makes no sense to get Snapchat+ so one of the biggest positive changes they could make to it would be to remove ads. This would also allow Snapchat to increase the number of ads for the free version, since they could always just tell people if they don’t like it, upgrade. Another change to ads that they could do because of this is to add a time limit to how long you need to view an ad. Right now, you can scroll right past ads without even seeing what they are for, making Snapchat not the most attractive prospect for people looking to advertise products.

The reason that I got nervous reading about Snapchat+ was that I, a Snapchat user, didn’t even know that it existed. Even after discovering its existence, it took me ten minutes and a video tutorial to not find it. As a bare minimum, your customers shouldn't have to go through a treasure hunt to give you money.

Closing thoughts

All things considered, I would recommend you stay away from Snapchat as of now. Snapchat currently is an utter wreck when it comes to its business plan, with the vast majority of the app’s resources spent on something that isn’t even monetized, and anything that is monetized in the app just doesn’t make any sense. The company is almost structured like they had a very well thought-out, well-planned idea, then 5 minutes before launch a random assistant realized that money is a thing and slapped on some monetizable elements that half the company still doesn’t know exist. That being said, Snapchat definitely has enormous potential, so my call on Snapchat will very quickly change if they announce any news regarding a restructuring of how Snapchat Stories and its ads work.