Snapchat has begun preparing for an initial public offering (IPO) which could take place as early as March 2017 according to the Wall Street Journal. This mean that investors will be able to purchase shares in the company as it gets listed on the stock market. The company valuation could be $25bn according to people briefed on the matter, which would make it the biggest social media IPO in recent years.
Snapchat just recently renamed itself to Snap Inc. as it moves to develop beyond their app launching their first hardware; the Spectacles, which are sunglasses with inbuilt video cameras. The popular mobile messaging app has in a short time gained a prominent position in the tech world. Snap was co-founded in 2011 by the current CEO Evan Spiegel. In the beginning Snapchat was perceived as a somewhat obscure network. The application initially gained popularity as a sexting app where users sent each other teasing pictures that would later self-destruct. Today, with more than 150 million daily active users, Snapchat has evolved into something much bigger and become a way for people to share their daily lives.
In 2013 Spiegel turned down a $3bn buyout offer from Facebook who has since tried to replicate some of its features in new apps. For example, Facebook introduced Instagram’s new feature “Stories” which except from minor tweaks are more or less identical to the Snapchat “stories”.
At that point in time, it was quite a bold move to turn down a $3bn offer for a company that had yet to make any profit. Snapchat still had to figure out how to monetize its interface and just like Facebook they started with advertisement. With a learning approach Snapchat has been able copy successful concepts that have worked for companies like Facebook and Google.
Snapchat display ads at a number of key places within the app. A first step to monetize the app was their feature “Discover” were newspapers would pay a fee in order to have their stories displayed in the app. Today, companies can also choose to have their ads featured in the Stories section as well as to purchase different filters based on locations and events.
It is the work Snapchat did in the past year that set off a solid growth phase and attracted a lot of new marketers. Snapchat announced they will launch an advertising application-programming interface (API). This is something that most social media platforms have already done. In basic words this mean they are outsourcing its ad creation function to selected third parties. This will allow the company to save both money and time as well as make the service more attractive to marketers.
The reason why companies would like to advertise through Snapchat is first of all because its popularity and pure engagement of its users. According to stats there are approximately 9 000 snaps sent every second. Snapchat also require so called active viewing because the user has to tap the screen in order to see the content. More importantly the user only has 10 seconds to view the content which therefore require the user’s full attention.
There are still issues that remain to be solved such as the limited reach in comparison to competitors like Facebook. A larger user base makes it a more attractive mean of advertising. This also include Snapchat’s limited reach in terms of demographics hence the majority of their users are young people. Marketers have also complained about the limited capabilities to target customers. In response to this Snapchat implemented new advertising formats as well as plans for creating targeted ads and to measure the effectiveness of ads. With direct response adverts customers are redirected to the advertisers page. In order to target customers, marketers are now able to upload their email lists of existing customers, but also they are able to target similar and potential customers. Companies also have the option to choose between third party operators that can measure the effectiveness of the ads.
According to a report from eMarketer, Snap expects to make $1bn in revenues for 2017, which is a large increase from the roughly $350 million it is predicted to make this year. An initial valuation of $25bn would also be a significant rise from its most recent valuation at about $18bn in May this year.
As Snap prepares for an IPO it must encourage marketers to invest more in ads, but also try to attract more companies to market themselves through Snapchat. As the effectiveness of ads now may be quantified, marketers will find it easier to value the different placements and filters available for sale in Snapchat.
As mentioned Facebook tries to win over Snapchat users by adding similar new functions to Instagram. This could pose a big threat in the future development of Snapchat as Instagram have been said to be more brand friendly. There is no search function in Snapchat to easily find the companies accounts and neither are there heart symbols to express your approval. Instagram with about 300 million daily users has a broader reach and is backed by Facebook. This should be enough to scare the Snapchat team who might have to reconsider its commitments to the current interface.
Snapchat has potential to become a big player but still has a long way to go in order to compete with well-established actors such as Facebook and Google.