Thousands of revelers descended on the Coachella music festival this month to rock out to their favorite bands and party day and night. But a far bigger audience from around the world -- at least 40 million -- joined in remotely through video snippets from Snapchat.
Those snippets, no more than 10 seconds long. were shot and posted by Snapchat users at no cost to Snapchat. The fast-growing startup simply stitched clips together using software. It's now selling advertising for those programs; with free content, the profit margins would be huge.
Critics dismissed Snapchat early on as a smartphone app that didn't do much but let lovers trade the type of photos they didn't want saved. But the huge audiences that Snapchat is gathering on a new feature called Stories is the latest example of how a tiny company can rise fast with a business strategy that could make it the next hot technology sensation out of California -- much like Facebook in its early days. Early Stories advertisers include Coca-Cola, Universal Pictures, Macy's and Samsung.
Consider the potential: Top broadcast shows, such as CBS' NCIS, average about 20 million viewers, half the Coachella audience. Snapchat's reach, advertising industry analysts say, is big enough to siphon ad dollars otherwise spent on television and YouTube.
"You have a TV-sized audience all viewing at once, or at least within a day," said Michael Boland, chief analyst at ad consultancy BIA/Kelsey. "Brand advertisers really like that."
The under-35 crowd, spending less time with TV, has been a pesky lot to track down for advertisers, but Snapchat is among the few social media apps in which they see possibility. Spending on mobile ads that take a user's location into account is expected to balloon to $19.3 billion in 2018 from $4.3 billion in 2014, according to BIA/Kelsey. Snapchat aims to take a big piece.
There's no certainty that it will. The private company's profits will have to be huge and sustained for many years before it can justify its market value, reputedly about $15 billion based on recent venture capital investments.
That assumes some hefty advertising revenue. Adweek reported this year that the company was asking brands for $750,000 a day to place ads on the platform. Snapchat declined to say how much it makes from advertisers.
Facebook, founded in 2004, de-emphasized advertising in its early years, when founder and Chief Executive Mark Zuckerberg talked about building a social network first. When it got big enough, advertising dollars would follow, and they did. Now Facebook is becoming a channel for videos and other content and is pulling in annual revenue of $12 billion a year and growing.
Snapchat is taking a more aggressive approach to ad revenue than Facebook did. The disappearing message feature grew fast by attracting mostly young users who sought a more shrouded social network than the highly public Facebook could provide. And then it took off yet again as it added mobile video. When Facebook launched, technology for online video was still fairly crude.
Snapchat's content is cheap. User-sent video costs next to nothing -- just some software and human curators to piece together compelling snippets, which differs substantially from the disorganized mess that confronts visitors to YouTube.
Forget profits for now, though. It's believed that Snapchat barely brings in any revenue, with its experiments in advertising at an early stage.
SundayMonday Business on 04/27/2015