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One thing is clear from Q3 earnings in the big-tech world: It’s tough times for businesses built on ad revenue. Among other signs, Google fell short of expectations due to YouTube ad revenue declines. And Meta faced its second consecutive quarter of revenue declines.
These and other results are due to a few factors. First, macroeconomic headwinds are skewering ad budgets throughout the land. Second, Apple’s app tracking transparency (ATT) measure continues to eat away at ad revenue. Third, a new player in town fragments ad budgets: TikTok.
Among ad-supported tech giants, Google is perhaps the least affected because, though it faces macroeconomic headwinds, its ad targeting is based on explicit per-search user intent (first-party data). This lessens at least one of the above challenges in its core search business.
Meanwhile, Meta is dealing with all of the above by building lifeboats. More accurately, it’s building a $10 billion-per-year cruise ship known as the Metaverse. It gets lots of flack for chasing this dream while its core business declines… but that’s exactly the time to invest in one’s future.
Augmented Engagement
Beyond the above players, what about Snap? It continues to look for ways to better monetize user engagement. Its revenue per user (ARPU) is less than other social players, without the endless scroll advantages of Instagram, nor the seemingly endless session lengths of TikTok.
Meanwhile, Snap is doubling down on AR to differentiate and gain deeper user engagement. AR shows signs of doing just that, evidenced by dwell time. It can also span the consumer purchase funnel from upper-funnel branding to lower-funnel action, a la product try-ons.
“There’s a lot of opportunity to generate incremental revenue across our platform, whether that’s our AR platform, Spotlight or the Map,” said Evan Spiegel during Snap’s Q3 earnings call. There and elsewhere, the message has been to better monetize Snap’s existing users.
But beyond optimizing one’s ad revenue model, what about new revenue streams altogether? This can not only boost revenue but create defensibility in economic downturns, where ad budgets are subject to lots of vulnerability… just one of the headwinds outlined above.
The biggest candidate for supplementary streams – at least among social apps – is premium subscriptions. And Snap has perhaps executed this with the greatest success so far. Its Snapchat+ follows other efforts like Twitter Blue, but with better results in its short lifespan.
For those unfamiliar, the $3.99 Snapchat+ offers perks for power users. It includes controls on story expiration, access to beta features, and deeper analytics. The latter can be valuable for influencers and brand marketers who want to optimize content or retarget audiences.
Product/Market Fit
Moreover, Snapchat+ was one positive mark on Snap’s otherwise challenging Q3. Specifically, the subscription service continues to grow and recently surpassed a million paid users. That’s incremental in the grand scheme, but meaningful at roughly $4 million in top-line revenue.
This is also notable in light of reports this week about lackluster results for the comparative Twitter Blue. As part of the media frenzy around Elon Musk’s Twitter takeover – and his outspoken urge to revamp Twitter Blue – it’s been revealed that it’s only made $6.4 million to date.
This exceeds Snapchat+ but over a much longer period of time, given Twitter Blue’s June 2021 launch. Snapchat+ conversely hit its 1-million user milestone about 45 days after it launched. That momentum could make it a model for product/market fit in social app subscriptions.
This raises the question of whether or not a given social app’s power users will pay for premium features. With Snapchat’s engaged user persona, the answer so far is yes. That formula will vary but we’ll likely see more experimentation among social players to find that sweet spot.
“We’ve also been growing our Snapchat+ subscription service, said Spiegel during the earnings call, “which is another way that we deliver value to our community, and allows us to monetize the high levels of engagement that we have across our service.”
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