#namoexamples

Oh, the swagger. When Snapchat turned down between $3 and $4 billion from Facebook and Google, the verdict was that it would be hard to build a business out of Snapchat. But how hard would it be, really?

Late last year, Evan Spiegel, Snapchat’s CEO, disclosed the number of shared snaps as 400 million per day. This set off a wave of speculation about Snapchat’s userbase, including this exercise in arithmetic by TechCrunch’s Josh Constine about daily snaps per user to come up with a daily active user number.

It’s hard to imagine Snapchat relying on in-app purchases, or being funded by a subscription model⏤sure, some users would pay to stay, but they’d certainly see a good chunk running off to the next-best free thing. So let’s talk about how Snapchat could make serious money with advertising, while preserving their user experience.

Impressions

In terms of monetizing Snapchat, what matters is how many opportunities there are to serve ad impressions, and how well those impressions monetize. The Snapchat app is centered around your message list - you start there before you look at a message, and you land back there after viewing it. Using a conservative estimate that each Snapchat message goes to only one recipient, that’s 800M message list views per day. Snapchat users love working through their message lists to view all their snaps. And the message list is where you’d deliver the ads.

Banners?

For Snapchat, monetizing with 320x50 banners or full-screen interstitials would degrade their user experience and deliver a serious hit to their brand.

Native Mobile Ads!

Likely they’d want native ads inserted right into the message list. A simple native ad format for Snapchat might look like this:

With Namo’s SDK, this could be set up in about 20 minutes. Based on what we’ve seen with our publishers, we’ll give a conservative estimate of about $1.50 CPM for this type of ad format.

Native Video Ads

Snapchat has already integrated video messaging into their product. If you’re a Snapchat user, all you have to do is hold the photo button down for a second or so to switch into video view. It’s not hard to imagine the native ad format above also supporting video content.

Some traditional 30-second TV ads may easily transfer to Snapchat and its audience. Some brands may choose to create custom creative for Snapchat, just like we've seen with custom posts created by agencies for Tumblr. Video is profitable, too: video views go for up to $0.10. Assuming a 3% CTR (which is high for mobile but realistic for native ads), that would lead to a CPM of $3 for the video content.

Combined Revenue

Snapchat would likely want to put video first, and then backfill. Video content is more scarce as it's harder to product, but let’s say that 25% of the impressions fill with video, and the remaining 75% are app promotion ads. Doing the math with 800M impressions, we land at:

200M video ad impressions with a CPM of $3 = $600k

600M app promotion ad impressions with a CPM of $1.50 = $900k

For Snapchat, this would lead to $1.5M in daily revenue, or just shy of $550M in annual revenue. According to Wired, Snapchat is dirt cheap to run, so the profit margins would be substantial. Whether it’s a $3B offer from Facebook, $4B from Google, or a modest $2B valuation from investors, it’s not hard to justify Snapchat’s decision when you look at their revenue potential with native ads.

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