Snapchat’s Future Revenue Conundrum

Snapchat’s distinctive ghost logo.

Snapchat managed to attract a lot of buzz in 2013—perhaps more than any other app on the market—and it’s easy to see why: in these paranoid times, with the NSA allegedly sniffing around the world’s collective inbox, and lots of software on the market designed to snoop into people’s lives, it’s comforting to have an app that’ll vaporize your messages within seconds of their opening.

Snapchat’s executives see the startup’s future as so bright, in fact, that they reportedly turned down a $3 billion buyout from Facebook. According to The Wall Street Journal, which first reported that story (and cited anonymous sources for its information), Snapchat CEO Evan Spiegel has reportedly tabled any discussion of an acquisition, or even a major round of venture funding, until early 2014.

Snapchat isn’t unique with regard to its feature-set. Facebook already has Poke, a feature that wipes out messages after a few seconds; other communications startups such as Silent Circle offer vaporizing texts and images as part of their basic services. When Facebook (allegedly) tendered its enormous offer, it was doing so in order to seize Snapchat’s massive audience, a large portion of which are the teenagers that the social network clearly covets.

But whether Snapchat eventually accepts a buyout offer, or tries to parlay its popularity into some sort of IPO, it faces a rather unique problem: how do you make money off a free app that near-instantly vaporizes all content?

Snapchat could emulate enterprise-centric firms such as Silent Circle and start charging for subscriptions, but that would probably kill the service; a multitude of free rivals would likely spring up, with the express purpose of stealing irate customers away.

More likely, Snapchat will probably launch some sort of display ad system, similar to what Facebook and Twitter have now—but given how it doesn’t store user information on its servers, it’ll probably be hard to monetize its users as extensively as those social networks. With that in mind, Snapchat might be left with two options going forward—either expand its services in a radical new (and more profitable) direction, or sell to a Tech Big Fish for a whole lot of money.

 

Image: Snapchat

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