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Snapchat – How Did Snapchat Reach a Multi-Billion Dollar Valuation?

Snapchat image

Snapchat has raced to the top of the photo sharing hill and captured the imagination of the valuable teen market. We all know that word of mouth and the ‘sexting’ controversy surrounding the app sparked interest that helped drive its meteoric rise. The question is, how?

In an interview with Stephen Colbert in April of 2013, the founders of Snapchat Evan Spiegel & Bobby Murphy were asked, “Is this a sex-ting app?” (Source)

The beginning of Snapchat, a photo and video messaging application for iPhone & Android is shrouded in controversy, yet one thing is clear –  the idea dreamed up by fraternity brothers from Stanford goes far beyond just being a “sexting” app.

Dismissing the controversy is a mistake; but by not over-positioning itself as a “sexting” app—there is no language that suggests that specific use case in its AppStore description—Snapchat was able to change how we think about how photos and videos are shared.

The numbers don’t lie: in 2 short years (founded in 2011) the company has gone from an idea to seeing an eye-popping 350 million “snaps” per day. (Source)

Spiegel and Murphy took this innovative, yet simple idea and turned it into a thriving $800 million business. This June, Snapchat received an $60M vote of confidence investment from Institutional Venture Partners, and with rumors of a newer funding round at a $3.5B valuation, it’s clear that investors are bullish that the company’s meteoric rise is far more than just a fad. (Source) (Source)

 

Why and How Did It Grow?

In an age of permanence, timelines, and revenge posts, Snapchat created a way for teens to share photos freely—without the ramifications of other social services like Facebook. The easy-to-use, self-destructing transiency of the experience feels more human in its interaction than regular MMS, Facebook, Instagram, and Twitter. It goes from a timeline point of view—a historic record of activity—to fleeting, in the moment captures that allow users to drop many of the filters we’re taught to put on what we share.

This freedom, combined with engaging product hooks, and social nature of sharing “in the moment” photos and video, created a powerful new venue and motivation for teens to switch over to Snapchat.

 

The Need For Snapchat

Note Passing image

“It seems odd that at the beginning of the Internet everyone decided everything should stick around forever. I think our application makes communication a lot more human and natural.” – Spiegel (Source)

Think of the world that Snapchat entered, and it’s not hard to see why it exists. In a world where parties require people to leave their phones at the door, where rooms without lights are set up so no photography can be taken, where revenge sites are littered with photographic evidence of the indiscretions of an ex, Snapchat appears to provide a way out.

Snapchat creates a brand new way to communicate with friends that is fun and interactive, while creating a sense of privacy through the disappearing nature of the content. We know that the security isn’t foolproof—but it’s far better than its predecessors.

Snapchat allows users to send photos and videos to one or many friends, while limiting how long the recipients can see them. The maximum time is 10 seconds, just enough for the recipients to enjoy the moment before it is lost forever. To view the content, the recipient holds down a button. They can view the image until the counter expires or they let go of the button. After that, it’s gone.

To help foster the sense of privacy and security, Snapchat includes a built-in alert which notifies the sender if any of the recipients took a screenshot of the photo. Combined with the self-destructing nature, the app actively discourages the saving of photos. This creates less inhibition for users and an overall more fun, care-free experience.

In addition to photos and videos, Snapchat lets users express their creativity by adding text and drawing on the photos. This allows the user to create all types of goofy images and fun things that add to the experience.

While privacy of Snapchat is the obvious benefit, it also has some more subtle, but equally important benefits: disappearing photos mean less digital clutter, removing the cognitive overhead of dealing with them, and saving memory on phones.

While these benefits may seem trivial, upon closer inspection they provide real value. How many of us have a friend who’s computer of phone is crippled by thousands of unmanageable photos that are too hard to access, index, and use, but that can’t be deleted for fear of losing one that matters? Snapchat allows users to capture and share, without worrying about archiving and management.

 

Early Traction

Snapchat's Early Traction image

The founders first spread the word about Snapchat to college friends at Stanford University, but the app’s popularity didn’t really start to take-off until it made its way into the high school ranks to become a popular means of communication for teenagers.

It gave young teens an opportunity to exchange messages quickly and left no evidence for the rest of the world, including the eyes of parental figures. The story goes that Spiegel’s mother told their cousin about the app who in turn showed his friends at a local high school in Southern California – from there the app began spreading like wildfire.

With Snapchat’s traction in early 2012, they attracted the attention of mainstream press including New York Times. TechCrunch and other press started to cover them too. While mainstream press framed the phenomenon around sexting, 80% of Snaps are sent during the day—the school day specifically—suggesting that it was less about sex and more about the freedom of expression without public ramifications that drove growth.

By the time the New York Times wrote about Snapchat, it was in the top 5 photo sharing apps, and it hasn’t looked back. Snapchat has not only been one of the top downloads for photo and video app but has consistently been one of the top overall apps downloaded in the App Store.

 

Snapchat Rank History image

iOS App Store Rank

 

Facebook’s Attempt as a Fast Follower

Facebook CEO, Mark Zuckerberg saw the rise of  Snapchat, and understanding the importance of photos and the teen audience to the Facebook business model, decided to release its own competitor app in late 2012 called Poke.

What was meant to be a Snapchat crushing app, acted more like rocket fuel. The mentions and awareness of Snapchat soared after the release of Poke, fueling further growth and interest in the new app.  The One Forbes headline summed it up perfectly, “the kids like SnapChat because it’s NOT Facebook.” This graph shows the phenomenon—the number of Snapchat mentions skyrockets with the launch of Poke. (Source)

 

Snapchat vs. Poke

After an initial burst, Poke sunk quickly—and within two weeks of its release was no longer in the Top 100 in the iTunes Store.

By defeating Facebook in its narrower use case, Snapchat proved it was a legitimate player who was going to give established social networks a serious run for their money. By staring down Poke, and eliminating it as competition, Snapchat had a wide-open lane for continued growth. Instead of hurting the company, Facebook’s efforts propelled the company to new heights.

 

Today’s Growth Engine

Growth Engine Today

 

Word of Mouth

As discussed, users flocked to Snapchat because it allowed them to stray away from the permanence of others forms of communication and social media. Word of mouth easily spread in the age of group messaging and group selfies.

Like Square, people became aware of the product by seeing others use it as well. New users learn about Snapchat before ever having to download the app themselves—by seeing friends use it or even taking part in the experience by jumping in for group selfies.

Compare Snapchat’s mobile first experience to other social networks that started as a solitary experience in front of your computer connecting virtually with friends. Snapchat is much more likely to be used in a real world social situation.

Snapchat’s usage reflects the way high school works, and the group behaviors that are well established with teenagers. In other words: “group selfies” prompt conversations. In fact, 30% of Snaps are sent to groups (Source). Groups also gather around to view a Snapchat to see it before it disappears. This one-to-many dynamic is an important growth driver by propeling the exponential addition of new users.

This popularity and word of mouth between teens was an integral part of Snapchat’s growth with not only their peers, but also with their parents. In fact, as kids moved to Snapchat, parents quickly followed, as the service became a way for teens to communicate with their parents. This dynamic created a demographic divide among Snapchat users. Most users are in the 13-25 age group, and a second, much smaller but growing, group 40 and older. (Source)

We verified the importance of Word of Mouth by surveying over 100 Snapchat users, asking them how they discovered it. 65% claimed they discovered it through word of mouth, with the rest saying it was invites or press.

 

Strong User Engagement

Strong user engagement is an essential part of the engine driving Snapchat’s growth. One of the most unique aspects of the app is that unlike other messaging platforms, Snapchat commands and demands one’s attention (Source).

Snapchat messages arrive as little gifts packed with intrigue. We don’t know what’s inside, and we’re anxious to see what it is. We also know the message will disappear quickly, so we focus on it, giving the message our undivided attention. The content rarely disappoints, and it fuels a curiosity and delight that is a powerful motivator.

Morgan from the GrowthHackers team put it this way:

“This brief, unpredictable thrill, to me, is a major selling point of the app and why it is so successful. The concept of variable rewards is not new and is a powerful behavioral driver. Snapchat taps into this.”

Snapchat lets you send Snaps to multiple people at once, creating a social experience around the images and video. And being available on iOS means that Snapchat can be used by people without smartphones (or data plans) to stay in the loop with their devices (like iPads and iPod Touches).

The unexpected and self-destructing nature of the content overcomes our ever-shortening attention spans, while at the same time creating an intense social experience, both virtually among the sender and recipients and in the real world. You can imagine a crowd of giddy teenagers staring over each others’ phones to see incoming Snaps. (In fact, you don’t have to imagine it—it’s happening daily.)

In efforts to further user engagement, Snapchat recently released its new feature called “Stories” which is a compilation of videos and pictures that a user can take within a 24 hour span and instead of disappearing like regular Snapchat messages they last for a whole day.

These stories can be shared with the general public, creating a more Instragram-esque social feed or can be shared with friends on the service. It creates a novel way for people to share their day with their friends.

This new product feature seems to only be the start of Snapchat’s experimentation with new features to keep the user base engaged and also helping to attract new users.

 

Expansion into New Addressable Markets

All of Snapchat’s early growth was among US-based Apple iOS users, press mentions state that 80% of users were US based. This left the Android market unserved and prime for new growth. According to Neilsen, 48.5% of smartphone users were on Android devices in 2012.

Not surprisingly Snapchat’s launch of their Android version in October 2012 unleashed a new wave of press coverage and buzz—all driving further growth.

 

Google Play Snapchat store rank

Google Play Snapchat store rank

 

The Google Trends chart below shows the uptick of news headlines at the end of October, 2012, when Snapchat for Android was released.

Snapchat Interest image

 

Snapchat is also expanding internationally, picking up momentum in Europe. Interest in the UK and France now surpasses interest in the US. This international adoption will be a key source of growth for Snapchat in the immediate future.

International Expansion

 

Is Snapchat’s Growth Sustainable?

While some might dismiss its rapid growth and continued popularity, Snapchat has shown early signs of legitimate staying power. The question with all fast-growth networks is will it sustain growth, or will users become disengaged and abandon the service in favor of something else?

It’s a particularly important question in Snapchat’s case. It’s original appeal was the lack of parent participation (compared to Facebook) and its perceived privacy and lack of permanence. At some point, Snapchat will need to monetize their audience, either through ads or another model (premium items like stickers, etc.)

Will a fickle teen-based audience stick around for ads and a service that comes under increasing scrutiny from later-adopting parents? Or will they run to another up and coming service like Line, Kik or other competitors? It remains to be seen, but Snapchat must manage those competing forces to find continued growth and lasting success.

 

The Remaining Pieces of Snapchat’s Growth Engine

With reports of nearly 26 million U.S. based Snapchat users it’s clear that the company is building sustainable traction. For context, the same report estimates 52 million U.S. based Instagram users. The rumors of a $3.5b valuation is a bet that this young company is just getting started and can run down and surpass the most popular photo sharing apps and social networks that exist today.

The virality that comes with its powerful word of mouth growth engine, increasingly strong user engagement, and ability to tap into new markets will continue to be powerful drivers of growth. The company’s challenge is to balance this growth with the demands of driving revenue and growth without alienating its core user base.

By adding millions in new funding, Snapchat will buy plenty of runway to experiment and try to get the mix of engagement, growth and revenue right. The teen audience is unforgiving and quick to try something new—Snapchat will need to grow while remaining relevant to the audience that got them to where they are today.

It’s impossible for us to cover everything, feel free to let us know what we missed. What other factors were key to fueling Snapchat’s growth? We ask you to share your opinions and feedback in the comments section in order to make this the definitive piece on Snapchat’s massive success.

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This case study is one of ten in Growth Engines: Case Studies of How Today's Most Successful Startups Unlock Extraordinary Growth. Get the ebook on Amazon right now for just $2.99.

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  • RyanHoover (@rrhoover)

    Excellent teardown. It’s remarkable how fast it’s grown but growth without retention is mostly useless. I shared my thoughts on why the product is so sticky a few months ago (before stories were introduced): http://ryanhoover.me/post/57164210793/hooking-users-one-snapchat-at-a-time

    • Everette Taylor (@everette)

      Thanks Ryan, it truly is remarkable and I just took the time to read your analysis on the company – I wish I ran across this while writing the article because you make some insightful points. There’s two great points that I don’t feel that I covered in this piece:

      “They are given the option to send to one or many individuals yet recipients are unable to discern whether a message was explicitly sent to them or several people. And this is the genius of Snapchat. It enables a single message to have a broad reach while maintaining the intimacy of one-to-one communications…”

      This aspect of Snapchat is ingenious because mass text messaging leaves a “trail” of recipients whereas Snapchat does not – which has its own distinct advantages. It allows you to share these moments with your multiple people without them ever having to know it was sent to multiple people. I believe this is a fun feature especially for teenagers and younger users.

      “Our craving for feedback and reciprocation is one of the strongest drivers of social products.”

      That described your point on the read receipts feature on the app in which I failed to mention at all and want to highlight it here. I think you’re absolutely right. One of the things that made the BBM messaging app so popular years ago was its ability to show users when someone read your message which in my opinion spurred more use of the app because people felt the need to reply – the same goes for Snapchat but at the same time, the app is a lot more light hearted than something like BBM so even if you don’t respond, it doesn’t feel like such a negative thing.

  • Sean Ellis (@sean)

    I’ve actually been surprised how important word of mouth is for the growth of the first four companies that we’ve analyzed. I mentioned this finding yesterday and it triggered a great discussion via Ask GH with this question: “If word of mouth is the primary growth driver behind the fastest growing companies, does that mean that growth hacking is irrelevant?” I recommend checking out the discussion: http://www.growthhackers.com/ask-gh-if-word-of-mouth-is-the-primary-growth-driver-behind-the-fastest-growing-companies-does-that-mean-that-growth-hacking-is-irrelevant-ill-post-context-in-comments/

    • Timothy Wu (@timwut)

      Really loving these breakdowns. Please keep them up! Excited to read more of these – especially in the B2B space.

  • NoahSidman-Gale (@noahsg)

    Awesome article. A while back I read this piece that talks about how Snapchat’s UX fueled growth – just want to add it to the conversation: https://blog.stackmob.com/2013/05/11-ux-lessons-learned-from-snapchat/

    One of the growth mechanisms that stood out to me when I first used the app was the step of “finding friends”. While many other services around the same time would push you to invite friends on FB, Snapchat accessed your phone contacts, let you choose friends, and then pushed the invite via text message. At a time when Facebook was feeling “spammy” this was the perfect solution to achieve some virality.

    • Everette Taylor (@everette)

      Thanks Noah, appreciate you sharing that UX content. I covered some of that in my post there but its nice to see a more thorough take on Snapchat’s simple yet brilliant UI. The question is, was this intentional?

      Nailing the simplicity and frictionless design of the app may or may not have been but the “finding friends” feature most definitely was and I agree that it just doesn’t feel “spammy” at all but more so as a mechanism to help your Snapchat experience.

  • Sean Ellis (@sean)

    Surprised to read this today that stories are now more popular on Snapchat than photos. http://www.theverge.com/2014/6/20/5827666/snapchat-stories-bigger-than-snaps-electric-daisy-carnival

  • Dylan La Com (@dylan)

    When I used Snapchat for the first time, I honestly thought the interface seemed incomplete– too simple, and too juvenile for me to be impressed by the app. In hindsight, I’m not sure Snapchat would be as successful today if it started as a more polished product built by a team of veteran entrepreneurs. I’m not sure it would have connected with the younger crowd in the same way. It’ll be interesting to see how they build out the product while still maintaining the same quirky interface that their users know and love.

  • LincolnMurphy (@lincolnmurphy)

    Everette (and crew)… great stuff.

    I think one of the really interesting aspects of Snapchat can be summed up in this line from your post: “This creates less inhibition for users and an overall more fun, care-free experience.”

    This post I read the other day goes deeper on that idea (and others):
    http://roymurdock.com/essays/2013/11/snapchat-is-intrinsically-worthless/

    The author says “There’s no pressure to create a picture that will be universally enjoyed on a larger social media network. Snapchat lets you be your weird, goofy self for a couple of seconds every day, and it feels pretty good.”

    And I think there’s a lot to that… even with SC’s “Stories” that last a day and can be shared publicly… what you do on SC is still temporary; and that more than anything seems to be the big deal here.

    A network built around eliminating that hesitation you might feel before posting your latest masterpiece to Instagram, for instance, is one that encourages use and therefore growth.

    Interesting tear-down… good stuff.

  • TravisDevitt (@tdev)

    Another piece of the Snapchat story is how they gained a foothold with a core group of users early on. Just as Facebook started with Harvard and surrounding colleges, Snapchat likewise grew from a small avid base in southern California high schools. Here’s a bit of backstory from a Techcrunch story:

    “In September of 2011, as Spiegel and Brown prepared to return to Stanford for their senior years not on speaking terms, the app only had around 100 users.

    That fall, Spiegel and Murphy introduced the app to parents and high schoolers in Orange County, and the app quickly gained thousands of users in tight circles in a few Malibu high schools. In January of 2012, Snapchat had over 30,000 users who were primarily using it as a goofy communication tool, not for sexting.

    Over the next year, with Murphy leading the coding team and Spiegel speaking and maneuvering as the public face of the company, the app exploded in popularity, seeing 60 million snaps sent per day as of February 2013. Spiegel and Murphy regularly appeared on TV and in newspapers and blogs. The company raised nearly $14 million, hired more engineers and support staff, and moved to a new office on Venice Beach. “