
The Key to Snapchat's Eventual Profitability: It's Dirt Cheap to Run - ghosh
http://www.wired.com/opinion/2014/01/secret-snapchats-monetization-success-will-surprise/
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pkfrank
Interesting article, terrible title. It's key to _profitability_ will be
actually generating revenue while preventing their users from fleeing to the
next new thing.

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TrevorJ
>actually generating revenue while preventing their users from fleeing to the
next new thing.

This is a huge question for even most of the big players. Facebook didn't
exist till 2004, and they are already seen as nearly completely irrelevant by
High Schoolers. I think we will only see an increase in the speed at which
social apps get dropped for the next fad.

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yawz
I know it's a little off topic by why on earth wouldn't one take a 3-billion-
cash offer for a company without revenue? This simply amazes me. I must be
missing the uber-motivated-entrepreneur gene.

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jliptzin
Maybe the founders are already rich, they like the attention, and don't care
about padding their bank accounts any more. They do (or should) have a duty to
their investors and employees who might feel otherwise though...

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yawz
Even in the case of rich founders, I think money is such a great enabler that
one can take that incredible amount and move on to the next thing (or things).
I respect one's decision to brush the money aside and move on towards the big
dream but we're talking about 3 billion here :).

~~~
byoung2
Before the $3 billion offer, when SnapChat raised $80 million at an $800
million valuation, the founders each took $10 million off the table. The
investors probably wrote a clause into the deal giving them the right to
approve any acquisition offer [1]. The investors want tens of billions.

1\. [http://valleywag.gawker.com/source-snapchat-cofounders-
unloa...](http://valleywag.gawker.com/source-snapchat-cofounders-unloaded-
personal-stock-for-574730704)

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zrail
Serious question: how can a company be profitable without any revenue? Or do
they have non-obvious (to someone who doesn't use the service) revenue?

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cylinder
I don't think they are running any ads yet but they could easily make money. A
couple ideas:

-Ads that quickly flash for 2 seconds before the 8 second photo snap. "Transformers 5 in theaters tomorrow." Kids have very short attention spans as it is -- this is all you need these days. No more 30 second spots. You have to see it to see your friend's snap, no skipping or blocking.

-Celebrity endorsement snaps. You see a new snap appear from "selena91" or whatever. Open it and it's a quick video selfie of Selena Gomez telling you to check out her new movie/album.

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pwnna
The first thing is ... the most annoying thing i've heard from a while. I
don't even use snapchat..

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atwebb
You have to wait anyways, this is just putting a picture as part of the
countdown, at least that's my understanding (not a SC user either).

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justinsteele
The countdown refers to the amount of time you can view the snap (video/photo)
before it is inaccessible. Snaps are immediately viewable (given a fast
connection).

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atwebb
Well, then that advertising idea seems like a bad one. Thanks for the update!

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pstack
_Most_ things are dirt cheap to run. People just choose not to do so.

There have been countless services and websites over the last decade that
somehow get or require massive infusions of money. Tens of millions of
dollars, even. It blows my mind. Why does your website that mostly just
regurgitates tech news in blog format each day (and usually only about cell
phones and tablets, at that) require twenty million dollars of capital? You
need a couple servers at rackspace and a couple people at home in their
underwear surfing the web and parroting existing stories and news throughout
the day.

When I hear "snapchat is incredibly cheap to run", what I hear is "it is
reasonably priced to run, like most other services should be, but without the
bloated and inflated needs that others somehow ladle onto their
sites/services".

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adventured
Snapchat's biggest problem was never going to be whether it could get sales
above expenses, but whether it can retain the user base in a era where users
are fast to abandon ship for the next experience (and doing so is easier and
cheaper than ever).

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eloff
Agreed. Whether it is cheap to run or not is besides the point. There's
nothing special about snapchat that a company like Facebook can't create in a
couple months. The only thing they have of value is a very large, very fickle
user base. Why they turned down three billion seems completely insane from my
perspective. It's not even clear here that they can monetize effectively
before they lose popularity.

~~~
slig
> There's nothing special about snapchat that a company like Facebook can't
> create in a couple months.

Technically, yes, it's easy. The hard part is getting people to use your app,
even when you're FB. They tried, and failed. [1]

[1] [https://itunes.apple.com/en/app/facebook-
poke/id588594730?mt...](https://itunes.apple.com/en/app/facebook-
poke/id588594730?mt=8)

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krstck
I'm not hugely familiar with mobile, but I don't quite understand why
Apple/Google can't just immediately kill Snapchat by rolling out an expiring
photo message feature in their next update. As far as I can tell, there is
nothing keeping users specifically on _Snapchat_ since it pulls from your
phone's contacts, and since the content expires it's not like you have a
mountain of pictures stored in the application that you don't want to lose,
like in Instagram.

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untog
What Apple/Google app? iMessage? Plenty of people on Snapchat don't have each
other's numbers. One of the biggest issues would be that Apple never opened up
iMessage (and Google hasn't opened up Hangouts) so there would be no cross
platform snaps.

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jug6ernaut
Hangouts is cross platform. Same as SnapChat.

Hangouts is closed source, so is SnapChat.

iMessage probably not, but hangouts could add this in a heart beat.

Edit. Punctuation/formatting.

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habosa
Don't you need to have revenue to be profitable?

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smcl
Seems pretty clear that they mean "The key to some future profitability"

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Jun8
"In fact, the way the metadata is ostensibly used to target individuals and
groups NSA agents deem to be a threat is not dissimilar to how advertising
targeting works. But that’s another discussion."

This was an important takeaway, although in hindsight it's pretty obvious.
Assuming (conservatively) NSA is approximately 5 years ahead of current
commercially available technology, it seems there's quite a bit of headroom
for targeted advertising methods to grow and get better.

~~~
cbsmith
Actually, the stuff the NSA doing is pretty old school for people in the ad
space. Anyone doing online ads on social networks was doing this stuff even
before Facebook started doing it.

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callesgg
Seams to me that his cost calculation is way off.(one should be able to pull
of a service as snap chat where data persistans is not that vital, for a
fraction of the cost he wrote)

In my experience long term storage reliability is where the biggest costs is
in most IT related stuff that i have seen.

Snappchat never has to store anything for more than a couple of hours at most
in the majority of all cases.

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panabee
Could someone in the ad industry please confirm the key assertion of the
article: that the targeting value of Snapchat's data is comparable to
Facebook's targeting value? With improvements coming in NLP and computer
vision (i.e., understanding images and someone's preferences), it also seems
unlikely to remain true even if true today.

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tonfa
The author could have used appengine pricing (since snapchat runs at least
partly on appengine).

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vijayp
Snapchat does indeed currently run on GAE. In this article, I was trying to
show cost of running efficient custom infrastructure to solve the problem.
GAE's per-byte costs are higher than a custom solution operating at scale for
a number of reasons, most importantly because GAE is a generic system and
can't optimize for this specific use case.

As systems scale to massive numbers it's almost always more cost-effective to
use custom solutions. (e.g. Twitter runs an entirely custom HW stack and this
has saved them a ton of money)

~~~
sc_throwaway
These guys clearly do not care much about the costs right now... the more they
grow the larger the drag is going to be, though. I have heard from a solid
source that they're storing these images in BigTable. So, they're probably
paying 0.18/GB a month (or maybe less with a deal) and then also paying for
the reads and writes as units, and then also for the bandwidth (which is
amplified by the # of recipients). I'm not sure if you could find a more
expensive way to store images if you tried. Being in GAE means they wouldn't
have peering arrangements, so they are paying top-dollar for GAE BW, where a
FB or Google is paying for a fiber run and some rack space. SC are very green
when it comes to the business of shuffling bits, and if they want to really
play with the big boys they will have plenty of catchup to do. Google is
making lots of money off them, which makes me wonder if that was part of the
FB play.

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namenotrequired
Spoiler alert: he means, to Snapchat's _hypothetical_ profitability.

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CompleteMoron
Still a lesson here in running lean. Unfortunately most of the time when you
get certain kinds of funding they cant wait to blow the place out full of
desks for the dog and pony show that "something" is happening!

So they can cash out

