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How Snapchat Built a Business By Confusing Olds

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Sadly the barfing rainbow is no more... but you too can learn from DJ Khaled. Bless up!

Young people do not share content in the same way as older people.

There are no articles being shared on Snapchat.

It's all social sharing of online cards, memes, gifs, filtered selfies, and stitched-together videos.

Snapchat is a new form with different content.

8 billion videos are consumed every day on Snapchat.

DJ Khaled’s videos attract 3 million to 4 million viewers each. Given how Snapchat skews overwhelmingly tween to late-millennial, that means about the same number of young people are watching him admire flowers as are watching the biggest network sitcoms. According to Nielsen, roughly 3.3 million people age 12-34 watch The Big Bang Theory.

Even bigger than the videos posted by Khaled and Kylie Jenner—the platform’s other big star, with 10 million followers—are Snapchat’s own Live Stories. These are mashups of news events culled from the feeds of Snapchat users and produced by the company’s 100-person content team of producers, editors, and a handful of journalists, who sometimes add commentary or contribute more footage. The biggest Live Stories segments—for instance, New York’s 2015 Snowmageddon and the Coachella music festival—can draw viewership in the tens of millions. Snapchat Discover, a collection of slickly produced feeds, attracts audiences in the millions. The company says users watch roughly 8 billion videos on its platform each day, about the same number as Facebook, which has 10 times as many users as Snapchat. On a given day, according to Nielsen, 41 percent of adults in the U.S. under 35 spend time on Snapchat.

There is tremendous competition to be one of the 20 channels on Snapchat, which splits $20 CPM revenues with its partners:

Swiping left gets you to the meat of the app: stories. These are short video clips that run in a series and disappear within 24 hours. You, your friends, and people you follow, like DJ Khaled, can post. The upper half of the screen is devoted to variations on stories: the day’s Snapchat-produced Live Stories, as well as Snapchat Discover. There are 20 Snapchat Discover channels, each produced by established media brands such as People, CNN, ESPN, and the Wall Street Journal, as well as up-and-comers such as Vice, BuzzFeed, and Refinery29. Coles’s Cosmo channel is on Discover, as is Sweet, a publication run by the magazine’s parent company, Hearst.

Discover partners generally post 10 or more videos a day on its channels. App users can tap a channel icon to start watching the stream, and tap again to skip to the next clip. Or, if they’re intrigued by a clip, they can swipe up to watch a longer version or read an article. No matter how they tap or swipe, users stay in the app. Links to the Web aren’t allowed. Publishers love not having to compete with a steady stream of links from other publishers, as on Facebook or Twitter, and advertisers love that users actually seem to watch the ads. Since last year, Snapchat has broadened its advertiser base by introducing less-expensive products. Today, buying time on Discover costs $20 per thousand views -- more than twice what an ad goes for on Facebook and Instagram. The proceeds are split between Snapchat and its media partners. 

The number of Discover slots is limited—right now it’s just the 20 that fit on one Snapchat screen—and competition among media brands is fierce. In July, Snapchat dropped Yahoo! even though Spiegel had personally recruited Katie Couric, Yahoo’s lead news anchor. BuzzFeed got that slot. Snapchat declines to explain why it bounced Yahoo, but traffic to the channel was reportedly poor. Shortly after replacing Yahoo on Discover, BuzzFeed CEO Jonah Peretti disclosed that 21 percent of his company’s overall audience came from Snapchat, a share exceeded only by Facebook and BuzzFeed’s own website and apps.

For less-established companies, getting a Discover slot can be transformative. “That was a dramatic moment in the life of our company,” says Steven Kydd, a co-founder of Tastemade, a four-year-old media startup focused on food and travel videos. Since joining Discover in August, Tastemade has added 20 employees, raised an extra $40 million in venture capital, and reoriented itself around Snapchat. Tastemade started out producing videos primarily for YouTube, then expanded to Facebook, Instagram, and Apple TV. To be eligible for Snapchat’s Discover feature, not only did Tastemade have to produce even more videos, it also needed them to work on a smartphone screen, which is more complicated than it sounds. “This,” Kydd says, pointing at a TV mounted vertically on the wall in Tastemade’s studio in Los Angeles, “is how millennials view content.”

The company built a set, specifically designed for vertical videos, that’s roughly 15 percent skinnier than a standard set and has cameras turned on their sides. Tastemade still has to fill up the other platforms, so it shoots the rest of its videos horizontally on high-resolution cameras, while keeping the action in the middle third of the screen so the footage can also run on Snapchat. TV monitors in the studio are marked with black tape that shows the Snapchat version’s frame. Afterward, segments are edited into multiple cuts: vertical for Snapchat, square for Instagram and Facebook, horizontal for YouTube and Apple TV. “Everything in the industry is designed around landscape video, so to do portrait you kind of have to hack the process,” says Jay Holzer, Tastemade’s head of production.

Time will tell if Snapchat is a fad.

History suggests that cookie-based media, and Snapchat in general, may be a fad. In 2013, several viral video companies thrived, thanks to a knack for being able to rank highly in Facebook’s News Feed by using teasing headlines. For a time, it worked; Upworthy, for example, saw traffic hit nearly 90 million unique users. But Facebook changed its News Feed, consumers tired of the click bait, and traffic sank. “Facebook changed and we adapted,” says Upworthy co-CEO Peter Koechley.

Before he helped start Tastemade, Kydd was an executive vice president of Demand Media, which ran content farms, websites that cranked out posts by the thousands on a daily basis. Posts had little informational value—for instance, “How to Put on a Speedo” was a classic—but they generated huge traffic, and ad revenue, by exploiting a quirk in the way Google handled search queries. The company went public in 2011 and peaked at a valuation of roughly $2 billion—at the time, about 25 percent more than that of the New York Times. Then Google updated its algorithm, and Demand Media’s traffic collapsed. Today its market capitalization is roughly $100 million, and it has a new management team. Kydd notes that Tastemade has always focused on high-quality content.

In late February, Snapchat announced it would provide detailed demographic information about users through Nielsen’s digital ratings service, a welcome development for some advertisers wary of the hype. “Snapchat is awfully expensive, and there’s pretty much a lack of data and visibility,” says Thom Gruhler, a marketing vice president at Microsoft. Another complaint: Meetings with Snapchat executives are rare. “Whether it’s Imran [Khan, Snapchat’s chief strategy officer] or Evan, it’s like getting an audience with the pope,” says an executive at one of the largest ad agencies. With Facebook and Twitter, the big agencies get as many meetings as they want.

Snapchat declined to comment on this critique, but it has informed media buyers that it plans to improve ad targeting and measuring while promising a more hands-on approach. And in February it struck a deal to allow Viacom to sell ads on Snapchat’s behalf. “They’re in the midst of growing up,” says Carrie Seifer, president for digital at Starcom MediaVest Group.

For now, that’s been enough. Advertisers don’t have a lot of good options to reach under-30s. The audiences of CBS, NBC, and ABC are, on average, in their 50s. Cable networks such as CNN and Fox News have it worse, with median viewerships near or past Social Security age. MTV’s median viewers are in their early 20s, but ratings have dropped in recent years. Marketers are understandably anxious, and Spiegel and his deputies have capitalized on those anxieties brilliantly by charging hundreds of thousands of dollars when Snapchat introduces an ad product. OMD’s Winkler calls this a “shrewd strategy” that “instantly elevates the conversation—often to the CMO level,” which means that Snapchat ad buys are often subject to less budgetary scrutiny than normal. “Every CMO’s kid is using it,” says Starcom’s Seifer.

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