The headline from the past week of Q3 earnings is “tough times for ad-supported tech giants.” We’re talking Google, Meta, Snap, et al.. For example, Google fell short of expectations due to YouTube ad revenue declines. And Meta faced its second consecutive quarter of revenue declines.
Dismal results are due to a few factors including macroeconomic headwinds that are causing skewered ad budgets. There’s also Apple’s privacy changes at the platform level (ATT) that continue to eat away at ad revenue. And there’s a new player in town that’s fragmenting ad budgets: TikTok.
So what’s an ad-supported tech giant to do? Google is perhaps the least affected because, though it faces macroeconomic headwinds, its ad targeting is based on user intent on a per-search basis – a first-party advantage. This lessens at least one of the above challenges in its core search business.
Meanwhile, Meta is dealing with its ad revenue attrition by building lifeboats. More accurately, it’s building a $10 billion per year cruise ship known as the Metaverse. It’s getting lots of flack for chasing this dream while its core business crumbles… but that’s exactly the time to invest in one’s future.
Defense Wins Ball Games
Sticking with the list of tech companies above, what about Snap? It continues to look for ways to better monetize user engagement. Headwinds notwithstanding, its ad revenue model could be optimized, as it doesn’t enjoy the same endless scroll advantages of Instagram or long session lengths of TikTok.
Meanwhile, Snap is doubling down on AR as one way to differentiate itself and gain those deeper engagement metrics. Though it’s still early, AR is showing signs of boosting engagement through metrics like dwell times. It can also span the funnel from “ads to action,” the latter involving product try-ons.
But beyond alterations to one’s ad revenue model, what about expansion into new revenue streams altogether? This not only boosts revenue but can create more defensibility in economic downturns, where ad budgets are subject to lots of vulnerability… just one of the headwinds outlined above.
The biggest candidate for such supplementary streams – at least among social apps – is premium subscriptions. And sticking with Snap, it has perhaps executed this with the greatest success so far. Its Snapchat+ follows other efforts like Twitter Blue, but with more attractive features (and results).
Positive Mark
For those unfamiliar, Snapchat+ offers premium perks for power users. It costs $3.99 per month and includes things like controls on story expiration, access to beta features, and deeper analytics. The latter can be valuable for influencers and brand marketers who want to optimize content or retarget audiences.
But more to the point, this was one positive mark on Snap’s otherwise challenging Q3. Specifically, it has disclosed that the subscription service continues to grow and recently surpassed a million paid users. That’s incremental in the grand scheme, but meaningful at roughly $4 million in top-line revenue.
This all boils down to the question of if a given social app’s power users will pay for premium features. With Snapchat’s engaged user persona, the answer is apparently yes. That formula will be different for everyone but we’ll likely see more experimentation among social players to find that product/market fit.
“There’s a lot of opportunity to generate incremental revenue across our platform, whether that’s our
AR platform, Spotlight or the Map,” said Evan Speigel during Snap’s Q3 earnings call. “We’ve also been growing our Snapchat+ subscription service, which is another way that we deliver value to our community, and allows us to monetize the high levels of engagement that we have across our service.”
