What Snapchat investors can learn from the New York Times and Groupon
Your initial reaction to the headline of this post is probably “What does the social network du jour have to do with a legacy media company and a love-it-or-hate-it daily deal site?” The answer: not too much.
The more obvious comparisons for Snapchat would be the likes of WhatsApp and Twitter. But occasionally it’s useful to view a rising phenomenon from the experience of unrelated industries and the way consumers interact with them.
In this case, the news and flash sales industries have one thing in common with Snapchat: ephemerality. Much of what comes out of the news industry, digital news in particular, is short-lived breaking news. Similarly, the premise of daily deals is the brief period in which a buyer has to buy the deal. And by enabling 350 million daily messages to be sent and almost immediately eliminated à la Mission: Impossible, Snapchat is the definition of ephemerality.
So the question Snapchat’s investors should be asking themselves is “Is there any money in ephemerality?”
Engagement replacing page views
Let’s start with the news industry. Answer to question: less and less. For some time, engagement has been replacing page views as the metric of choice for digital news consumption analysis meaning that some in the news industry are consciously shifting from click bait-driven headlines on which the reader spends a few seconds to more quality content with a longer shelf life.
Similarly, advertising revenues at news sites, including digital revenues, are shrinking fast while digital subscriptions (ie, circulation) are on the up. Consumers aren’t subscribing to breaking news that they can get anywhere for free, but rather to value-added content, knowledge and stories that will stay with them and that they will share with their friends. Last year for instance, the New York Times’ circulation revenues surpassed its advertising revenues for the first time, driven by the increase in digital subscriptions.
Daily deal revenues declining
As for daily deal sites, the whole idea of earning significant revenues from ephemerality now seems laughable. Groupon’s daily deal revenues continue to decline. Many local merchants, once the bread and butter of Groupon’s business model, have declared that they will not continue to work with Groupon or other daily deal sites. What is keeping Groupon afloat in investors’ eyes is the continued increase of more traditional forms of e-commerce through Groupon Goods. In fact, if you visit Groupon’s page in any city, you’ll see that the “daily” part of “daily deal” is not longer relevant: the once-ubiquitous 24-hour countdown clock disappeared a while back.
Flash sales have been touted as a means for Snapchat to earn revenues since the ephemeral nature of the deals appears to fit well with the Inspector Gadget-style self-destructing messages. But considering that the original daily deal site is having so many problems with the 24-hour model it invented, investors should probably ask themselves, “will Snapchat users buy a daily deal in under 10 seconds?”
Figuring out monetization
With ephemeral advertising and e-commerce seemingly out as revenue generators, this isn’t to say that Snapchat as a product will be proven ephemeral. With 9% of US mobile phone users on the app, the company still has plenty of room to grow its base while it figures out monetization. But chances are that this monetization will not be tied to the product’s ephemeral nature. Snapchat investors should make sure that they believe enough in the startup’s management team to diversify from or pivot towards a more permanent product.