Is Snap's Disastrous Day A Bad Sign For Digital Advertising?

Will Snap’s New Product Solve Its Revenue Problems?

Snap Inc. has had a tough few years in the wake of a changing advertising landscape, but could a new revenue stream be about to pay off?

We’re now well over a year removed from Apple’s game-changing iOS 14.5 update that saw the advertising landscape radically shift in the blink of an eye. Companies that had previously been quite successful by simply relying on ads for the majority of their revenue were suddenly struggling. Subsequent earnings reports confirmed this, with many firms losing huge amounts of value overnight.

Snap Inc. (NYSE: SNAP) was one of the companies that suffered this fate, but at long last, it could be about to change all that…

‘Snap’ back to reality

Last week, ​​Snap announced the launch of a premium version of its popular Snapchat platform. The paid version is called Snapchat+ and will cost subscribers $3.99 per month. The initial rollout will be in the U.S., Canada, Germany, France, the UK, UAE, Saudi Arabia, New Zealand, and Australia.

This development will see Snap attempt to move away from its current ad-heavy revenue model. Rising ad costs and weak consumer spending were two of the main reasons cited to be behind the company’s poor first-quarter performance, when Snap plummeted by over 40% in a single day.

Snapchat+ will attempt to generate an alternate source of recurring revenue for the firm — something desperately needed. It’s aimed at “the people who spend most of their time communicating with their closest friends on Snap” according to Jacob Andreou, the company’s senior vice-president of product. These power users will initially have the ability to change the icon of the app, see who rewatches their stories, and pin a friend to the top of their chats as a “BFF.”

Despite a widely-used product, Snap has often struggled to monetize its core offering outside of ads. It dabbled in the hardware market with the launch of Snap Spectacles and even a small drone, but found it difficult to generate meaningful revenue. If this subscription model works, it could be the boost Snap needs in the wake of a much more difficult advertising landscape.

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