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Snapchat's Threat to Facebook in 1 Impressive Number

By Andrew Tonner - Jan 17, 2016 at 1:25PM

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Though its business idea might seem far-fetched to some, Snapchat's threat to social media maven Facebook continues to build.

Source: Facebook.

Littered with bold visions of the future, unicorns, and disruptors de jour, the weird world of tech investing can oftentimes seem more firmly grounded in dreams versus reality (and not virtual reality, just to be clear).

Though the term might be new, the recent rise of so-called "unicorns," a moniker for a start-up valued in excess of $1 billion, has ushered in a new wave of competition in tech as these unicorns look to assert themselves against some of tech's most powerful incumbents.

Perhaps the best example of this dynamic is the growing feud between social media kingpin Facebook (META 1.70%) and richly valued, rapidly expanding rival Snapchat. According to sources, video messaging application Snapchat just caught up with Facebook on one extremely important metric.

Snapchat: Facebook's video rival
According to a number of media outlets quoting people with knowledge of the matter, Snapchat's daily video consumption recently surpassed a mind-boggling 7 billion videos per day, a number quickly approaching the 8 billion videos viewed daily across Facebook's mobile and desktop social media empire. Matching the world's largest social networking site alone would be a commendable achievement for the 4 1/2-year-old Venice, Calif.-based start-up. However, Snapchat's achievement grows all the more impressive upon closer inspection of the numbers.

For starters, Snapchat operates as a mobile-only platform, giving it an inherently smaller potential installed base than Facebook's desktop and mobile access points. Beyond that, Snapchat's known daily active user (DAU) base of over 100 million users pales in comparison to Facebook's 1 billion daily active users. This is David overtaking Goliath.

Viewed through this lens, Snapchat's soaring $16 billion private market valuation, long a source of lampooning among skeptics, begins to seem far more grounded in reality. It's because of user metrics like this that Snapchat is arguably the greatest threat to Facebook this side of Alphabet or Amazon.

Believe the hype
As silly as predicating a business model on disappearing pictures and messages might seem, a $16 billion business no less, Snapchat's insane popularity positions it to compete with the big boys of new media for the growing shares of mobile and/or video ad dollars. Snapchat is already making legitimate progress in developing its own media distribution products through the Discover feature, launched last year, which draws a growing number of media outlets, including The Wall Street Journal, CNN, People, Buzzfeed, and many more to its legion of video-hungry users.

However, moving beyond its budding media distribution prowess, Snapchat's larger strategy to compete for video ad spend grows less obvious, but also far more compelling for one critical reason.

Image source: Snapchat.

The bulk of Snapchat's activity flows through "Stories," essentially user videos that disappear after 24 hours. Hopefully, we can all agree that it makes intuitive sense that Snapchat's greatest monetization opportunity lies in developing an advertising product around its most popular function, where brands could create and post their own material. The exact mechanics of how Snapchat would achieve this aren't perfectly clear, and Snapchat will likely tread lightly in introducing such products to avoid upsetting users. However, should it eventually launch a Stories-based ad product, as I believe it will, Snapchat enjoys one serious advantage over Facebook's booming video ad platform: intent.

In order for users to view a Story or direct message on Snapchat, a user must click into the message, an act of opting into the content known in advertising parlance as "intent." This willingness to accept a brand's message could prove incredibly valuable for brands as opting in to an advertisement inherently signals a user's interest in a given product or service. This differs markedly from Facebook, whose reams of user data (age, location, profession, interests, friends, etc.) also give it formidable means of connecting brands with their target demographics. However, unlike Snapchat's built-in opt-in mechanism, Facebook's video ads play automatically as they appear in a user's news feed. 

It isn't immediately apparent that Snapchat's new-age advertising medium could prove more effective than Facebook's at present. As Snapchat moves toward maturity, I'd be willing to bet tech investors will have the chance to find out.

As it continues to build out its platform and attract new users, Facebook investors would do well to closely monitor Snapchat's imminent ascent into the ranks of the new media elite in the years to come.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, and FB. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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