6 ms·

The Key to Snapchat's Eventual Profitability: It's Dirt Cheap to Run

63 points by ghosh 13y ago

tonfa 13y ago
The author could have used appengine pricing (since snapchat runs at least partly on appengine).
- vijayp 13y ago
  Snapchat does indeed currently run on GAE. In this article, I was trying to show cost of running efficient custom infrastructure to solve the problem. GAE's per-byte costs are higher than a custom solution operating at scale for a number of reasons, most importantly because GAE is a generic system and can't optimize for this specific use case. As systems scale to massive numbers it's almost always more cost-effective to use custom solutions. (e.g. Twitter runs an entirely custom HW stack and this has saved them a ton of money)
  - sc_throwaway 13y ago
    These guys clearly do not care much about the costs right now... the more they grow the larger the drag is going to be, though. I have heard from a solid source that they're storing these images in BigTable. So, they're probably paying 0.18/GB a month (or maybe less with a deal) and then also paying for the reads and writes as units, and then also for the bandwidth (which is amplified by the # of recipients). I'm not sure if you could find a more expensive way to store images if you tried. Being in GAE means they wouldn't have peering arrangements, so they are paying top-dollar for GAE BW, where a FB or Google is paying for a fiber run and some rack space. SC are very green when it comes to the business of shuffling bits, and if they want to really play with the big boys they will have plenty of catchup to do. Google is making lots of money off them, which makes me wonder if that was part of the FB play.
zrail 13y ago
Serious question: how can a company be profitable without any revenue? Or do they have non-obvious (to someone who doesn't use the service) revenue?
- tibbon 13y ago
  I was just thinking that myself. They haven't done a single thing that I've seen so far that makes them any money
- jlockfre 13y ago
  Who needs profit? This is the God damn age of creating value out of nothing! Snapchat is not worth $3 billion, it's been 'valued' at $3 billion but it is intrinsically worthless.
  - zrail 13y ago
    Yeah, I get that part. I'm just reacting to the idea in a headline, that just because something is VC funded and "dirt cheap" to keep running makes it profitable.
  - gboudrias 13y ago
    Not generating revenues doesn't mean worthless. They have a lot of virtual assets (emails etc). Of course $3 billion is completely ridiculous, but it's a little unfair to say they are worthless.
  - deleted 13y ago
    [deleted]
  - at-fates-hands 13y ago
    Another reason this kid should've taken the money and ran like hell. In another 12 months the kiddies are going to be on to the next coolest social media trend and they'll be left in the dust.
    - justinsteele 13y ago
      Maybe, maybe not. I'm sure people were saying the same about Facebook a few years ago. The fact that they can still easily choose who receives their "updates" makes for a longer lasting product in my opinion. The "My mom is on Facebook!" phenomenon has led to a dropoff in adolescent usage. Snapchat is a supplement/replacement for texting in my experience with younger family members.
adventured 13y ago
Snapchat's biggest problem was never going to be whether it could get sales above expenses, but whether it can retain the user base in a era where users are fast to abandon ship for the next experience (and doing so is easier and cheaper than ever).
- eloff 13y ago
  Agreed. Whether it is cheap to run or not is besides the point. There's nothing special about snapchat that a company like Facebook can't create in a couple months. The only thing they have of value is a very large, very fickle user base. Why they turned down three billion seems completely insane from my perspective. It's not even clear here that they can monetize effectively before they lose popularity.
  - slig 13y ago
    > There's nothing special about snapchat that a company like Facebook can't create in a couple months. Technically, yes, it's easy. The hard part is getting people to use your app, even when you're FB. They tried, and failed. [1] [1] https://itunes.apple.com/en/app/facebook-poke/id588594730?mt=8 https://itunes.apple.com/en/app/facebook-poke/id588594730?mt...
- 6cxs2hd6 13y ago
  Bad headline. The interesting point from the article is that metadata can be more valuable than data. Plus it's smaller. Therefore it improves both sides of the cost:benefit ratio.
habosa 13y ago
Don't you need to have revenue to be profitable?
- smcl 13y ago
  Seems pretty clear that they mean "The key to some future profitability"
pkfrank 13y ago
Interesting article, terrible title. It's key to profitability will be actually generating revenue while preventing their users from fleeing to the next new thing.
- TrevorJ 13y ago
  >actually generating revenue while preventing their users from fleeing to the next new thing. This is a huge question for even most of the big players. Facebook didn't exist till 2004, and they are already seen as nearly completely irrelevant by High Schoolers. I think we will only see an increase in the speed at which social apps get dropped for the next fad.
Jun8 13y ago
"In fact, the way the metadata is ostensibly used to target individuals and groups NSA agents deem to be a threat is not dissimilar to how advertising targeting works. But that’s another discussion." This was an important takeaway, although in hindsight it's pretty obvious. Assuming (conservatively) NSA is approximately 5 years ahead of current commercially available technology, it seems there's quite a bit of headroom for targeted advertising methods to grow and get better.
- cbsmith 13y ago
  Actually, the stuff the NSA doing is pretty old school for people in the ad space. Anyone doing online ads on social networks was doing this stuff even before Facebook started doing it.
CompleteMoron 13y ago
Still a lesson here in running lean. Unfortunately most of the time when you get certain kinds of funding they cant wait to blow the place out full of desks for the dog and pony show that "something" is happening! So they can cash out
yawz 13y ago
I know it's a little off topic by why on earth wouldn't one take a 3-billion-cash offer for a company without revenue? This simply amazes me. I must be missing the uber-motivated-entrepreneur gene.
- jliptzin 13y ago
  Maybe the founders are already rich, they like the attention, and don't care about padding their bank accounts any more. They do (or should) have a duty to their investors and employees who might feel otherwise though...
  - yawz 13y ago
    Even in the case of rich founders, I think money is such a great enabler that one can take that incredible amount and move on to the next thing (or things). I respect one's decision to brush the money aside and move on towards the big dream but we're talking about 3 billion here :).
    - byoung2 13y ago
      Before the $3 billion offer, when SnapChat raised $80 million at an $800 million valuation, the founders each took $10 million off the table. The investors probably wrote a clause into the deal giving them the right to approve any acquisition offer [1]. The investors want tens of billions. 1. http://valleywag.gawker.com/source-snapchat-cofounders-unloaded-personal-stock-for-574730704 http://valleywag.gawker.com/source-snapchat-cofounders-unloa...
- jessaustin 13y ago
  Do we know it was just the founder who made the decision, or could it have also been VCs trying to stretch a double into an inside-the-park four-bagger?
krstck 13y ago
I'm not hugely familiar with mobile, but I don't quite understand why Apple/Google can't just immediately kill Snapchat by rolling out an expiring photo message feature in their next update. As far as I can tell, there is nothing keeping users specifically on Snapchat since it pulls from your phone's contacts, and since the content expires it's not like you have a mountain of pictures stored in the application that you don't want to lose, like in Instagram.
- untog 13y ago
  What Apple/Google app? iMessage? Plenty of people on Snapchat don't have each other's numbers. One of the biggest issues would be that Apple never opened up iMessage (and Google hasn't opened up Hangouts) so there would be no cross platform snaps.
  - ceejayoz 13y ago
    The same is true for iMessage. You can contact someone via Apple ID e-mail address rather than their phone number.
  - krstck 13y ago
    Just bake it into the camera application. Select recipient from your contacts, select the time limit, and go.
  - jug6ernaut 13y ago
    Hangouts is cross platform. Same as SnapChat. Hangouts is closed source, so is SnapChat. iMessage probably not, but hangouts could add this in a heart beat. Edit. Punctuation/formatting.
- vijayp 13y ago
  FB tried this with "poke" (remember that) and that didn't work so well. A service with a number of users is not as easy to copy as it would seem. Replicating the technology is one thing, getting all the users is another.
- jliptzin 13y ago
namenotrequired 13y ago
Spoiler alert: he means, to Snapchat's hypothetical profitability.
callesgg 13y ago
Seams to me that his cost calculation is way off.(one should be able to pull of a service as snap chat where data persistans is not that vital, for a fraction of the cost he wrote) In my experience long term storage reliability is where the biggest costs is in most IT related stuff that i have seen. Snappchat never has to store anything for more than a couple of hours at most in the majority of all cases.
panabee 13y ago
Could someone in the ad industry please confirm the key assertion of the article: that the targeting value of Snapchat's data is comparable to Facebook's targeting value? With improvements coming in NLP and computer vision (i.e., understanding images and someone's preferences), it also seems unlikely to remain true even if true today.
pstack 13y ago
Most things are dirt cheap to run. People just choose not to do so. There have been countless services and websites over the last decade that somehow get or require massive infusions of money. Tens of millions of dollars, even. It blows my mind. Why does your website that mostly just regurgitates tech news in blog format each day (and usually only about cell phones and tablets, at that) require twenty million dollars of capital? You need a couple servers at rackspace and a couple people at home in their underwear surfing the web and parroting existing stories and news throughout the day. When I hear "snapchat is incredibly cheap to run", what I hear is "it is reasonably priced to run, like most other services should be, but without the bloated and inflated needs that others somehow ladle onto their sites/services".

63 points by ghosh 13y ago

tonfa 13y ago

The author could have used appengine pricing (since snapchat runs at least partly on appengine).

vijayp 13y ago
Snapchat does indeed currently run on GAE. In this article, I was trying to show cost of running efficient custom infrastructure to solve the problem. GAE's per-byte costs are higher than a custom solution operating at scale for a number of reasons, most importantly because GAE is a generic system and can't optimize for this specific use case. As systems scale to massive numbers it's almost always more cost-effective to use custom solutions. (e.g. Twitter runs an entirely custom HW stack and this has saved them a ton of money)
- sc_throwaway 13y ago
  These guys clearly do not care much about the costs right now... the more they grow the larger the drag is going to be, though. I have heard from a solid source that they're storing these images in BigTable. So, they're probably paying 0.18/GB a month (or maybe less with a deal) and then also paying for the reads and writes as units, and then also for the bandwidth (which is amplified by the # of recipients). I'm not sure if you could find a more expensive way to store images if you tried. Being in GAE means they wouldn't have peering arrangements, so they are paying top-dollar for GAE BW, where a FB or Google is paying for a fiber run and some rack space. SC are very green when it comes to the business of shuffling bits, and if they want to really play with the big boys they will have plenty of catchup to do. Google is making lots of money off them, which makes me wonder if that was part of the FB play.

zrail 13y ago

Serious question: how can a company be profitable without any revenue? Or do they have non-obvious (to someone who doesn't use the service) revenue?

tibbon 13y ago
I was just thinking that myself. They haven't done a single thing that I've seen so far that makes them any money
jlockfre 13y ago
Who needs profit? This is the God damn age of creating value out of nothing! Snapchat is not worth $3 billion, it's been 'valued' at $3 billion but it is intrinsically worthless.
- zrail 13y ago
  Yeah, I get that part. I'm just reacting to the idea in a headline, that just because something is VC funded and "dirt cheap" to keep running makes it profitable.
- gboudrias 13y ago
  Not generating revenues doesn't mean worthless. They have a lot of virtual assets (emails etc). Of course $3 billion is completely ridiculous, but it's a little unfair to say they are worthless.
- deleted 13y ago
  [deleted]
- at-fates-hands 13y ago
  Another reason this kid should've taken the money and ran like hell. In another 12 months the kiddies are going to be on to the next coolest social media trend and they'll be left in the dust.
  - justinsteele 13y ago
    Maybe, maybe not. I'm sure people were saying the same about Facebook a few years ago. The fact that they can still easily choose who receives their "updates" makes for a longer lasting product in my opinion. The "My mom is on Facebook!" phenomenon has led to a dropoff in adolescent usage. Snapchat is a supplement/replacement for texting in my experience with younger family members.

adventured 13y ago

Snapchat's biggest problem was never going to be whether it could get sales above expenses, but whether it can retain the user base in a era where users are fast to abandon ship for the next experience (and doing so is easier and cheaper than ever).

eloff 13y ago
Agreed. Whether it is cheap to run or not is besides the point. There's nothing special about snapchat that a company like Facebook can't create in a couple months. The only thing they have of value is a very large, very fickle user base. Why they turned down three billion seems completely insane from my perspective. It's not even clear here that they can monetize effectively before they lose popularity.
- slig 13y ago
  > There's nothing special about snapchat that a company like Facebook can't create in a couple months. Technically, yes, it's easy. The hard part is getting people to use your app, even when you're FB. They tried, and failed. [1] [1] https://itunes.apple.com/en/app/facebook-poke/id588594730?mt=8 https://itunes.apple.com/en/app/facebook-poke/id588594730?mt...
6cxs2hd6 13y ago
Bad headline. The interesting point from the article is that metadata can be more valuable than data. Plus it's smaller. Therefore it improves both sides of the cost:benefit ratio.

habosa 13y ago

Don't you need to have revenue to be profitable?

smcl 13y ago
Seems pretty clear that they mean "The key to some future profitability"

pkfrank 13y ago

Interesting article, terrible title. It's key to profitability will be actually generating revenue while preventing their users from fleeing to the next new thing.

TrevorJ 13y ago
>actually generating revenue while preventing their users from fleeing to the next new thing. This is a huge question for even most of the big players. Facebook didn't exist till 2004, and they are already seen as nearly completely irrelevant by High Schoolers. I think we will only see an increase in the speed at which social apps get dropped for the next fad.

Jun8 13y ago

"In fact, the way the metadata is ostensibly used to target individuals and groups NSA agents deem to be a threat is not dissimilar to how advertising targeting works. But that’s another discussion." This was an important takeaway, although in hindsight it's pretty obvious. Assuming (conservatively) NSA is approximately 5 years ahead of current commercially available technology, it seems there's quite a bit of headroom for targeted advertising methods to grow and get better.

cbsmith 13y ago
Actually, the stuff the NSA doing is pretty old school for people in the ad space. Anyone doing online ads on social networks was doing this stuff even before Facebook started doing it.

CompleteMoron 13y ago

Still a lesson here in running lean. Unfortunately most of the time when you get certain kinds of funding they cant wait to blow the place out full of desks for the dog and pony show that "something" is happening! So they can cash out

yawz 13y ago

I know it's a little off topic by why on earth wouldn't one take a 3-billion-cash offer for a company without revenue? This simply amazes me. I must be missing the uber-motivated-entrepreneur gene.

jliptzin 13y ago
Maybe the founders are already rich, they like the attention, and don't care about padding their bank accounts any more. They do (or should) have a duty to their investors and employees who might feel otherwise though...
- yawz 13y ago
  Even in the case of rich founders, I think money is such a great enabler that one can take that incredible amount and move on to the next thing (or things). I respect one's decision to brush the money aside and move on towards the big dream but we're talking about 3 billion here :).
  - byoung2 13y ago
    Before the $3 billion offer, when SnapChat raised $80 million at an $800 million valuation, the founders each took $10 million off the table. The investors probably wrote a clause into the deal giving them the right to approve any acquisition offer [1]. The investors want tens of billions. 1. http://valleywag.gawker.com/source-snapchat-cofounders-unloaded-personal-stock-for-574730704 http://valleywag.gawker.com/source-snapchat-cofounders-unloa...
jessaustin 13y ago
Do we know it was just the founder who made the decision, or could it have also been VCs trying to stretch a double into an inside-the-park four-bagger?

krstck 13y ago

I'm not hugely familiar with mobile, but I don't quite understand why Apple/Google can't just immediately kill Snapchat by rolling out an expiring photo message feature in their next update. As far as I can tell, there is nothing keeping users specifically on Snapchat since it pulls from your phone's contacts, and since the content expires it's not like you have a mountain of pictures stored in the application that you don't want to lose, like in Instagram.

untog 13y ago
What Apple/Google app? iMessage? Plenty of people on Snapchat don't have each other's numbers. One of the biggest issues would be that Apple never opened up iMessage (and Google hasn't opened up Hangouts) so there would be no cross platform snaps.
- ceejayoz 13y ago
  The same is true for iMessage. You can contact someone via Apple ID e-mail address rather than their phone number.
- krstck 13y ago
  Just bake it into the camera application. Select recipient from your contacts, select the time limit, and go.
- jug6ernaut 13y ago
  Hangouts is cross platform. Same as SnapChat. Hangouts is closed source, so is SnapChat. iMessage probably not, but hangouts could add this in a heart beat. Edit. Punctuation/formatting.
vijayp 13y ago
FB tried this with "poke" (remember that) and that didn't work so well. A service with a number of users is not as easy to copy as it would seem. Replicating the technology is one thing, getting all the users is another.
jliptzin 13y ago

namenotrequired 13y ago

Spoiler alert: he means, to Snapchat's hypothetical profitability.

callesgg 13y ago

Seams to me that his cost calculation is way off.(one should be able to pull of a service as snap chat where data persistans is not that vital, for a fraction of the cost he wrote) In my experience long term storage reliability is where the biggest costs is in most IT related stuff that i have seen. Snappchat never has to store anything for more than a couple of hours at most in the majority of all cases.

panabee 13y ago

Could someone in the ad industry please confirm the key assertion of the article: that the targeting value of Snapchat's data is comparable to Facebook's targeting value? With improvements coming in NLP and computer vision (i.e., understanding images and someone's preferences), it also seems unlikely to remain true even if true today.

pstack 13y ago

Most things are dirt cheap to run. People just choose not to do so. There have been countless services and websites over the last decade that somehow get or require massive infusions of money. Tens of millions of dollars, even. It blows my mind. Why does your website that mostly just regurgitates tech news in blog format each day (and usually only about cell phones and tablets, at that) require twenty million dollars of capital? You need a couple servers at rackspace and a couple people at home in their underwear surfing the web and parroting existing stories and news throughout the day. When I hear "snapchat is incredibly cheap to run", what I hear is "it is reasonably priced to run, like most other services should be, but without the bloated and inflated needs that others somehow ladle onto their sites/services".