Snap AI: How does it monetize?

   

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Snap MyAI: how does it monetize?

Generative AI

Snap chose to buy, not build, generative AI features through OpenAI’s enterprise Foundry program for an undisclosed amount.

Business Models

B:C Subscription: The company rolled out the MyAI feature to current Snapchat+ subscribers who pay for access to early features.

TBD Advertising: The company intends to roll out the feature to the larger Snap user base which makes the majority of revenues from advertising.

Funding

Snap is a public company with an underwater stock price relative to its initial IPO list price. A number of insiders have been selling company shares, most notably the > $50 MM sold by the company’s CTO in the last year alone.

 

Mission

“The big idea is that in addition to talking to our friends and family every day, we’re going to talk to AI every day,” Snap’s founder, Evan Spiegel told Verge.

Model Review

Would you like a friend who won’t swear, talk politics, or listen to your secrets?

We have an AI chatbot for you at Snap!

This is the second in a series about the business models made possible by generative AI focused on OpenAI’s first commercial partnerships (read about Microsoft’s Bing AI partnership here).

We tend to diagnose everything that is wrong with tech as a case of a bad business model. So in the face of fierce competition, will generative AI lead to new business models or simply assist companies in reviving and defending their entrenched positions?

Snapchat employs OpenAI’s ChatGPT for a revive/defend strategy.

I’ll use my handy Contribution Model Adlib format to examine the key variables of the technology value proposition and promised contribution to the world, as well as ask: who has skin in the game?

How’s it better?

It is a persona-based chatbot named My AI that you can chat with, just like a friend, but with no profanity, sexual content, politics, or violence. In order to keep the conversations clean, Snap’s Trust and Safety team instructed the bot to follow the company’s policies. As ChatGPT has been banned from certain school districts, My AI politely refuses to help students write essays.

If you use Snap or know a teen who does, you’ll observe that users are already creating and chatting with Bitmojis of themselves and their friends. Since Snap’s users are already accustomed to abstracting their sense of self into avatars, My AI’s alien may not feel all that different from chatting with a real person.

 

There has to be more to the plan. What does Evan Spiegel, the CEO, have to say?

“The big idea is that in addition to talking to our friends and family every day, we’re going to talk to AI every day,” Spiegel told Verge. There is no mention of how this might enhance real connections or address the teen mental health crisis or learn dance moves – prompts suggested included looking for recipes and writing haikus. Users were warned, however, that their conversations would be stored and reviewed “to improve the product experience” and that you should not share any secrets with My AI, or rely on it for advice.

The company did go so far as to say “sorry in advance” for any unfavorable experiences.

In sum: a chatbot friend who you can’t trust with secrets, won’t give advice, and won’t help you with your homework, or talk about sex, violence, or politics, and never swears. Meh.

 

Who will pay?

To start, Snapchat’s subscribers have early access to MyAI. Upon release to the public, the app may include advertising-supported experiences (not confirmed by the company).

Like Facebook/Meta, Snapchat’s advertising revenue streams were hit by Apple’s privacy changes. In response, Snapchat launched Snapchat+, a subscription service. Over 2 million people have subscribed to the paid service, which is available for $3.99 a month or $39.99 annually.

To predict whether teens will engage with MyAI on a regular basis, talk to them about how they value these kinds of features:

  • early and exclusive access to features (why subscribers get early access to MyAI)
  • ability to pin someone as your number-one friend
  • ability to see who rewatched your story
  • priority in replies to Snap Star, the company’s program for creators
  • ability to see the “general direction of travel for where friends have moved recently”
  • ability to use on desktop
  • access to custom notification sounds
  • access to story expiration controls
  • ability to customize chat wallpapers

These are hyper-engagers who will pay extra to see if someone rewatched their story. Will they seek solace in an AI friend who won’t judge them?

 

Whose data is being used?

 

The chatbot will be trained on the prompts the user enters, and the data will be stored by Snap to improve the product experience. Through a program called the Foundry, the prompts are then run on the GPT through OpenAI’s GPT model. Snap is one of the first enterprise customers offered the ability to run this model with a “dedicated computer geared toward heavy workloads.”

In reviewing the Microsoft-OpenAI agreement for Bing AI, it’s clear that Microsoft’s “exclusive” access will not prevent other enterprise customers from using GPT models. In contrast to that deal, Snap doesn’t own a share of OpenAI.

This week, OpenAI announced a radical 90% price REDUCTION. Developers will pay $0.002 for 1,000 tokens — which amounts to about 750 words.  A classic lowball disruption tactic to get folks to just try it.

Generative AI trending towards $0.00

This pricing tactic encourages any developer who was on the fence about ChatGPT to just tinker and try. Along with ChatGPT, OpenAI also will let developers integrate Whisper, a speech recognition model that enables text-to-speech.

Who owns the data?

The data is owned by Snap.

The model is owned by ChatGPT.

OpenAI’s founder clarified this week that the data submitted through the developer API is not used for training. So you non-secrets and haikus will not train ChatGPT.

How is this better for Snap?

After evaluating the potential of Generative AI, Snap moved swiftly and chose to buy rather than augment their staff of AI talent, by partnering as one of the first enterprise customers of OpenAI’s Foundry. They made a fairly conservative business model move bundling MyAI within the “new feature” benefit of the paid subscription tier, with the superfans who are willing to pay for the privilege of training their datasets.

Who owns Snap?

Note: the following section contains stock price information but is not intended as investment advice.

Snap is a public company, and the top holdings are easily revealed via SEC filings. The investors include mostly institutional and mutual fund investors with less than 10% in insider (employee and board) hands. Depending on your mutual fund, Snap’s move to dabble in AI may benefit or hurt you.

 

 

Snap employees and board members have offloaded almost $2 Billion in shares since the company’s IPO.  Granted, the markets have crashed the insiders seem to have picked a good time to realize their gains in the public markets. But not many insiders are buying shares, which is a sign that they do not yet have high hopes that their plans will dramatically turn around.

How are we all better off, or worse?

 

Given the effects of social media usage on teen self-identity and mental health, the fact that Snap are releasing this AI “friend” chatbot without a concept or idea for how this will help or hurt their main paying users is deeply concerning.

Once again, it’s not the business model of subscription or advertising that hurts people.

When you lay it all out (on the handy chart below) the biggest concerns are about governance. Who gets to decide what kind of prompts get answered? Who decides that the bot will refuse to generate essays, but doesn’t hold the line at poems and haikus? Who is looking after the health and social life of the teens who are more engaged in Snap than in the real world?

Unintended consequences happen as the result of decisions and actions made within governance structures. How do we ensure that the data used to train these machines benefits young users? How do we give more access to hear the stories of teens, parents, educators, and mental health clinicians who may have a different take on the cavalier “we’re sorry in advance” launch of a digital companion? Similar to the Bing AI case,  the true test of this technology will not be the tweaking of subscription models or ad spend, but ownership, org structure, and governance.

Read about Bing AI’s partnership with OpenAI, Reach out if you have anything to correct or add, or just want to figure out how to prepare your organization (or family) from massively accelerating technology change.

This post was written by a human.

Snap Contribution Model