The broader usage of image-based apps like Snapchat and Instagram by older cohorts is one proof point of the evolution of social media. True, getting Granddad (or Dad) to post photo stories might still be a challenge. But with the advent of smartphones, “how people are communicating is fundamentally changing,” Khan said, and Snapchat has been at the forefront of that change.

Of course, it’s still the generation that grew up with camera-focused social media that will be a significant driver of that change in the coming years. Snapchat is well placed given its stunning penetration in the millennial cohort—some 70% of which use the app across key markets like the US, UK and Australia, Khan said.

With such engagement you might expect a rose-tinted outlook. But investors are instead doubtless wary of seeing “social media” in business news headlines, with stories about disruptors like Facebook themselves facing disruption owing to issues with data privacy, fake news, and fears of falling engagement.¹ Snapchat too suffered a negative response after a recent redesign—something Khan attributed to its passionate user base.

ML the key to monetisation

The changes Snapchat rolled out were more than just cosmetic and underpin a revamp of the company’s monetization strategy. This revolves around the issue of delivering the right content to the right audiences, enabling users to distinguish more easily between content from friends, publishers and influencers, and advertisers to target them more adeptly.

This explains the back-end move to programmatic advertising. “Fundamentally, advertising is a piece of content,” Mr Khan explained. “We need to show the most relevant content to the most relevant person… And if advertisers don’t have a self-service platform it’s very difficult for them to learn and for us to figure out what’s the most relevant content.” Since the move to programmatic, more than 90% of Snapchat ad volume flows through its auction platform.

Driving all this are machine learning algorithms, the sophistication of which will increasingly dictate the success of any social media platform’s monetization strategy. “We’re using machine learning to show relevant content, to show your friends’ relevant content—and even to ID what content shouldn’t be on our platform,” Khan explained. “To be successful in machine learning or AI you really need a lot of data and an incredible amount of engagement on your platform. Fortunately we have it.”

Look to China

Towards the end of 2017 Tencent bought a minority stake in Snapchat, which had gone public earlier that year. Though there’s no formal arrangement in place, learning from the owners of WeChat—which is about to break through the billion-user mark—is a great opportunity. “Tencent is an incredibly smart company, they have been a very good friend to us,” Khan said, identifying them as a company that’s been through the journey they are going through.

Given this history, even though China’s media companies operate in something of a “walled garden” domestically, trends in social media in the country might point to the future elsewhere. One, for instance, is live-streaming video, which has led to the unique practice of “tipping” where viewers purchase gifts to reward live broadcasters they like—now a RMB40 billion (US$6.3 billion) market, six times larger than in 2014.² Watching people play games and e-sports is driving the market, something that has also taken off on US site Twitch but which points to future ways to build engagement and monetize IP on image-focused social sites.

If this kind of thing does take off outside China, one thing is certain: it won’t be Dad (or Granddad) shaking the tip jar.

<sup>1. CNBC, Facebook results top estimates, but stock whipsaws after CFO's upbeat forecast, https://www.cnbc.com/2018/01/31/facebook-earnings-q4-2017.html
2. Week in China, Tipping point, https://www.weekinchina.com/2018/03/tipping-point-2/?dm</sup>