Booking.com and its suite of online travel booking subsidiaries have the market cornered on the online travel business. Booking.com’s key revenue stream includes commissions for selling travel reservations. But they have a few others.

Booking.com primarily makes money via commissions and transaction fees on the travel bookings it sells through its Booking.com website and the company’s other travel booking subsidiaries. These include Priceline, Agoda, Kayak, OpenTable, and RentalCars. The company also makes money on advertising.

Booking Holdings was founded in 1996 and was originally called Priceline.com Incorporated and later The Priceline Group. In 2018, the company changed its name to Booking Holdings to represent the fact that Booking.com made up the majority of the company’s revenue.

Booking.com was launched in 1996 by Dutch entrepreneur Geert-Jan Bruinsma and is headquartered in Amsterdam. It was purchased by the Priceline Group in 2005. Booking Holdings is based in the US.

What is Booking.com & How Does It Work?

Booking.com is an online site where individuals and companies can search for deals on hotel stays, flights, car rentals, and attraction fees.

The website is available in 43 different languages allowing people around the world to use the site to book travel. The site has millions of listings of hotels, flights, and car rentals. Customers simply input the dates and other details of their travel, and then Booking.com provides them with a list of travel options that they can choose from.

Travel sites like Booking.com are great for customers who want to quickly see their travel options so they can choose what works best for them based on price, convenience, and amenities. Travel booking sites simplify the process of researching and comparing travel options.

Usually, customers can get additional discounts if they book several parts of their travel at the same time on a site. For example, they can potentially get a discount by booking both their flight and their accommodations at the same time.

Once a customer knows which flight or travel package they want, they choose it and check out. Booking.com then sends the details of their travel reservation to them. The company can also help them in case customers need to make changes to their reservation, just like a travel agency would.

Essentially, these online travel sites act like travel agencies. In fact, much of their revenue comes from agency fees and travel reservation commissions just like travel agencies.

Bookings Holdings also runs a number of other websites. It’s more well-known include Agoda, Kayak, Priceline, and RentalCars, where customers can similarly book parts of their vacation online.

In addition to these similar services, the company owns OpenTable, where people can book restaurant reservations online.

Business Model of Booking.com

Booking.com’s business model revolves around being a convenient place where people can plan and reserve all aspects of their travel, from their flight to the attractions that they want to check out.

The goal of online travel companies like Booking.com is to provide people with an easy and convenient way to book travel so that they come to Booking.com when looking to travel rather than going directly to airlines and hotels or to a physical travel agency to purchase their travel.

The majority of Booking.com’s revenue comes from typical travel reservation commissions and booking fees. They essentially work as a travel agency on behalf of the consumer and get the types of payments a travel agency would receive.

But online travel sites have other revenue streams. They get paid merchant fees from transactions where travelers book rental car reservations or accommodations.

By becoming a central place where a large number of people look for travel, online sites like Booking.com can also build another revenue stream: advertising. Travel companies who want people to book their travel service over their competitors will pay Booking.com for ads targeted at people about to make a travel purchase. This is valuable bottom-of-the-funnel advertising for travel companies.

Booking.com can also earn referral or affiliate fees when it sells travel packages or sends its customers to other travel companies and travel service providers.

What many might find confusing about Booking.com’s business model is how many different kinds of travel sites Booking Holdings owns. What’s the purpose of having multiple sites that do roughly the same thing?

Having multiple sites is a core part of the business model for companies specializing in online travel bookings. For example, Expedio also owns Hotels.com, Hotwire, Travelocity, and other travel sites. There are a few reasons why this makes sense.

1. Economies of scale: Having more websites doesn’t greatly increase the cost of the company around things like technology or partnerships. While it might increase advertising expenses, it doesn’t require two completely separate marketing or sales teams.
2. Acquisition-led growth: Travel sites tend to buy other travel sites that have already been successful in a market they want to enter rather than trying to compete head-to-head with an established competitor. It helps them penetrate a market quickly and reduces the acquisition cost of new customers over time.
3. Taking out competition: Some sites will buy their competitors so that they don’t lose the battle for customers or have to increase their ad spend to remain top of mind for consumers.
4. Geographic differentiation: While some of these sites look the same, they might be performing much better in certain markets than they are in others. Just because two travel sites have the same travel options doesn’t mean their customers are the same.

Booking.com primarily makes its money booking travel outside the US. That’s because international destinations have fewer large chains to book directly with.

Booking Holdings has considerable expenses to run their empire of travel booking sites. In 2021, the company had $8.4 billion in operating expenses. While $2.3 billion was spent on salaries, they spent a whopping $3.8 billion on marketing expenses.^[1]

This isn’t surprising given the online travel booking business is extremely competitive and offers similar listings and prices. Winning market share in this industry comes down to which travel booking company is top of mind of consumers when they’re about to book travel.

In 2021, Booking.com brought in $10.9 billion in total revenue with $1.1 billion in net income after operating expenses.^[2] This was a significant increase in the company’s fortunes over 2020 when they made just $59 million during global lockdowns. It is still down considerably from its pre-COVID 2019 net income of $4.8 billion.^[3]

Whether their 2022 results will show further recovery remains to be seen.

How Does Booking.com Make Money?

Booking.com makes money in three different ways. These revenue streams are commissions and booking fees, merchant fees, and advertising and referral fees.

Commissions and Booking Fees

Booking.com acts like a travel agency and charges commissions and booking fees on reservations made through their platform directly with other travel companies.

This is the biggest part of Booking.com’s revenue mix. In 2021, they made $6.6 billion via agency revenues. That’s 60% of their total revenue.

Merchant Fees

Booking.com sometimes acts as the merchant in a travel transaction. In this case, the customer buys a travel package and the money goes directly to Booking.com, which then passes that money along to the travel company.

When this happens, Booking.com keeps a percentage of that transaction. In 2021, merchant fees amounted to $3.6 billion of the company’s revenue.

Advertising and Referral Fees

Booking.com runs a series of travel sites where people can research and book travel options. As such, many travel companies would like to have a more prominent place in the search results or to run ads on those sites to entice travelers to check out their car rentals or hotel.

Some companies also provide Booking.com with referral or affiliate fees for every travel reservation they facilitate. In 2021, Booking.com earned $599 million in revenue from these two sources.

Booking.com Funding, Valuation & Revenue

Booking.com (BKNG) is currently a public company on the NASDAQ exchange. Formerly named The Priceline Group, the company had its IPO in 1999 with a starting price of $16 per share. One month later, the company was trading for $162.37 a share.^[4]

While the stock came tumbling back down to earth in the 2000 Dot Com crash, Booking has proved to be a profitable and successful stock since. In July 2022, the company had a market cap of $78.6 billion and was trading at just over $1,900 per share.

Prior to going public, Priceline went through three funding rounds and garnered $77.5 million in venture capital funding.^[5] Booking.com had just one round of seed funding at $2.42 million before being acquired by Priceline for $135 million.^[6]

The stock has been fairly volatile in recent years. Much of this is because of the travel industry impacts of the COVID-19 pandemic. That saw the company’s revenue go from $15 billion in 2019 to $6.7 billion in 2020 and back up to $10.9 billion in 2021.^[7] With the travel industry recovering, Booking.com is expected to see its revenue increase going forward.

Is Booking.com Profitable?

Booking.com is profitable and has been for many years. The company made a profit of $1.1 billion in 2021 on $10.9 billion in revenue. However, they have yet to fully recover from pandemic-related financial difficulties. In 2019, the company took in $15 billion in revenue and had a net income of $4.8 billion.

Hopefully, in 2022 and beyond, the company will be able to return to the same level of profitability they saw before the pandemic.

Conclusion

It’s clear that Booking.com is a well-oiled machine when it comes to the online travel industry. With a business model that is tried and tested, they have managed to become one of the most successful online travel companies in the world.

What’s more, they are constantly innovating and expanding their offerings, which means that they are likely to continue to be a force to be reckoned with in the years to come.

If you’re looking for a company that can provide you with a great booking experience, Booking.com is definitely worth considering.

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Sources

1. Booking Holdings ↑
2. Booking Holdings ↑
3. Booking Holdings ↑
4. Yahoo!Finance ↑
5. Crunchbase ↑
6. Tracxn ↑
7. Booking Holdings ↑

Wise is a fintech company focused on money transfers and currency trading. The company makes money primarily through fees on the platform’s cross-currency money transfers. But Wise has also branched out to other sources of revenue.

Wise primarily makes money via transaction fees on cross-currency money transfers. Wise also makes money on services like business and consumer accounts and licensing their technology to banks.

Founded in 2010 by Taavet Hinkirus and Kristo Kaarmann, the company is based in the UK. They started Wise because they were Estonians based in London and found that transferring money between their UK and European accounts was unnecessarily costly.

Wise was formerly called TransferWise but changed its name in 2021.^[1] The company went public in July 2021 and trades on the London Stock Exchange.^[2]

What is Wise & How Does It Work?

Wise is a money transfer and currency exchange service that set out to save consumers and businesses money on currency exchanges and transfer fees.

When sending money internationally, many traditional financial services companies, money exchange services, or fintech companies charge a significant amount in fees to make the transfer while also providing unfavorable exchange rates.

For example, international wire transfers can cost well over $10 each and sometimes much more. Want to transfer money with PayPal? When exchanging money between currencies, PayPal typically uses an exchange rate that is much less favorable than the current exchange rate.

Sending money using these common methods would result in losing money on fees and rates in comparison to Wise’s service. If you transfer money frequently, that adds up.

Wise instead charges a flat upfront fee and guarantees the exchange rate quoted for two days, so that the transfer will go through at the represented amount. There are no hidden or surprise fees.

When transferring money internationally, the customer sends the money to Wise’s bank account in their country. Wise then uses money already in their account in that country to transfer the money into the end recipient’s bank account.

That means that money often doesn’t cross borders in a transfer which means that Wise only has to pay in-country transfer fees. Wise passes those savings on to the user.

Wise also allows companies and businesses to create bank accounts and licenses their technology to other banks or fintech companies who want to use it.

With individual Wise bank accounts, users can hold multiple currencies, make international money transfers, and use a debit card associated with that account. It allows people who travel frequently or receive money in multiple currencies to do so in the cheapest and easiest way possible.

Wise accounts are only available in certain countries. Eligible countries include Australia, Canada, the UK, the Us, Singapore, Hungary, Poland, Turkey, and New Zealand. You can hold up to 55 currencies in your account and use your Wise debit card in over 200 countries.^[3] When you use your card, you pay the actual exchange rate rather than a markup on it.

Wise business accounts are designed to allow companies to hold multiple currencies without having to open separate accounts for each. Wise also reduces the costs of international business banking considerably. Over 150,000 businesses have Wise accounts.^[4]

Companies and banks who want to offer their customers the ease of Wise transfers can also add Wise into their own platforms via white label integrations. This allows other companies to offer international transfers at lower cost to their customers.

Business Model of Wise

Like many fintech companies, Wise’s revenue comes primarily from transaction fees. Their business model is to undercut other legacy and fintech currency exchange and money transfer providers.

Wise’s main goal is, therefore, to reduce the cost of making a money transfer and then to pass those savings onto customers. If they can reduce the costs for consumers, they are then more likely to win a big section of the market.

Wise has accomplished this by setting up bank accounts in countries all around the world so that cross-border transfers become in-country transfers. Wise does all this through an easy-to-use platform. Ultimately, they have reimagined how banking could work.

With Wise, you can do things that would be impossible with normal banks like hold up to 55 currencies in the same account. Or create a bank account that works as you travel no matter what country you’re in and doesn’t charge you exorbitant fees.

The company’s tagline is that they want to make money work without borders. Wise was undoubtedly successful in Europe, where it launched originally, because of the number of currencies used in that relatively small geographic region.

Wise is used by both businesses and individuals and can facilitate everything from a $100 transfer to very large transfers of millions of dollars. Wise transfers billions of dollars every month and passes along billions of dollars in savings a year.

Wise faces significant competition in the money transfer space including from companies like PayPal, Western Union, and Remitly. However, they offer a very different service and charge cheaper fees than most of their competitors. This is especially true when it comes to currency conversions which are often overpriced by other providers.

Wise has been successful because they have low fees and transparency around their pricing structure. They also offer a very different product than other providers, especially when it comes to their individual and business bank accounts.

Wise is a profitable company but it has considerable expenses and low margins on their transfers. That means that to maximize their revenue potential they have to increase the amount of money that they transfer.

Wise has considerable staffing, platform, capital, and development expenses. In 2021, they spent $217 million to generate $260.5 million in gross profit. That resulted in a total profit for the year after taxes and other liabilities of $30.9 million.^[5]

How Does Wise Make Money?

Wise makes money in four different ways. These include transfer fees, personal accounts, business accounts, and licensing their technology to other companies.

While Wise made a considerable amount in revenue in 2021, the company does not break down the sources of that income. It is not clear how much revenue they generate from different aspects of their business.

Transfer Fees

Wise charges a low flat fee for each transfer and a variable fee for the currency exchange on all the money transfers that they facilitate. The fee for the transfer usually costs about $4.00 to $5.00 per transfer. The fee for the currency exchange usually costs around 0.04% to 0.05% for each exchange.

As this is considerably less than what other institutions charge, many individuals and businesses choose Wise over traditional money transfer providers or banks.

Individual Accounts

Wise offers customers individual Wise bank accounts where they can make easy transfers, hold money in up to 55 currencies, and get a debit card that they can use in over 200 countries. When clients spend money internationally with their debit card, they do so at the real exchange rate rather than paying a markup.

Wise makes money through monthly account fees and fees on transfers or exchanges made via the account. They also charge a fee if you hold more than 3,000 EUR in your account.

Business Accounts

Wise offers businesses Wise bank accounts that allow them to make large cross-border money transfers easily, hold money in up to 55 currencies in one account, and get a debit card that they can use in over 200 countries.

Wise makes money through a number of account and transfer fees. For example, they have a 45 GBP fee to open your account and charge $4.14 USD for receiving USD wire payments. They also charge a fee if a business is holding more than 30,000 EUR in their account.

In addition, Wise makes money by charging businesses for international payments and exchanges.

Wise Platform

Wise Platform is Wise’s API. It can be integrated with other companies’ and banks’ tech stacks and offer Wise-supported transfers and exchanges. Wise makes money by licensing their technology to other companies.

Wise Funding, Valuation & Revenue

Wise is currently a public company that trades on the London Stock Exchange after launching its IPO in 2021. Wise’s shares opened at 8 GPB, giving the company a valuation of 8 billion GPB.^[6]

Prior to going public, the company went through seven funding rounds and raised $396.4 million. Investors in the platform include Baillie Gifford, Andreessen Horowitz, Index Ventures, and Valar Ventures.^[7]

Wise currently has a market cap of $4.78 billion. The company has significantly increased its profit year over year, going from just $15 million in profit in 2020 to $30.9 million in 2021.

The reduction in its market cap since its IPO is likely connected to the fact that the company was overpriced at the time of its IPO for the amount of revenue it was bringing in. Instability and fear in the fintech sector generally also likely played a role.

Is Wise Profitable?

Wise is profitable. The company made a profit of $30.9 million in 2021 on $421 billion in revenue. That was a significant increase from the previous year when the company made just $15 million on revenue of $302.6 million.

As Wise continues its expansion into new markets, it’s expected that the company will continue to increase their revenue and profit numbers.

Whether Wise remains overpriced at its current valuation remains to be seen. While the company shows significant promise, its stock might stumble if they can’t meet investor expectations.

Conclusion

In conclusion, the business model of Wise (formerly TransferWise) is quite simple and straightforward. They offer a very competitive exchange rate and low fees, which has helped them to become one of the leading money transfer providers in the world.

While they are not without competitors, their unique approach has allowed them to dominate the market and provide a great service for their customers.

We can say that Wise is a great option for those who need to transfer money internationally. The company has an innovative business model, which allows it to offer very competitive rates. In addition, Wise is very transparent about its fees and charges, which makes it easier for customers to understand exactly how much they will pay for their transfer. 

With their recent rebranding and expansion into new markets, it seems like they are only going to continue to grow and become an even bigger force in the financial world.

We’re excited to see what the future holds for Wise!

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Sources

1. Fintech Australia ↑
2. Forex ↑
3. Fintech Australia ↑
4. Fintech Australia ↑
5. Wise ↑
6. CNBC ↑
7. Tech Crunch ↑

Klarna is a fintech company that offers consumers the ability to buy a product or service now and pay for it later. 

Klarna primarily makes money by charging retailers a percentage of all transactions they process as well as a small flat fee. The company also makes money from their Klarna card, interest on the cash they hold, and interest from consumers who borrow money from them over longer loan terms.

Founded in 2005 by Swedish entrepreneurs Niklas Adalberth, Victor Jacobsson, and Sebastian Siemiatkowski, Klarna is one of the world’s largest and most popular consumer buy now, pay later (BNPL) offerings.

What is Klarna & How Does It Work?

Klarna is a fintech company in the alternative payments and credit space. The exact type of credit that Klarna offers is called consumer buy now, pay later credit and is typically offered on online purchases at the retailer’s point of sale or checkout.

The company’s revenue streams include transaction fees and payments from retailers but also interest from consumers.

Buy now, pay later companies allow customers to buy a product today and pay for that product over a period of time by making several payments. Typically, if the customer makes all the payments on time, there are no interest charges or late fees for the service. However, if they are late or need more time, many buy now, pay later companies start charging consumers interest.

Klarna offers three products for its buy now, pay later offerings. Pay in 30 Days, Pay in 3 Installments, and Financing. With both of the first two products, Klarna is paid by retailers. Retailers are motivated to offer the service since studies show that offering it results in more sales and higher average sales per purchase.

With Pay in 30 Days, customers are extended credit with no interest fees or late fees. The same thing is true about the Pay in 4 Installments option, which gives customers 6 weeks to pay for their purchase interest-free. Customers make a payment when they checkout and then every two weeks.

With Financing, customers who want longer-term financing for larger purchases can get 6 to 36 months to repay their purchase at an interest rate of up to 19.99%.^[1]

Retailers sign up for Klarna and then add a Klarna option to their online checkout. Customers can then select one of Klarna’s financing options for their purchase. Customers have to sign up for Klarna to apply, and they’re encouraged to download the company’s app.

Klarna decides whether it will extend credit to a particular user by performing a soft credit check for each credit application and a hard credit check with a user who originally signs up for Klarna. Usually, the credit decisions take just seconds, and the consumer can finish checking out. The companies will then pay a flat fee and a percentage of the transaction to Klarna.

Klarna is also unique among buy now, pay later companies in that it offers in-store payment options at prominent retailers like Macy’s.

The sector is often talked about as an alternative to credit cards. However, because companies in the sector are not technically issuing loans, companies in this space are not regulated in the same way that lenders and credit card companies are regulated.^[2]

Companies in the consumer buy now, pay later space claim to be offering more flexibility and better options than purchasing via a credit card.

However, many companies in this sector have also often experienced criticism for what some call predatory lending practices. Others have criticized companies in this sector for encouraging people to spend more than they can afford, especially young people who are more likely to use these services.^[3]

Business Model of Klarna

Klarna’s revenue streams revolve mostly around transaction fees, but the business model of companies in the consumer buy now, pay later space is complicated.

In some ways, they are like payment companies as they make money primarily via transaction fees and flat fees for each purchase. Indeed, for companies, the cost of Klarna is usually similar to what they would pay for processing premium credit cards.

It can also replace financing offered by ecommerce companies directly to their consumers, creating a significant savings for a company. Companies also get paid immediately by Klarna, who then accepts the credit risk of fronting the rest of the payment.

But buy now, pay later companies are also alternative lenders. While the terms of Klarna’s shorter term financing offers charge no interest to consumers, the interest rates for longer-term financing range from 0% to 19.99 APR. This is similar to the cost of credit card debt.

The benefit for the consumer is that Klarna uses different criteria than many credit card companies in deciding how much credit to extend to a customer and at what rate. That could include previous borrowing and repayment by the customer via Klarna.

Klarna has partnered with payment processor Stripe in order to accelerate their penetration into the market. Stripe now allows small and medium businesses the ability to easily integrate with their Stripe payment processing infrastructure.

The challenge with the buy now, pay now business model is that it is easy to replicate. That means that Klarna has a number of competitors. Companies like Affirm and AfterPay hold a significant part of the market, which is now relatively competitive. Legacy payment processors like PayPal and technology companies like Apple are also now offering a Pay Later option.

These companies are essentially trying to undercut each other with better terms for merchants and for consumers. For example, some of Klarna’s competitors offer fixed fees lending with no late fees. Or lower interest rates on longer loans.

Right now, companies like Klarna are trying to expand into more markets to gain more market share and revenue. Klarna has somewhat of a headstart around this since they started in Europe and have had a successful US expansion.

However, Afterpay, a key competitor, is owned by the enormous payment processing company Square. That could make it harder for companies like Klarna to compete given how well-financed Square and its parent company Box are.

Ultimately, BNPL companies are in a race to outpace each other on key metrics that indicate market saturation. These include the number of active consumers using their payment platform, how many global merchants they have, and the total amount of transactions they process. In 2021, Klarna had 147 active consumers, 400,000 retail partner, and processed $80 billion in sales.

Klarna also has considerable staffing, sales, marketing, and development expenses. In 2021, the company made $1.42 billion in total revenue but had a total of $733 million in losses after accounting for expenses.^[4]

Whether Klarna’s 2022 results will be in the black has yet to be seen but it looks like Klarna expects losses in the future related to their ongoing expansion.

Klarna’s business model is focused on increasing the number of people and merchants who use their platform. That way they can increase the amount of money they process and earn income on. However, winning the race to get more consumers and merchants costs significant money.

How Does Klarna Make Money?

Klarna makes money in four different ways. These include merchant fees, interchange fees on Klarna cards, interest on consumer loans, and interest from the cash they hold.

While Klarna made a considerable amount in revenue in 2021, the company does not break down the source of their revenue by revenue type. It is unclear how much Klarna makes from each of these revenue streams.

Merchant Fees

Klarna charges fees to merchants who offer their customers buy now, pay later options on their purchases at the point of sale. Klarna charges merchants a fixed fee of $0.30 and then a percentage of the transaction up to 5.99%. This is the same for both in-store and online purchases.

In return, Klarna provides flexible payment options that increase a merchant’s sales and pays the merchant the funds immediately. This makes up a significant portion of Klarna revenue.

Klarna Card

Klarna has a card that they offer to consumers that allows them to make purchases in 4 payments at any store. They charge a monthly fee after the first year of $3.99 per month and late fees on missed payments. This is a great way to get consumers to use Klarna more often and boosts their merchant fee revenue.

Klarna Consumer Interest and Fees

Klarna offers users who want to borrow money for longer periods of time the option to take out a loan for 6 to 36 months. These loans charge between 0% and 19.99% APR.

That means that Klarna earns interest on their loans and also charges late fees. It is unclear how much revenue they earn through interest and fees charged to consumers.

Interest on Cash

As a company that has to keep considerable working capital on hand to lend, Klarna also earns interest on these funds when they’re not being used. However, they can also lose money on these funds if they make a bad investment or in the case of currency conversion losses.

Klarna Funding, Valuation & Revenue

Klarna is currently a private company but was reportedly considering an IPO in 2022. However, that might be delayed due to economic conditions.^[5] The company last raised money in 2021 at a very large valuation and then raised money in 2022 at a much lower valuation.

Investors gave the firm $639 million in 2021 at a valuation of $45.6 billion.^[6] However, in July 2022, the company raised $800 million at a valuation of just $6.7 billion, or 85% less than what it was worth a year previously.

In total, the company has raised $4.5 billion over 27 funding rounds.^[7] Investors in the fintech company include Sequoia Capital, WestCap, Softbank, and others.^[8]

While Klarna has faced financial losses over the last several years, this was expected as the company is in the midst of a massive expansion into new territories.

Klarna’s results for the last three years show increases in revenue but also an alarming increase in losses.^[9] While this was planned due to expansion expenses, it is likely one of the reasons why investors sourced in 2022 on the company.

Is Klarna Profitable?

Klarna is not profitable, but neither are many of its buy now, pay later competitors. The industry is very capital intensive, and most players are in the midst of expensive and aggressive expansions that Klarna is trying to keep pace with. The company booked a loss of $730 million on profits of $1.42 billion in 2021.

Another significant tailwind that will hit the buy now, pay later sector in 2022 are borrowing costs. Interest rates are rising, and that means that companies with this business model will struggle to borrow money in order to deploy it to make loans for the new business they gain.

Which buy now, pay later will ultimately win in the race to scale or if pay later options by larger legacy players will ultimately be what takes over, remains to be seen.

Conclusion

We hope you’ve enjoyed this case study of Klarna’s business model and how Klarna makes money. Klarna is one of the hottest fintech startups out there that has disrupted the traditional payments system and created a new, innovative way for people to shop online that benefits both consumers and businesses.

We hope you enjoyed the article and learned something new about Klarna’s approach to business. If you did, please consider sharing this article with your friends and family on social media! Also, be sure to check out our other blog posts on business models, as well as our extensive collection of articles on other companies.

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Sources

1. Klarna ↑
2. BuiltiIn ↑
3. Fast Company ↑
4. Business of Apps ↑
5. Investment U ↑
6. TechCrunch ↑
7. Crunchbase ↑
8. TechCrunch ↑
9. Business of Apps ↑

Twitter is one of the most popular social media networks. Like most social networking companies, advertising makes up the largest portion of their revenue. But Twitter has a few other creative sources of revenue. ^[1]

Twitter primarily makes money via advertising. Over 85% of Twitter’s revenue comes from its ad offerings. However, the company also makes money on things like data licensing and subscriptions.

Founded in 2006 by Jack Dorsey, Noah Glass, Evan Williams, and Biz Stone, Twitter is known for its 280 character messages known as tweets. The company currently trades on the New York Stock Exchange (NYSE) after going public in 2013.

In 2022, the future ownership of Twitter was in dispute. In April, Elon Musk agreed to purchase the company only to back out a few months later in July. The deal is the subject of an ongoing lawsuit were Twitter is asking a judge to compel Musk to follow through on the agreement. Meanwhile, Musk is arguing that Twitter lied about the number of bots on its platform and breached its contract with him by refusing to provide him with the information he needs to verify the company’s bot claims.^[2]

What is Twitter & How Does It Work?

Twitter is an online social messaging platform that lets users post public messages 280 characters in length, create longer threads, and attach media like videos and pictures to tweets. If you like someone else’s content, you can quickly retweet it or quote tweet it with a comment to your own Twitter feed.

Brands, celebrities, media personalities, and regular people can post messages, follow each other, and build community on the platform. People who are well-known or in certain professions can be verified by the platform, earning a checkmark beside their name. Twitter also has a live Spaces option where people or groups can create a live chat room for users to connect or discuss a topic.

Like many public social networks, Twitter offers the ability to personally message someone and the option to turn the ability to receive personal messages on or off. This can allow greater access to prominent people who would otherwise not be communicating with the public directly.

In recent years, Twitter has been playing with new features and functionalities to create more community and, as a result, more opportunities for revenue.

Twitter introduced Fleets in 2020, which was a play on Instagram ‘Stories.’^[3] However, they were not used frequently enough by Twitter users or proved a challenge to monetize, so in 2021 they were discontinued.

Twitter has also introduced the ability to Super Follow someone. That means that users pay for access to special subscriber-only tweets by popular content creators. This feature seems to be an attempt to compete with subscription platforms like Patreon or Substack.

In 2022, Twitter introduced the ability to co-tweet or send a tweet from two accounts.^[4] CoTweets are a great way for brands to partner with other brands or to partner with non-profits or charities. It also allows friends to tweet together or people with larger accounts to partner with smaller accounts to boost their tweets.

Twitter is often criticized for the harassment many people experience on their platform, something that the company is not always quick to address.^[5] For example, in 2022, other social media companies like Facebook and Reddit banned the use of the word ‘groomer’ against people in the LGBT community on their platform. Twitter eventually banned the term as well but not after advocates called them out.^[6]

Twitter has also been criticized for its role in spreading disinformation during the 2020 election, the COVID-19 epidemic and the January 6^th assault of the US Congress building.^[7] The company famously banned Donald Trump from its platform after they were accused of letting him use their service to incite violence.^[8]

Business Model of Twitter

The business model of most social media networks revolves around creating a platform that millions of people use daily and then finding ways to monetize that audience. Like many social media networks, the majority of Twitter’s revenue comes from advertising.

As of May 2022, Twitter had 229 million monetizable daily active users on the site.^[9] In 2021, that translated into over $5 billion in revenue. However, many believe that some of those daily active users could be bots, a frequent problem on the network. Others believe that Twitter is not making the most of their audience with their current monetization strategy.^[10]

One of the benefits of advertising on social networks is that companies can create ads that don’t feel like ads. Instead, they have the appearance of just being content on the platform. That can lead to greater engagement and the impression of organic reach or buzz around a product or service.

Twitter sells a few types of advertising:

1. Promoted Ads: Promoted ads often look like any other tweet in your feed. They often have a photo, video, or a link and up to 240 characters of text. The only thing that gives the fact that they are ads away is a notice at the bottom of the tweet that it is a ‘promoted tweet.’ Sometimes a company will pay for a tweet to be boosted that looks like it’s coming from its own corporate Twitter account. Other times, companies might pay for an ad from an executive leader at their company or from an influencer to be boosted. The latter creates the impression of even more organic reach.
2. Follower Ads: If a company or individual is looking to get more followers, they can pay for what’s known as a follower ad. That’s an ad that suggests users follow their account. It appears in the ‘accounts to follow’ section.
3. Trend Takeovers: Want people to believe your company or product launch is trending? Companies and individuals can buy ads in the trending topics sidebar or tab of the website.

There are a few other common business models for social media networks. They include things like selling data, charging for premium subscriptions to businesses or individuals, or processing payments. Twitter has included all these monetization strategies in their business model. However, none of them make up a significant percentage of the platform’s revenue.

Twitter has a number of competitors. While platforms like Facebook, Instagram, and Tik Tok are obvious examples of other social media companies that Twitter is competing with to get advertising dollars, those companies have very different social platforms.

Social media platforms like Telegram, MeWe, and Mastodon might be more direct comparisons to Twitter. Right wing social media networks like Parler and, Donald Trump’s social media company, Truth Social have also emerged as Twitter became more rigorous about moderating disinformation on its platform.

Despite Twitter making a considerable amount in revenue, the company is often thought to be underperforming compared to other social networks. Twitter also has considerable staffing, platform, and development expenses.

Despite that, in 2021, Twitter brought in $5 billion in total revenue against total operating expenses of $1.7 billion creating $3.2 billion in gross profit. This was an improvement over their 2020 results. The company made $3.7 billion on expenses of $1.3 billion for a gross profit of $2.3 billion that year.^[11]

Whether their 2022 results will continue Twitter’s upward trend in gross profit is yet to be seen.

How Does Twitter Make Money?

Twitter makes money in more than four different ways. These include advertising, selling and licensing data, premium subscriptions, and payments to creators.

Twitter’s business model is focused on finding effective ways to monetize their daily active users in any way possible. While the company separates out their income to clearly show how much they make their advertising services, they put all their other sources of income under one heading called ‘data licensing and other’ in their annual report.

For that reason, it’s unclear exactly how much Twitter makes from any other revenue sources other than advertising.

Advertising Fees

Twitter makes 85% of its revenue from advertising. In 2021, that worked out to $4.5 billion in ad revenue. Most of that came from ads served in the United States. Twitter made $2.8 billion in 2021 across all US revenue streams, $675 million in Japan, and $1.5 billion in the rest of the world. ^[12]

The cost of Twitter ads varies depending on what type of ads you’re purchasing. A promoted tweet is billed by actions taken with it – like commenting, retweeting, or clicking on a link. It can cost anywhere from $0.50 to $2.00 per action.^[13]

A follower ad charges companies per follower that gets added. For example, each new followers can cost $2.00 to $4.00. Trend promotions are the most expensive kind of Twitter ad. They can cost up to $200,000 per day.^[14]

Data Licensing

Twitter’s data licensing makes up another significant portion of its revenue stream. The company sells a subscription to its Twitter data to companies or developers. They data can help companies understand both real-time and historic actions and trends on the platform.

Companies can then use that data in demographic research profiles that they resell, their own internal research, to optimize their ads on Twitter and other social networks, or to create products based on Twitter users and interactions.

Twitter lists data licensing and other revenue sources as making up $571 million of its revenue in 2021. How much of that was directly from data licensing is unclear.

Twitter Subscriptions

Twitter has a subscription program that it calls Twitter Blue. The program was launched in November 2021 and gives users several useful features like the ability to undo tweets, browse without ads, and get access to the company’s latest features.

The subscriptions were originally $2.99 per month, but in July 2022 the company raised the price to $4.99 per month.^[15] They claim that more features will be offered to Blue subscribers in the future.

Twitter Super Follows and Payments

Twitter offers two ways to send creators on the platform payments: Super Followers and Tips. Super Followers are a way to subscribe to the tweets of someone whose content you enjoy. It costs $4.99 to Super Follow someone with $3.99 going directly to the creator. Twitter makes a minimum of $0.10 per Super Follower.^[16]

Super Followers get access to exclusive tweets by the creator that are only available to Super Followers. They also get notification of those tweets, invitations to Super Follower-only Spaces, and a badge next to their name when they reply to someone who they Super Follow.

Twitter also offers the ability to Tip content creators whose work you enjoy. This is something that many people on the site were doing anyway but via third party apps or payment providers that the content creator would link to. Twitter is attempting to a portion of that payment processing pie but allows creators to link it to outside payment providers such as Venmo or CashApp.^[17]

Twitter Funding, Valuation & Revenue

Twitter (TWTR) is currently a public company trading on the New York Stock Exchange (NYSE). The company went public in 2013 with a successful IPO.^[18] Its shares debuted at $26 and were at $44.90 by the end of their first day of trading. That valued the company at around $24.4 billion.

Prior to going public, Twitter had raised $5.7 billion in venture capital funding during 14 funding rounds. Notable investors include Elon Musk, Insight Partners, Kleiner Perkins, and Benchmark.^[19]

In July 2022, Twitter was trading at around $41.00 with a valuation of $31 billion. However, Elon Musk agreed to purchase the company earlier in 2022 for $54.20 per share for a total valuation of $44 billion before saying he was backing out. The matter is currently before the courts.

Twitter has made good progress in increasing its revenue and profit in recent years after a revenue plateau from 2018 to 2020 where the company saw very little revenue growth.

However, Twitter released disappointing second quarter results in 2022. The company made $1.18 billion during the period, a decrease of 1% year over year from the same quarter in 2021. In addition, during that period their operating costs were $1.52 billion, resulting in a loss of $344 million.

It is unclear whether Twitter’s revenue and profit will grow in 2022 at the same pace it did in 2021 or even if they will end the year profitable.^[20]

Is Twitter Profitable?

Twitter has long been profitable. The company made a profit of $3.2 billion in 2021, up from a profit of $2.34 billion in 2020. However, Twitter has been having a tough year in 2022 and reported an operating loss of $344 million in its second quarter. It’s unclear whether the company will be profitable in 2022.

Conclusion

Since its inception in 2006, Twitter has grown into one of the largest social media platforms on the internet. It currently has more than 200 million monthly active users, and it’s estimated that over 500 million tweets are sent every day.

As you can see, Twitter is a business model with many components that come together to create an incredible experience for users. It’s a platform that is constantly evolving and improving, but the core values of Twitter—those of connecting people and building community—have stayed consistent throughout its history.

Twitter is a truly unique social media platform in that it allows you to broadcast your thoughts and ideas to the world without having to worry about time commitment. Whether you are looking for an easy way to share snippets of your day with friends and family, or whether you want to use Twitter as a marketing tool to reach out to potential customers, Twitter is definitely worth investigating.

We hope you enjoyed learning about how Twitter makes money and what kind of revenue streams they have. If you want to learn more about business models and how other companies make money, check out our blog for more posts like this!

Thanks for reading!

How Does Pinterest Make Money? Business Model Of Pinterest

How Does Snapchat Make Money? Business Model of Snapchat

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2. NBC News ↑
3. Twitter ↑
4. Twitter ↑
5. Amnesty International ↑
6. LGBTQ Nation ↑
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8. Twitter ↑
9. Statista ↑
10. Forbes ↑
11. NASDAQ ↑
12. Twitter ↑
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14. WebFX ↑
15. Engadget ↑
16. Twitter ↑
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18. CNN Business ↑
19. Crunchbase ↑
20. CISION ↑

Snapchat is a popular photo sharing social media app that makes almost all their money through advertising revenue. However, they have a few other surprising sources of revenue.

Like many social networking sites, Snapchat primarily makes money via advertising. But Snapchat also makes money by acquiring companies and by selling augmented reality glasses, geofilters.

Founded in 2011 by Evan Spiegel, Reggie Brown, and Bobby Murphy, Snapchat is known as a great place to share time-limited photos, create bitmojis, and try out funny filters.

Almost 300 million daily active users log on to see what they would look like as a cat or to show their friends photos or videos of themselves crying rainbows.

Snapchat (SNAP) went public in 2017 on the New York Stock Exchange (NYSE).

What is Snapchat & How Does It Work?

Snapchat is a free social media platform where users can send each other picture, video, or messages that are only available to others for limited periods of time before they disappear.

When a user signs up for Snapchat, they must create what’s known as a bitmoji, or a cartoon emoji version of themselves. They can then add existing or new friends to their account, send people snaps, and post stories to their account.

Snapchat is known for its fun photo filters. Users can turn themselves into animals, have rainbows or hearts come out of their eyes, and change the background of the location they’re on. While some filters are designed to enhance your appearance, most are fun or silly.

Users can chat with their friends via direct messages or message people who they don’t know but meet on the app. You can also play online games alone or with friends.

Snapchat even has something called ‘Lenses’ which is a feature where you can use your phone to create augmented reality experiences in public places. They also sell physical glasses called Spectacles which create augmented reality experiences for the wearer.

Because of its focus on augmented reality, many see Snapchat as a part of what’s commonly called the metaverse. The metaverse is a broad term to refer to the internet’s trend towards more immersive, decentralized, and virtually augmented online or real-world experiences.^[1]

Snapchat originally took off among teenagers but expanded its reach to some older demographics. However, the platform’s users still remain relatively young. Over 75% of 13 to 34 year olds in 20 of the countries that Snapchat is focused on use Snapchat.^[2]

Business Model of Snapchat

As a social media site, Snapchat’s business model is to offer a free platform to connect with friends and build a community with a goal of increasing its average daily users. The company then focuses on monetizing those users via advertising.

While most social media sites primarily make revenue from advertising, most also have several other revenue streams that make up a not insignificant portion of their revenue. Snapchat, meanwhile, makes almost 99% of their revenue from advertising.^[3]

They also have a very different strategy for differentiating their revenue streams. While competitors like Twitter leverage subscriptions to make additional revenue, Snapchat decided to create augmented reality glasses as one of their secondary income sources.

Snapchat, therefore, has a somewhat unique business model with a monetization strategy that few other companies have tried before. Given that they have yet to make up a significant amount of their revenue from their Spectacles, it is unclear if these were good strategic choices.

Snapchat’s competitors include social networking companies like Twitter, Facebook, Instagram, and Tik Tok. These are also all companies that primarily leverage advertising to make money. Snapchat is slightly different because it is focused on photo sharing. Unlike Instagram, it’s more focused on fun photo shares rather than lifestyle photo sharing.

As many social media companies lose advertising dollars and users to the popularity of Tik Tok, it’s unclear whether Snapchat will be able to grow or keep their active daily user count stable. Snapchat has grown their user base from 280 million users in the first quarter of 2021 to 332 million users in the first quarter of 2022. That’s up from 229 million users in the first quarter of 2020. That’s an average of around 50 million users per year.^[4] Meanwhile, Tik Tok grew their users by over 200 million users from 2020 to 2021.^[5]

Snapchat has considerable staffing, platform, and development expenses and remain unprofitable despite being a public company. In 2019, the company lost $1 billion, in 2020 they lost $944 million, and in 2021 they lost $487 million.^[6]

How Does Snapchat Make Money?

Snapchat makes money in four different ways. These include advertising revenue, the sale of their Spectacle augmented reality glasses, geofilters, and a few other income sources.

Snapchat’s business model is focused on increasing the number of people who use their platform so they can get more advertising or charge advertisers more. In 2021, they brought in $4.1 billion in advertising revenue.

Advertising Revenue

Snapchat’s main value proposition is brand access to its young global users demographic via ads. Snapchat claims to reach 75% of Millennials and Gen Zs globally. Companies can create ads that can be customized to location, demographics, and interests. All they need is a photo or a video to create an engaging ad.

Snapchat offers an ad management tool for advertisers to buy ads that are charged on a cost per impression bases. The daily minimum is $5 per day. They can also pay for ads via action-based outcomes, such as if someone completes a purchase or signs up for something.

Companies can also purchase ads directly through Snapchat via SnapAds. These are video ads that start at $3,000 per month. They can also create sponsored lenses where their information decorates millions of snaps. The price for these ad placements can range from $450,000 to $700,000 per day.

Snapchat also sells something called Discovery Ads, which means that a company’s branded ads can be found in Snapchat’s Discovery tab. These can cost up to $50,000 a day.

Snapchat Spectacles

Snapchat is one of the only social media companies that also sells a physical product. As Snapchat is known for its fun filters, it created augmented reality glasses called Spectacles where users can see and create immersive visual experiences to post on Snapchat or to experience in the real world.

The glasses offer 3D experiences with video cameras built in so that the person wearing them can share their experiences on the Snapchat app. The glasses cost $500 per pair.

Snapchat Geofilters

Snapchat sells the ability to create and post the geofilters that are available on its app. Individuals or companies can create geofilters for any type of experience or occasion. For example, you can create a location-based filter or an event-based filter for something like a wedding.

Users and companies can also create augmented reality experiences. While community filters can sometimes be created free of charge, Snapchat charges $5 per day for the majority of filters created by companies and individuals.^[7]

Revenue from Acquired Companies

Snapchat has acquired a number of companies and generates income from some of those companies. For example, Snapchat acquired a voice assistant app called Voca.ai in 2020. The revenue Snapchat makes from their companies is not explicitly disclosed.

Snapchat Funding, Valuation & Revenue

Snapchat (SNAP) is currently a public company after launching its IPO in 2017 on the New York Stock Exchange. However, prior to going public the company went through a whopping 14 rounds of funding and raised $4.9 billion from investors. Some prominent investors include Tencent, Alibaba Group, and Kleiner Perkins.^[8]

Snapchat had a market cap of $16.29 billion as of July 2022 with a per share price of $9.88. That’s well below the company’s IPO price of $17.60. While SNAP originally soared to $24 per share after debuting on the market, investors have not been impressed with Snapchat’s financial results or prospects since its IPO.

The company has, ultimately, not lived up to its promise by exhibiting slow user and revenue growth.^[9] The fact that Snapchat has yet to make a profit has also garnered criticism. While there has been speculation that a larger company might buy Snapchat and take it private, so far, there has been little interest from companies in doing so.

Is Snapchat Profitable?

Snapchat isn’t currently profitable and never has been since it was founded in 2014. That said, the company has been growing their advertising revenue in recent years from just $1.7 billion in 2019 to $2.5 billion in 2020 to $4.1 billion in 2021. Snapchat’s challenge is that their expenses have also been growing at nearly the same pace. In 2020, however, the company cut its operating loss almost in half year over year from 2020.

If they’re able to keep that up, the social media company could potentially become profitable in the future. But whether they succeed will depend on how quickly users grow, how easy it will be to get the company’s spending in check, and how much they can accelerate their advertising sales.

Conclusion

And there you have it! Snapchat has grown from a simple idea to one of the most popular apps in the world. It has been able to achieve this success because of its unique approach to social media, which is now the key to its business model.

Snapchat’s success shows that it is possible for businesses to make money by being different. By doing things differently, Snapchat has been able to connect with people on a personal level and build up a loyal user base that keeps coming back for more. 

The bottom line is that Snapchat has made a name for itself by taking a risk and creating a new way to communicate–and they’ve done it in a way that’s made them a lot of money along the way. Even if you’re not a marketer or business owner, there’s something important to learn from this story: if you have an idea, and you think it could change the world, don’t be afraid to try it out!

We hope that you found this blog post helpful, and learned something along the way. If you have any questions about how social media apps make money in general or about how Snapchat makes money, please feel free to let us know.

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3. Medium ↑
4. Statista ↑
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9. Macrotrends ↑