How is Snap Faring on its Cloud Agreements?

Snap is a popular social media network that’s caught on in a big way, especially among teenagers. It’s estimated that more young people prefer to use Snap when compared to other social media platforms.

That’s not the only distinction. It’s also one of the few social media companies that doesn’t spend tens of millions of dollars to store all content on its own servers. To get around this capital-intensive option, Snap is tapping into the infrastructure of companies that specialize in cloud. In other words, it uses the cloud for storing all its data and to gain the many advantages that come from it.

In fact, Snap’s biggest expenditure is the cost it pays to cloud companies for hosting its content.

Over the last year, Snap entered into an agreement with both Alphabet Inc and Amazon Web Services, though this platform was originally built on Google Cloud platform. The agreements signed with both these companies offers good discounts to Snap, as it has committed to spend almost $2 billion on Google cloud and an extra $1 billion with Amazon.

If you look at both these agreements, you’ll see that it’s contract with Google is fairly straightforward. It will spend $400 million per year for the next five years, amounting to a total of $2 billion. Out of these five years, Snap can defer only 15% of that $400 million for the next year. But with Amazon, it’s a little more complex. The spending will start with $50 million this year and will slowly increase to $350 million by 2021.

With this deal in place, how is Snap faring?

In 2017, Snap will spend $390 million on cloud and this includes the 15% deferred allowance from Google. Snap already spent $99 million in the first quarter for hosting. This is almost $14 million less than what it spent in the fourth-quarter of the previous year.

If you’re wondering why this fall, it all amounts down to user engagement. During the first quarter, Snap increased its daily users by eight million and each user is believed to have spent an average of 30 minutes every day. Essentially, when more users spend more time on Snap, the hosting costs go down and this is exactly how Snap was able to bring down its costs by $14 million. These numbers are only expected to improve and this means, lesser cost for more users.

In addition, Snap plans to move some of it’s tasks from Google Cloud to Amazon, in a bid to save some money. It’s agreement with Amazon is more robust and flexible than that of Google, and this explains the reason for this shift.

All this means Snap is doing really well, both on its commitments as well as in its business operations. But the big question is if this pattern is sustainable. If user growth slows or user engagement falls, then Snap is in trouble as it has committed to almost $3 billion.

In all, Snap’s deals are working great now, but let’s hope it doesn’t back later to bite it.

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