Dive Brief:

• Snap Inc. has acquired the patent for geofilters from Mobli for $7.7 million, according to a report from TechCrunch. The publication noted geofilters are Snap’s number-one source of advertising revenue and generated $360 million for the year ended Dec. 31. 
• One source told TechCrunch that Facebook was pursuing the patent Snap picked up, although others insisted Facebook wasn’t. Regardless, the purchase price, at $5 million more than Mobli has ever sold a patent for and the most ever for the Israeli tech industry, suggests the patent was in high demand. 
• On average, more than a billion Snaps with geofilters were viewed on Snapchat daily last year, per Snap’s S-1 filing for its IPO. 

Dive Insight:

One of the big questions following Snap's initial public stock offering recently has been how the company would invest the money it raised. We now have a partial answer in the Mobli deal, with patent acquisitions an important way that tech-driven businesses can protect their interests. The deal also raises the possibility that Snap is eyeing other patents as it looks to shore up its role in mobile and may even be considering more aggressive defensive moves, such as the threat of legal action, if it deems that another company is infringing its patent.  

By securing Mobli’s patent for geofilters, Snap is protecting its lucrative overlay turf. Brands such as Sketchers, Starbucks and Wendy’s have sponsored geofilters, and the ad format is among the most engaged with on Snapchat. But Snap has frustrated marketers by its lack of concrete metrics, a problem it has been attempting to address. Snap has teamed up with Foursquare to make geofilters more attractive with enhanced targeting precision. Keeping geofilters humming is crucial to Snap, which attributes 96% of its business to ads. UBS analysts estimate Snap’s ad revenues will rise to $5 billion to $10 billion over the next three to five years, but that growth is unlikely if it can’t continue to make geofilters catnip to marketers.

Even though Facebook didn’t get its hands on the geofilter patent, Snapchat’s model is under threat from Facebook and Facebook-owned Instagram. Facebook has emulated Snapchat’s geofilters with location frames and is ramping up its augmented reality efforts on Camera Effects, a platform allowing users to create custom frames. Instagram has gone after Snapchat with Instagram Stories and has hit 200 million daily active users on the Snapchat lookalike features. Despite rocky weeks following its IPO and the challenges from Instagram and Facebook, Snapchat has one key characteristic going for it and its ad lure: it remains cool. Of course, Facebook and Instagram are definitely not going away.