The Chatter on Snapchat

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There’s been a lot of talk—and a lot of speculation—about Snapchat’s next precarious steps in its rise to becoming a serious ad revenue-driven social media platform.

Instead of prepping for an IPO and an influx of public funds, at least for now Snapchat is just looking to bring in serious revenue from a massive advertising platform overhaul, set to launch any day now. The platform is taking its 3V advertisement format to places it has never been before. It all looks pretty promising, provided that the company really knows its demographic as well as it believes it does.

Snapchat Basics

Before we talk about where Snapchat’s going, let’s talk about where it’s been in order to give their projections the proper perspective.

In 2015, Snapchat had just 46.1 million active users in the U.S.; it’s projected to gain 27 percent more and end 2016 with 58.6 million in the states. What’s more impressive is its valuation projection for this year. In 2015, Snapchat was tiny for a company of this type, with revenues estimated to be around $59 million—for 2016, the company projects revenues of upwards of $350 million.

Sure, Snapchat fell short of its $100 million revenue goal last year by a fair amount, but it hadn’t launched their secret weapon yet. That’s coming in the next few weeks, and it’s either going to fly or it’s going to flop spectacularly. That said, weekly watch time has increased according to all reports, so there’s certainly more potential to the Snapchat platform than advertisers are currently taking advantage of.

The Near Future in Snaps

In the past, Snapchat’s ad revenue model has been limited to sponsored Discover channels, geofilters and lenses, but in the coming weeks it intends to release the biggest tool in its money making arsenal: a program dubbed Snapchat Partners. Snapchat Partners is an API that allows ads to be sold by third parties.

Snapchat anticipates these third parties will fall into two different groups, Ads Partners and Creative Partners. Ads Partners will develop the tools for Snapchat advertisers that allow for buying, optimizing and analyzing of campaigns. The Creative Partners are agencies with experience in both social media content creation and Snapchat’s 3V video format. The API inventory sales process is still pretty hush-hush, but we do know spots will be sold via automated auction.

No word on pricing has been forthcoming, but when premium video inventory was being sold by the company directly, it was very competitive with television advertising on a cost per thousand impression rate in the $40 to $60 range. The increased availability of ad space that’s expected with the API launch should drive prices down some, though special events and high volume days may still get pretty pricey due to competitive bidding for the same set number of spots.

Many of these ads will appear embedded within users’ friends’ Stories, with the option to either view or skip the video. According to early numbers from fast food brand Taco Bell, engagement with these types of videos has been overwhelming. The fast food giant reports an average of 100,000 views per video and a completion rate of greater than 80 percent for its campaigns.

These numbers may be due to Snapchat’s careful curation of advertisements that appear on their service, or it may be that Taco Bell’s team is far more on target than most social marketing teams, it’s hard to say right now. But Snapchat will continue to police and carefully place these paid messages in the hope of keeping user engagement high.

Snapchat Ad Models: Risks and Rewards

Increasing advertising opportunities on Snapchat is a risky thing for the budding social media corporation, but other, similar companies like Instagram, Pinterest and Twitter have found success doing the same after establishing their user base.

The difference, however, is in the user base for these platforms. Snapchat has become synonymous with the under-24-year-old crowd, a group that has grown up in a world more devoid of ads than in any generation before it.

We struggled to reach them on their mobile phones, we’ve tried to dodge their ad-blocking software, we finally think we’ve got them cornered on Snapchat, but they’re just as likely to pick up and move to Reddit and leave the commercial world behind them as give us their attention. How much advertising they’ll tolerate is an untested quantity and if we want to keep their eyeballs on the screen, we’re going to have to tread very lightly.

Then there’s the other problem with Snapchat: mom and dad. As Snapchat’s popularity grows, it necessarily has to begin to appeal to wider demographics than just high school and college kids. In fact, recent numbers indicate that Snapchat is getting a lot of face time from people aged 25- to 44-years-old. The risk is real that the fragile youth demographic that Snapchat has built their future around is simply going to vanish as their parents and older siblings move in.

Will Snapchat dry up and die if its 20 million young users leave for other shores? It’s unlikely, but the social media platform will absolutely have to be ready to pivot its marketing if they want to remain competitive. With the new API in place, Snapchat’s team will have the ability to better respond to changes in their demographics since it won’t be focusing all their efforts on forging direct relationships with individual marketing partners, but it’ll still hurt the bottom line when old advertisers chase key demos elsewhere.

Even so, Snapchat seems uncannily aware of the sensitive nature of their new self-imposed mission. Advertising to their near-impenetrable market is a careful task it seems to be taking seriously. Since the company intends to continue to have some creative say in each advertisement and limits the number of ads that appear to any given user, they may well find the Holy Grail of marketing and unlock the secret of advertising to the under-24 demographic.

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