No one can deny the unbelievable power of this social media juggernaut, but where does it fit in the world of marketing?
Snapchat launched in 2011. About a year later, it was on my iPhone and I started sharing. It wasn’t long before (almost) everyone I knew was using the app, and not too long after that, I read about how Spiegel and his gang turned down $3 billion in cash from Facebook. As someone who has yet to be offered such a huge sum of money (fingers crossed!) I couldn’t comprehend how anyone could turn it down. And I know I wasn’t alone. But, by all accounts, it seems like the Snapchat team made the right move. (At least for now; let’s see if Wall Street continues its devaluation tirade.) So here we sit, about three years later and Snapchat holds a lofty valuation of $16 billion (after a recently closed $175 million round of funding).
Let’s Look at the Valuation
The $16B valuation is flat with the round raised in May 2015. But, as a recent Vanity Fair article points out, a flat valuation at a time where banks like Morgan Stanley and funds like Fidelity are slashing portfolio valuations is something to be proud of. Even Snapchat isn’t immune; Fidelity knocked the high-flying Icarus out of the sky in November with a 25% writedown. (Of course, they just led the new round of funding, so read into that as you will.)
The point is, the tech world is in the process of balancing itself out. A little over 15 years ago, money was pouring into tech companies (that returned absolutely nothing) and Wall Street went belly up when the sky came crashing down. This devaluation comes at a moment of sobriety where smart investors realize they don’t want to repeat the mistakes of the past. Snapchat is exciting, and it resonates with a coveted demographic: millennials. So while the Zenefits, Palantirs and Dropboxes of the world are getting serious wake up calls (you can’t just take money forever and not be expected to pay it back) Snapchat still has some rope to work with. But that rope is getting shorter.
Right now, it costs $750,000 a day to advertise on Snapchat. To say that there are very few brands that can afford that is an understatement. The kinds of brands with six-figure daily ad dollars are very few and very, very far between. But that’s more or less the idea: in Snapchat’s eyes, if you want mom n’ pop shop ads appearing everywhere, you can spend your time on Facebook or Twitter. The limited (and, so far, coveted) ad space that Snapchat offers goes only to those deemed worthy.
This business model looks great when it is first rolled out. After all, everyone knows about Snapchat and its audience of 13-24 year olds (and yes, they say 13-36, but 77% of Snapchat users are under the age of 24), so when they announce that they will be selling ad space, the largest brands in the world tear open their wallets to the tune of $10 million commitments. But most brands and organizations don’t have anywhere close to that kind of spending power. So when a $100 million ad revenue is projected, it needs to be looked at a little more closely.
Snapchat’s ‘Run Rate’
In October 2014, Snapchat unveiled its ad model. They made about $3 million dollars over the course of the next few months. (They lost close to $130 million, but that’s the world of startups for you.) Then Discover launched, Viacom was signed up with several properties, and in the summer of 2015, Snapchat started looking at ‘selling’ its ad space overtly for the first time. Of course, at that point those wallets I mentioned flung open.
$10 million dollar commitments from several brands is impressive – there’s no question there. But let’s be realistic: Snapchat on pace to make $100 million per year if things keep moving the way they are is a concept that makes a lot of dangerous assumptions. Perhaps the most dangerous of all is that brands will derive measurable return from the network in the long run and continue to pour huge sums of money into disappearing ad space.
Snapchat’s Marketing Value
As I’ve mentioned, Snapchat is an exciting platform that is hugely engaging. We’re talking 8 billion video views a day huge. But Spiegel has not minced words when it comes to their approach to advertising: “We care about not being creepy. That’s something that’s really important to us. […] We think it’s weird when brands try to act like your pal [by tracking your web browsing habits].” (Source) That’s great for user experience, not great for advertisers. If I need to reach 18 year olds in the market for a first car with a high propensity to engage with digital ads, I won’t spend close to a million dollars a day to probably reach them. Once the novelty wears off, I’ll want measurable return and granular targeting. It seems like Snapchat is starting to accept that, and this kind of targeting is being rolled out (with criteria like age, gender, location, device and context), but more expansive interest and behavioral targeting will be a necessity for any long-term success.
On that same note, measurement is a real problem. On Facebook, I can tell you almost anything about the people seeing my ads because I outlined a very clear persona when I launched my campaign. What’s more, I can tell you everything that audience is doing from an engagement standpoint, and I can track all of that activity from the medium to my website. Snapchat started with views and reach. If we’ve learned anything from Google Display, views are pretty meaningless. Two seconds with more than 50% of pixels visible. So when I’m told that I received a million views, I have no way of knowing if that is worth my time. Slowly, Snapchat has been working to improve these metrics (for example, by partnering with Nielsen to provide more insightful and useful data). But the big issue (for me as a marketer) isn’t necessarily with either of these problems (both of which can and are being fixed by the platform). My issue has to do with using the platform to drive results for business objectives.
Snapchat is, by nature, a native product that is completely end-to-end (hat tip to Steve Jobs for the lingo). I, as a user, am not interested in clicking through to another source (be it a website or the App Store or what have you) while I’m using the app. I’m there purely to digest content and engage with a community. So when (if ever) Snapchat develops a more universal platform where smaller brands and organizations can afford it, how will they be able to justify the investment? Brand awareness and community development are extremely important; there’s not question there. But from an investment standpoint, will these intangibles (for the most part) be worth it?
My Official Thoughts
So here’s what I think about Snapchat.
I love the product. I think it’s brilliant and it keep getting better (with the exception of a few notable hiccups – paid lenses anyone?). I think that brand humanization potential is huge, and the ability to reach millennials is unparalleled. There is a vast array of potential when it comes to content, and people love digesting this content from both friends and brands (as we’ve seen with plenty of case studies). But, I think a long-run monetization of the audience will be next to impossible. We’ve already seen that with paid replays and paid lenses, the latter of which was one of the worst rollout strategies I’ve ever seen. (I won’t get into that here, because it could easily be another thousand-word article.) Millennials don’t want to spend money, so Snapchat’s only hope for revenue will be advertising.
For now, brands are willing to pay, and the future looks good in terms of targeting and tracking, but the platform is inherently limited in terms of its broad appeal. Barring a paradigm shift, the value in advertising on the platform will only be available to huge, global brands that find tangible value in impressions. Most companies, especially SMBs need results linked to revenue, and right now that doesn’t seem to be on the radar for the app.
There is a lot that marketers can do with the platform, and when it comes to personal branding, I can’t think of too many (any, really) media that do a better job of helping one build one’s brand and connecting with an audience (#KeysToSuccess). I look forward to seeing how brands and individuals continue to use it creatively, and to continue leveraging it in the work I’m doing, but I do wonder about the long-term. It’ll be fun to watch.
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