Market Insight

Snapchat launches small business-friendly ad features

June 19, 2017

Qingzhen (Jessie) Chen Qingzhen (Jessie) Chen Senior Research Analyst – Advertising, IHS Markit

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Snap Inc. continues to push into Facebook’s territory by making ads easier to buy and more simple to create for small businesses, a section of advertisers that Facebook has recently dominated.

In June 2017, Snap launched Snapchat Ad Manager, a self-service tool for advertisers to buy ads and which aims to make tracking ad effectiveness easier. The initiative allows advertisers in the US to buy ads by credit card instead of a credit line with Snap. There is no minimum spend, and prices are set by auction instead of by directly with Snap. It also offers targeting capabilities and reporting metrics for marketers to monitor campaign effectiveness. 

Also coming in July is Snap Publisher, a free tool that allows advertisers to create Snap Ads quickly. The platform also provides the option for advertisers to import their own assets, such as YouTube video and TV ads, and trim them for Snap Ads.

Snap will continue to review ads to ensure ad quality. In addition, it is partnering with another 25 companies to help advertisers design and monitor their campaigns. Earlier, Snap also announced to work with DoubleVerify, Integral Ad Science, and Moat to evaluate its technology to tackle brand safety issues. 

Our analysis

A relative late comer to the social media business, Snap has made a significant traction in the crowded digital ecosystem. It is particularly popular with millennials through its filters and stickers, and other creative camera features. However, in terms of advertising revenues, it is confronted by the Google and Facebook duopoly. Facebook is more of a threat because of its large social user base and its ability to quickly introduce similar features to Snap’s signature product. This is mainly through Facebook’s Instagram, which reached 700 million monthly active users in April this year; Instagram’s Stories feed is viewed by more than 200 million people daily, ahead of Snapchat’s total 166 million daily users, reported in Q1 2017.

In its first public earnings call, Snap reported a $2.2 bn loss for Q1 2017. This was largely driven by post-IPO share award commitment, but Snap’s other losses have been growing consistently as it looks to build new innovative and expensive video-centric features. This not only reflects Snap’s challenging financial position but also the high costs of remaining innovative. However, Snap is not slowing down its product and monetisation ambitions. In Q2, it announced two features and several partnerships to boost its advertising service.  

New features aim to lure small advertisers

The two features will benefit small businesses greatly. It is easier to buy ads, simpler to create ads for advertisers that do not have a creative team, and without a spending commitment allows advertisers to test water with the social media platform before launching a big campaign.

Snap is right to lure small advertisers. In Facebook’s Q1 2017 call, it reported 70 million small businesses use Facebook pages. These new features could empower Snapchat’s video ads to compete with Facebook’s hegemony in small businesses, particularly in mobile.  

Through the launch of the self-serve tool, anyone could be an advertiser on Snapchat. We expect the ad loads of the platform to increase with new advertisers drawn in. Furthermore, it could become a useful platform for one-off advertisers or casual advertisers, who would usually post ads on digital classifieds and directories for a one-off occasion to create a 10 seconds ad for free and buy the ad which could be cheaper than some classifieds and directories websites.

Strengthen its offering to small advertisers as part of the effort to go beyond being a brand-building channel

Snapchat has presented itself as a platform for brand marketing. However, it is slowly beefing up its offerings to direct-response advertisers, and has introduced a machine learning technique called ‘goal-based bidding’ for ‘swipe-ups’ ads or app installs to help advertisers better targeting the right Snapchat users. By making its ad offering more attractive to small businesses, Snap is complementing its direct-response offering to this group of advertisers, who have fewer budgets for brand marketing and seek an immediate response from their audience.

The new features address some of Snap’s immediate issues, but other challenges in remain

In a report ahead of Snap’s IPO, IHS Markit outlined a number of the major challenges facing the company. Introducing a more automated ad platform and attempting to close Facebook’s lead among small business advertisers is a good start, but there are other challenges. Snap’s Q1 results shows that it still has a lot of work to do to drive profitability, and while it is entrenched among its core youth audience – slowing user growth should also be a concern as its rivals may have much larger audiences and therefore still more attractive to advertisers looking for greater scale. 

 

Organization
Snapchat
Research by Market
Media & Advertising
Category
Advertising
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