Snapchat has a brand problem, and that means it has a revenue problem, and that’s why the $30 billion market cap it earned during its IPO in May rapidly tumbled to around $15 billion. According to Victor Ricci, CEO of influencer marketing company Trend Pie, quoted by CNBC, ads and promoted stories are too easy to skip on Snapchat, with only 1 percent of viewers seeing an ad.
“Snapchat’s only options for reversing the slide is either investing heavily in growing its advertiser base—especially considering Instagram has over a million advertisers—or evolving its product to attract a broader audience,” says Sean Cullen, executive vice president for product and technology at data-driven marketing company Fluent. “Unfortunately for Snapchat, either option could alienate the current user base even if it is successful. Instagram is growing faster than Snapchat, makes discovery way easier, controls the international market, and is supported by the second largest advertising company in the world. Why would advertisers ever prioritize Snapchat over Instagram?”
Advertisers have often complained that Snapchat doesn’t provide enough campaign data, and in that area the company is making changes. It launched a new ad manager (inspired by Facebook’s own solution) that allows better campaign targeting and tweaking, and also offers more data to advertisers.
“Snap has made some improvements in its reporting on campaign performance post-activation, but upfront in the research and exploration phase is still lacking. Many brands like testing the waters of a new content platform with organic content to better understand the audience behaviors on the platform to make relevant paid content,” notes Nick Cicero, CEO and founder of social video analytics company Delmondo. “Assessing creative performance is still a challenge for many advertisers when they have no real benchmarks to compare it to—that is until Instagram Stories Ads came along—and now we’re seeing more and more advertisers spending money with Instagram on Stories Ads over Snapchat.
On Friday, Martin Sorrell, CEO of advertising and marketing company WPP, said his company would double its spending on Snapchat this year. That will add up to over $200 million, a figure that’s small stakes for WPP. “You’re talking about a flea on the elephant’s backside,” he told CNBC. His company will spend over $2 billion on Facebook this year.
“While Snapchat was able to quickly accrue a massive audience of users, it’s ad business has developed much more slowly. The company has added several new options and features to attract advertisers, but the advertising elements of the service, including more-detailed ad metrics, are still relatively new,” says Brett Sappington, senior director of research of Parks Associates. “Snapchat’s strength is in its young audience. As long as Snapchat use remains high among this group, brands will remain interested.”