Snapchat’s ad biz has matured but is still a shiny new object for advertisers

Like many of its users, Snapchat’s advertising business has grown into its awkward teenage years. Fortunately for Snapchat, it’s still considered a cool kid among advertisers; unfortunately for Snapchat, it’s still considered a kid.

Snapchat’s advertising business has matured over the past year-and-a-half. The company has fashioned its splashiest ad format to be more alluring to brand advertisers while honing its standard ad unit into more of a workhorse for direct-response advertisers. It has added Facebook-style ad-targeting options that incorporate more of its own, advertisers’ and third-party providers’ data into how ads are aimed. It has signed measurement deals with companies like Moat and Nielsen to give brands a better idea of what they’re buying. It has made it easier for small- and medium-sized brands to buy its ads through an advertising API and a self-serve ad-buying tool, while also taking full control over sales of its Discover section’s brand-friendly inventory.

Snapchat’s sales pitch has matured since the start of 2016, and so has its standing in marketers’ minds. But because of measurement shortcomings and a high barrier to entry (until recently), Snapchat has yet to prove itself as a must-buy for most marketers, based on interviews with six agency executives.

“A lot of platforms like Facebook or YouTube or Instagram, they’re about as close to a must-buy as you can get, but they need to keep earning that right to be a must-buy. And they are because they’re providing us with the tools, the access to the audience, the ad-tech capabilities, and the measurement capabilities,” said Mike Dossett, associate director of digital strategy at RPA. “Snapchat, they don’t fall into that category today in the eyes of most clients.”

“Every open-ended conversation we have with clients about social media campaigns probably includes Snapchat in some way, and almost half the time it’s actually used,” said Liz Cole, VP and director of social strategy at DigitasLBi. For comparison, “a year ago [Snapchat] was coming up just as often, but it was being used a lot less.”

That’s not to say that Snapchat isn’t a must-buy for some advertisers. But it only appears to be a must-buy for the same advertisers — the big-budget brand advertisers — looking to buy a blitz of ads aimed at twenty-somethings and teenagers.

“If I have one dollar to spend and a brand trying to reach a millennial, female audience, I would probably go to Instagram first than Snapchat, unless I’m an entertainment brand and have a movie that’s coming out,” said an agency exec who asked to remain anonymous.

Two types of advertiser

When it comes to Snapchat, advertisers currently fall into one of two camps, according to 360i’s director of paid social, Phillip Huynh. Either a brand has advertised on Snapchat in the past and will continue to spend money on Snapchat in light of the company’s recent moves; or a brand has taken a wait-and-see approach to Snapchat and is now ready or finally able to see if it should keep waiting.

For the experienced Snapchat advertiser, “Snapchat is in the very ‘strong consideration’ to ‘must-buy’ set for some of those clients,” said Huynh. For the inexperienced, “the coming of the self-service [ad-buying] platform and no minimum [spend requirement] really allows them to test things out.”

Before Snapchat beefed up its advertising API in January, and then rolled out a self-serve ad-buying tool in June, it was difficult for advertisers to dip a toe into the platform. They could buy ads through Snapchat’s sales team, but only if they were willing to spend enough and their ads were considered good enough. Complicating matters, having a Snapchat handle was not a way for a brand to get a handle on Snapchat.

Unlike other social networks like Facebook, Twitter or Instagram, Snapchat doesn’t accommodate brands operating organic accounts. “As a brand it’s very hard to distribute through a branded Snapchat handle. The tendency for that stuff is to really struggle because Snap doesn’t want brands to do that,” said Noah Mallin, managing partner at MEC Wavemaker.

The struggle also put a strain on Snapchat’s business among brands accustomed to using unpaid media to wade into a new social network, curtailing the company’s ability to attract new advertisers. “A lot of the initial resistance or last-minute defection was because it was being pitched to clients purely in that social media realm who weren’t necessarily ready to invest in it from a solely paid perspective,” said Cole.

But this year’s official roll-out of Snapchat’s ad API and self-service platform has lowered the barrier to entry for brands. Now it’s not a matter of whether brands are ready to invest in it, but how much are they willing to invest and to what end.

From raising awareness to chasing sales

As Snapchat has opened itself up to more advertisers, it has also opened itself up to more advertiser objectives. Snapchat originally catered to brand advertisers seeking attention but has been tailoring its products for direct-response [DR] advertisers seeking sales, for example allowing brands attach links to their ads and retarget people who had previously interacted with their ads.

However, “most of our brands are not looking at [Snapchat] from the DR side at all. For just about every advertiser we work with, Snapchat is firmly viewed as a top-funnel activity,” said Cole.

Snapchat is still perceived as a habitat best suited to brand advertising for good reason. It’s pretty good at it. “We’ve seen major increases in [brand] awareness and consideration on Snapchat. In some instances it’s one of the top, if not the top, [platform],” said Huynh.

But on the direct-response side, not so much. Huynh said that Snapchat does “okay” for direct-response advertisers, and others echoed his sentiment. Snapchat has improved its ability to pinpoint brands’ ads, but advertisers still struggle to see if their ads are hitting the mark.

A year ago Snapchat’s ad-targeting options were pretty basic: age, gender, location, mobile device type and wireless carrier. If an advertiser wanted to reach people with certain interests, the best it could do was pick out a Discover channel with corresponding content or advertise within a Snapchat-curated Live Story that would appeal to that audience. There was no other way to target ads based on the type of content that people viewed on Snapchat, nor was there a way for an advertiser to bring its own list of customers’ email addresses to target those people or people with similar traits on Snapchat. But now there are, as well as options to target ads based on third-party purchase data and based on the likelihood of someone to swipe up on an ad or install an app.

“The breadth of targeting that they’re now bringing to market is a big change and at least keeps them in the consideration list. Whereas before maybe they got in on pure scale, now they’re starting to earn their right to be in consideration based on their targeting chops as well,” said Dossett.

“The most killer [new targeting option] is the ingestion of CRM data and what can be done to that CRM data afterwards, allowing people to find their people on Snapchat and then model against that audience is really great,” said Huynh, referring to Snap Audience Match, Snapchat’s version of Facebook’s Custom Audiences.

But as much as Snapchat has gotten more sophisticated in the past year, it still has work to do relative to its competition, especially Facebook and Facebook-owned Instagram.

For example, Snapchat’s Snap Audience Match “is far less effective [than Facebook and Instagram’s version] because the match rate of emails to accounts is far lower,” said Wpromote CEO Michael Mothner. He attributed the lower match rate to the fact that Snapchat only allows advertisers to match against people’s email addresses, phone numbers or ad-specific mobile device identifiers whereas Facebook also allows matching against a dozen other identifiers, including first and last names, birth dates and Facebook user IDs.

Measuring up

For Snapchat to stack up better against Facebook, Instagram and others in advertisers’ eyes, advertisers need to be able to stack up its ads’ performance against ads on those other platforms — as well as other ads on Snapchat.

“If we look at any of [Snapchat’s] competitors, I’m able to hop in a platform and see how much one dollar on Facebook netted out in terms of sales or return on ad spend. I can do the same thing on Pinterest and Twitter. On Snapchat I don’t necessarily have that capability yet,” said Huynh.

“The analytics that we’re getting back across the board basically look good. The problem is not necessarily that we don’t have great results. It’s the lack of context around them,” said Cole. On other platforms like Facebook and Instagram, media buyers are able to check the performance of one brand’s ads against other advertisers in the same industry, advertisers that have used the same ad product and even the brand’s own historical data “in order to say we’re getting better or this is one of the best things we’ve done,” said Cole. “With Snapchat, it’s a little more out there in the ether, looking at these numbers and saying they look really good but we have no idea how that compares to other advertisers or if we’d be able to do it again.”

Advertisers also aren’t getting all the numbers they want from Snapchat. “Right now third-party measurement is limited, and it doesn’t really allow us to see if someone went and bought something on a certain website if they saw a Snap Ad or something along those lines, like we would with Twitter or Facebook or Pinterest,” said Huynh.

For its part, Snapchat has rolled out ad-to-purchase measurement options for brick-and-mortar sales. CPG and retail advertisers can track whether someone saw an ad on Snapchat and later purchased a product in a brick-and-mortar store through Snapchat’s measurement deals with Nielsen and Oracle. Also Snapchat rolled out Snap to Store measurement in April for brands to see track Snapchat-sent foot traffic to physical locations like stores and restaurants, and in June Snapchat acquired Placed to better attribute in-app ads to in-store sales. The company is also exploring rolling out its own web-based measurement tool, according to a Snap spokesperson, who also said that early next week Snapchat will be releasing a study documenting its ads’ return on ad spend and sales lift as measured by media mix modeling firms.

The cost of creativity

Lacking clarity into what advertisers are getting in return for their money makes it more difficult for advertisers to justify spending that money in the first place, especially since Snapchat’s unique ad formats already require more of an up front investment.

“I still think one of the biggest challenges with Snapchat is still the need to have very specific creative. It’s still somewhat of a barrier if clients are not investing in creative that makes sense for Snapchat,” said the unnamed agency exec.

“The biggest variable we’ve seen, especially for view rates, is the content itself. If you’re running on Snapchat with content that is not thoughtfully cut for the platform, then performance is going to suffer,” said Mallin.

Yes, Snapchat’s unique ad formats continue to be a barrier to entry for advertisers, even as it has lowered the barrier to buying those ads. The fact that advertisers can’t easily extend their YouTube or Facebook video ads to Snapchat “makes it a more considered buy,” said Dossett.

That Snapchat has its own creative norms distinct from other platforms “can create some production implications for advertisers, which make it a little bit different than just taking on one more site to advertise on or syndicating a piece of content between Facebook and Instagram. It’s something that does come up in a lot of conversations that we have. If a brand decides to run a campaign on Snapchat, it’s going to mean they do a custom production,” said Cole.

Still shiny

Overall however, advertisers now appear to be more willing to craft custom ads for Snapchat. It helps that Snapchat has been able to maintain a unique audience. Instagram’s clone of Snapchat’s Stories product may have grown to fetch a bigger daily audience than Snapchat as a whole, but 46 percent of Snapchat’s daily U.S. audience aren’t part of Instagram’s daily audience, according to a report mobile app research firm App Annie released in May. It also helps that advertisers have “seen some of their competitors — or brands they look up to — receiving trade media coverage for things they’ve done with Snapchat, to be completely honest,” said Cole.

That is Snapchat’s protective moat. Ridiculous as it may seem, sometimes advertisers just want to seem cool among their peers, and Snapchat offers them a way to be cool by association. When it comes to Snapchat’s battle with Instagram, cool is a legitimate competitive edge.

Instagram “has a lot of advantages” over Snapchat when it comes to the two platforms’ fraternal-twin Story ad formats, said Cole, such as Instagram’s tie-in to Facebook’s larger ad platform and the corresponding superior targeting and buying options. “But what we’ve noticed in conversations with clients who are really married to Snapchat is that Instagram Stories campaigns don’t make headlines. Sometimes it’s really about [the fact that clients] want to get articles written about this cool, new, innovative thing that a brand did on Snapchat. There’s some value in that, even beyond the pure viewership metrics,” she said.

It’s important to read between the lines of what Cole is saying, though: Snapchat remains a shiny new toy for advertisers. Others concurred. Snapchat is “admittedly still a late-stage experimental buy,” said Dossett. That’s fine for now, said Cole, but “I don’t see how Snapchat could continue on this exact trajectory for another two to five years. It’s going to be hard.”

Snapchat isn’t trying to continue on this trajectory. For the past year-and-a-half, it has been trying to mature from a marketer’s toy into a tool — and it has matured. But now the questions are whether Snapchat can mature faster than Instagram and others can mimic it, and if Snapchat can not only make headlines shine but also improve businesses’ bottom lines.

“They need to pass that proof test that it’s not just a shiny object,” said Dossett. “The presence that brands like ours have on the platform, whether it’s lenses or filters or Snap Ads, they actually move the needle on the metrics that matter to us — awareness, consideration, intent — but because Snapchat doesn’t have a long proven history, they undoubtedly have a bit of a tougher time getting that must-buy status.”