Will Snapchat’s advertising technology strategy grow digital ad revenue?
It was reported last week that Snapchat is working on a solution to enable media buyers to build and optimise custom advertising within its popular messaging app.
The move comes as the Los Angeles-based company seeks to monetise its coveted millennial audience. The strategy around building digital ad revenue has been deliberately cautious, given the need to balance user experience with the requirements of marketers.
The rumoured strategy looks like an early-stage plan to emulate ad offerings from Facebook and Twitter. By releasing an API (application programming interface) the company could offer media buyers basic ad targeting and customisation options through its own user interface or via a third-party buying platform.
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The first big issue Snapchat will need to overcome is what inventory it makes available to advertisers. Currently it has no specific ad units that could be used. Unlike Facebook, Twitter and Instagram – all of which inject advertising natively into users’ feeds – Snapchat does not serve user content in an ad-friendly way.
Both Facebook and Twitter have demonstrated that when executed properly, native, in-feed advertising can help build significant revenue. This process becomes more scalable given how easy it is to target custom messaging to specific audiences on both media channels.
It is hard to imagine that Snapchat will serve advertising on the disposable messages sent by its users. That will ultimately drive ad-shy millennials away from the service.
Snapchat’s Discover and Live sections could prove a lucrative playground for ad revenue – as both offer an opportunity for advertisers to connect with users in an unobtrusive way.
The other big issue Snapchat will need to grapple with is what type of advertising it will serve. Will it be display or video? Given the disparity in pricing between the two, you could see the company focusing on the more lucrative video ad option. A video of four to five seconds could be short enough for an acceptable user experience and long enough to achieve specific marketer goals.
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Snapchat could run into problems by aggressively building out its digital ad business, given the inherent constraints around advertising within the app. Its best opportunity for growing ad revenue might be outside its own domain, by allowing advertisers access to anonymised Snapchat user data, facilitating targeted ads on other internet and mobile properties.
Additionally, Snapchat could follow Twitter’s move and buy an advertising technology company. Two years ago Twitter bought mobile supply-side platform MoPub for $350m (£241m) to enable it to sell ads outside the Twitter eco-system.
Facebook acquired LiveRail for $500m in 2014 with a similar goal in mind. The Facebook audience network (FAN), which LiveRail technology helps to power, reportedly now has an annual run-rate of $1bn.
These might seem like huge numbers. But you need to remember that Google’s AdSense business (ads outside the Google search results), a key part of publisher revenue strategy, is worth around $14bn per annum. With ad spend shifting from desktop to mobile, the AdSense business is up for grabs as publishers look for mobile-first revenue streams.
If Snapchat were to buy a cross-screen supply-side platform (SSP) – there are a few on the market – it could enrich third-party publisher inventory with its millennial audience data.
There isn’t a marketer or agency globally that wouldn’t integrate and buy significant volume from that “millennial exchange”. An acquisition would also bring in the ad technology talent it badly needs to build this new part of its business.
In the end the company’s ad technology strategy will focus heavily on Snapchat’s millennial data. Marketers (particularly direct response advertisers) want to get their messaging in front of this audience.
Adtech will ultimately help Snapchat build a sustainable ad business. But the disappearing ad will not be the hero – that’ll be the adtech stack that realises the inherent value of Snapchat’s data.
Ciaran O’Kane is founder of trade publication ExchangeWire
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