Opinion

Under-attack Snap must evolve quickly if it is to truly compete for ad dollars

Snap’s financials are relatively strong, but the company is quickly losing its millennial users to Instagram and will lose ad dollars too if it does not take swift action – writes Yuval Ben-Itzhak of Socialbakers

Snap’s second quarter earnings this week certainly gave the markets a surprise.

While daily active users shrank for the first time in the platform’s history – from 192 million in Q1 of 2018 to 188 million in Q2 of 2018 – the company was still able to beat expectations in terms of revenue, announcing that the average revenue per user grew by 34 per cent year-on-year.

Many believe that the redesign – which was aimed at separating the personal messages of users from brand and celebrity content, but met with widespread backlash – was the cause of the decline in the number of people using the social network.

However, strong competition from rival platforms Facebook and Instagram – as well as the General Data Protection Regulation rules which came into play in Europe in May – is also likely to have contributed to the decrease in users.

Snap remains a long way behind its rivals – Facebook and Instagram – in terms of advertising dollars and audience size. Facebook itself has 2.3 billion monthly active users, so that kind of reach certainly makes it tough for Snap to compete.

Although, primary competition comes from Instagram Stories. It continues to surge and now has 400 million daily stories users. Additionally, Snap’s other business ventures such as ‘Spectacles’ and ‘Snapcash’ have yet to achieve much traction.

What is next for Snap is really the question on the minds of many marketers and investors alike. The firm has been testing six-second unskippable ads in an attempt to further monetise the platform. This change came about because advertisers were unhappy with the average ad viewing time on the platform, which was reported to be a mere two seconds. These unskippable ads could present a real money-making opportunity for Snap, especially if extended to stories.  

The company has also been making progress on the third-party developer front, with the launch of its SnapKit. It allows developers to bring Snapchat features, like Bitmoji and Stories, into their apps. But is this too little too late?

The platform may be making baby steps to open itself up, as Facebook and Instagram have been doing successfully for years, but it still is not an open platform for brands to learn about consumer engagement performance and trends.

Currently, having programmatic access to the Snapchat platform requires special permission from​ the firm, and is only available to a selected number of brands. This means that both marketers and advertisers have very limited programmatic access to learn about the audience and understand what content to create – and how to target effectively.

Finally, rumours in the market that Snap is looking to diversify into gaming have been met with interest. But Snap still has a long way to go to become a viable gaming platform. To distance itself from ad dollars it has depended on, and successfully turned its focus, to the lucrative gaming business.

This will be no mean feat, especially in light of the news that it has expanded its partnership with Nielsen to offer deeper audience targeting capabilities. But what does all of this mean for marketers?

Snapchat itself has long touted engagement as its biggest strength. In a report from last year, which compared the platform to Facebook and Instagram, Snap noted that its app sees far more engagement among younger users, with daily active users spending over 30 minutes per day on the app. With the reported decline in daily active users though, will the engagement continue?

Brands need to ask themselves if their audience is on Snapchat and if so, what is the right content to reach and engage them. If marketers are looking to target a younger audience with highly visual content, then Snapchat is definitely worth considering. Although the pertinent question remains – should you invest your ad dollars in Snapchat or in Instagram?

One interesting feature Snapchat offers is the ability to provide marketers with physical location data about where users are present. This applies to users who have their location turned on to use features like Snap Map or Geofilters.

The whole point of providing anonymised data like this is to show brands and marketers the power of using Snapchat for advertising, such as radius targeting – which only serves ads in a geofenced area.

Since going public early last year, the firm has been on a rollercoaster ride. The platform, once hailed as the place to be for younger audiences, is now starting to be shunned by Generation Z in favour of Instagram.

The competition the platform is facing from Facebook, and especially Instagram, should not be underestimated. If Snap can somehow start growing its user base again though, perhaps expanding its reach beyond North America – and evolving its offering to advertisers – there is no reason why it won’t be a strong contender again in the future.

Snap can still compete if it is prepared to change, says Ben-Itzhak

Yuval Ben-Itzhak is the chief executive officer at the analytics firm Socialbakers and is based in Prague, in the Czech Republic

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