A few weeks ago we wrote about how Amazon poses a serious threat to Google’s search dominance. But Amazon is just one of a few companies snapping at the heels of the Google-Facebook duopoly that has for so long dominated digital advertising. Third quarter results, released in the last few weeks, revealed that the ad businesses of Amazon, Pinterest and Snap all grew more rapidly than that of the industry giants in Q3. Amazon is the biggest disruptor in terms of size, but it’s Snap – owners of Snapchat – that is enjoying the fastest growth.
The latest round of quarterly results were not a resounding success for Facebook or Google. While Facebook’s results were better than expected, it recorded its third consecutive quarter of sub-30% expansion; meanwhile, Google’s growth is languishing below 20%, at 17.1%.
Things were much brighter for Snap: its ad business grew 50% year on year in Q3, and its stock price surged by over 175% this year as advertisers increasingly look to the platform to provide a return on their investment. Why?
Snap’s CEO, Evan Spiegel, has credited two major changes at the company for their success. The first is an initially poorly received redesign which Spiegel says boosted time spent watching premium content by 40%, thereby increasing ad revenue; the second is their adoption of a self-serve ad platform over the last two years, which has made it easier for brands to buy ads on the platform and expanded Snap’s ability to sell ads.
Those ads are increasingly popular as Snap is good at leveraging its hard-to-reach audience and building innovative, intuitive ad products that increase ROI for advertisers. Its core userbase is the often hard-to-engage youth audience: 90% of 13-24 year-olds in the US say that they use Snapchat, and they’re highly engaged – they open the app on average 20 times a day, and dwell time is around 25-30 minutes, significantly longer than that of other social networks. All this gives brands plentiful opportunities to reach their audiences at the right time, with the right message – and that amounts to increased ad revenue for Snap.
Snap’s range of ad products come in a range of different formats, including Snap ads which allow users to swipe up to visit the advertiser’s website or app and can be optimised against reach, clicks and sales; and commercials, a more premium offering which are unskippable and appear within premium content. They feel more like a TV buy for advertisers and have high viewability and completion rates. In October, Snap launched a new product to target direct-response advertisers, for whom Instagram – their historical home – is starting to feel a bit crowded. Its new dynamic ads allow advertisers to create ads linked directly to their product catalogues and can be served to users based on their interests, using a variety of templates created for mobile. This new product brings Snap’s offering more in line with that of its bigger competitors, and is one of a range of features that has helped to make Snapchat more shoppable, engaging and effective for marketers.
Snap’s focus on the development of effective advertising formats is commendable, and will be key to its future success; indeed, it will be key to the success of the digital advertising industry as a whole. Traditional channels continue to have the upper hand when it comes to the price-effect ratio, and digital players must aim to emulate their success.
While Snap’s star is certainly in the ascendant, there is still plenty of work to be done: it is still unprofitable and it only has 210 million daily active users – mediocre compared to the 500 million who use Instagram’s Stories product every day. CEO Spiegel stated on the quarterly earnings call last month that augmented reality (AR) will be crucial for the company’s future: each daily active user interacts with a Snap AR product, such as lenses and filters, an average of 30 times per day. This month the company is launching Spectacles 3, a redesigned version of its augmented reality sunglasses, and in the next seven to 10 years plans to integrate other AR wearables into its range. Snap has historically led the way in AR and has had viral success with some of its AR filters, but Instagram and Facebook are moving into the space, so Snap will need to move quickly to retain its first mover advantage and remain the dominant AR platform.
Snap’s product development and innovation are turning it into a serious contender for advertisers’ ad dollars, and its growth rate means that the digital advertising giants – Google, Facebook and increasingly Amazon – need to pay attention, particularly as Snap has such high access to the millennial and Generation Z audience. It does however have a lot of work to do if it is to grow exponentially and become a real threat.
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