Ad buyers on Snapchat: All hope is not (yet) lost

digiday.com

Since going public in March, Snap has reported disappointing losses in revenue and slowing user growth quarter over quarter. The company’s third-quarter earnings call on Nov. 8 did little to improve the company’s outlook. Snap lost $443 million in the quarter, and its stock continues to fall.

Digiday spoke with 21 ad buyers about their experience with Snapchat and the challenges and opportunities they see ahead. Ad buyers see hopeful signs in the upcoming redesign, lowered CPMs and Snapchat’s helpful sales team as reasons to continue spending on the platform. But many still see Snapchat as a niche ad opportunity, citing its relatively small audience compared to giant rivals. In the end, many buyers still put Snaphat in the “experimental” bucket that only takes up a small sliver of budgets, rather than the must-buy status reserved for Google and Facebook.

“We’ll be keep an eye on the upcoming app redesign and how it affects user retention in app and how they interact with advertising,” said Torrey Tarrali, U.S. head of paid social at mobile agency Fetch. “If done properly, it will open them up to a new demographic of user growth who will hopefully find the app easier to use.”

Therein lies the challenge for Snapchat. It has mostly resisted trying to be all things to all people. That enabled it to be a hit with teens, but it hasn’t done a lot to grow beyond that. Snapchat reported 178 million daily users, a number that pales in comparison to Instagram Stories and WhatsApp, which each have 300 million daily users.

Nearly all of the ad buyers Digiday spoke with say a big reason they continue to spend the majority of their social ad budgets on Facebook, Instagram and even Twitter is because of scale. Meanwhile, ad buyers reserve Snapchat for the “experimental” portions of their budgets — the leftover 10-20 percent.

“What they’ve failed to do is to convince brands that they are a must-have platform for campaigns,” said one ad buyer, who wished to remain anonymous. “They are in most cases an add-on or used to reach a niche, usually young audience. The earnings reflect this struggle and give comfort to marketers who haven’t put dollars into the platform.”

Slow user growth also hurts the platform’s new advertising processes, such as its programmatic offerings, said Noah Mallin, head of experience, content and sponsorships at Wavemaker U.S. “Opening up more targeted API buying was a smart move for Snapchat,” he said, “but without user growth, it becomes hard to slice audiences down even smaller, and that’s reflected in the revenue results as well.”

Snapchat’s ultimate goal is to expand its user base. On the earnings call, Spiegel said Snapchat wants to scale Snapchat to more Android users, people older than 34 and to people in other countries.

Not all ad buyers believe Snapchat should try to reach an older demographic. Rather, some mentioned that it should concentrate on targeting those 13- to 34-year-olds it has become known for. In Snap’s earnings call, Spiegel said the platform reaches over 70 percent of the 13- to 34-year-old population in the U.S., France, the U.K. and Australia. All 21 buyers Digiday spoke to said that for their clients, Snapchat remains the best platform to reach that demographic.

“It would be hard to change that perception at this point,” said one buyer. There’s also concern that a redesign might alienate its existing audience, according to another ad buyer.

The majority of ad buyers Digiday spoke with believe the rollout of Snapchat’s self-service Ad Manager in June was the company’s best move since going public. Sixteen of the 20 ad buyers Digiday spoke with for this piece said the new self-serve tool has significantly made pushing ad campaigns easier on the platform.

Before Snapchat’s self-serve tool launched, an agency would have to make several phone calls to work directly with Snap’s sales team, and each ad product was highly customized to the point where the entire process was cumbersome, said one ad buyer, who wished to remain anonymous. “The more Snapchat puts power in the hands of advertisers, the more they can get themselves out of the zone of just being a platform you test with,” he added.

The self-serve platform has significantly driven down costs of ads on the platform as well.

“Every campaign is different, but since the onboarding of Snapchat’s self-serve platform, results are strengthening,” said Evan Walker, associate media director at GSD&M. “We are seeing tremendous improvements in cost efficiencies, near or on par with Facebook, and in some cases, better performance driving secondary interactions than other networks.”

Walker said CPMs through the self-serve platform are nearly four times as efficient as previous Snapchat-managed campaigns. In fact, Walker said Snapchat ads CPMs are nearly identical to average CPMs across Facebook. Buyers told Digiday that CPMs run between $3 and $8.

The cheaper ads have hurt Snap’s overall revenue in its third quarter, and Spiegel addressed this in Snap’s earnings call, saying that CPMs have decreased more than 60 percent year over year.

Ad buyers, however, believe the self-service platform will eventually pay off. “I firmly believe their self-serve platform is going to lead to a positive shift,” added Walker. “It minimizes the barrier of entry and allows for platform versus platform testing. I think it will ultimately help Snapchat scale their offerings.”

Even with self-service growing pains, Snapchat is known among ad buyers for having a supportive sales team that is making the transition to self-serve smoother. All ad buyers Digiday spoke with mentioned its helpful team, especially when it comes to educating agencies and clients about new advertising options. Four ad buyers stressed that Snapchat’s sales teams are far more helpful than other social platforms, including Facebook, Instagram and Twitter.

“Their sales team has been helpful and willing to meet with us, which is in contrast to other platforms,” said one buyer, who requested anonymity. “Sometimes it’s challenging with Facebook, Instagram and Twitter, particularly if you have a client with a smaller ad spend.”

But another ad buyer, who works at an agency with global clients and larger ad spends, said the service teams for Snap, Facebook, Pinterest, Instagram and Twitter are all “exemplary,” all giving one-to-one service, responding immediately and even flying out to their company’s offices as needed.

In Snap’s earnings call, Imran Khan, chief strategy officer at Snapchat, said that self-service opens up the Snapchat’s sales team to spending more time acting as consultants. “As we make our buying platform more and more automotive,” he said, “our sales force transition from taking orders to become more of a consultant for our clients.”