For most who don’t yet use Snapchat frequently I know the economic case feels like a stretch of the imagination because you’re caught up in the original Snapchat and I’m trying to offer a perspective about where the puck may be going. It’s up to Team Snapchat to live up to its financial expectations but I believe it certainly has the potential. I’ve heard the new media doubters before as nobody thought Google, Facebook or Twitter would ever make money.
From the business perspective you need to understand a few things about media and video in particular. The following factors matter a great deal to media: reach, immediacy, authenticity/endemic, engagement, geography and brand recall/uniqueness. Snapchat is performing off the hook on all fronts.
1. Reach
Unless you work at Snapchat or are on the board – nobody really knows how many users they have but I think it’s well reported to be a shit-ton. Most people seem to accept that daily users are at least 100 million with monthly users > 200 million, perhaps higher. Any which way, Snapchat has large “reach,” which is a key measure for any advertiser. There is also a reported 8 billion videos viewed per day.
And if you’re stuck thinking these are just kids sending stupid pictures to each other then you’re stuck in the past and simply won’t understand new media and how it’s changing. The huge leap forward for YouTube was UGC (user generated content) but this emerged into new stars, new ways of producing content and new ways of consuming it. And ultimately like the Innovator’s Dilemma, the product eventually becomes better and better to the point where an industry builds around it.
Snapchat now has messaging (like WhatsApp, WeChat, etc) but also has “stories” (a day in the life of a user or media brand) and “discover” which is where short-form, professionally produced media exists. This should give you a taste of the future but also the product quality of Snapchat (even if not intuitive for you) should give you a sense for the capabilities of Team Snapchat to innovate.
Reach matters to advertisers for an obvious reason. The people who spend the most money on reaching consumers: consumer products, car companies, food & beverage, entertainment – need to reach mass audiences and smaller channels aren’t as effective for them relative to the time to produce creative and learn how to perform in a channel.
2. Immediacy
Immediacy is tremendously important in advertising. If you’re trying to promote a film that is going to be released then controlling the “flight schedule” of your advertisement matters a great deal. In a world of time-shifted media and consumers distracted by multiple media options – being able to rely on reaching a consumer when you want to matters. That’s why live TV events are great for advertisers. But think of any product one needs to sell: cars during the buying season, politicians during elections, companies looking to clear out inventory or launch a new line, companies advertising for Christmas – many forms of advertisements rely on “immediacy” of a campaign.
And this is where the frequency of logging in for Snapchat matters. The fact that > 50% of Snapchat users tune in daily and the fact that stories disappear if not consumed helps drive this behavior. So while some people go mad that I would publish a Snapstorm (a short lesson on startup entrepreneurship) in a platform where it disappears in 24 hours – I actually love it. It creates a reason to “go now!” and that’s smart of Snapchat if they can maintain it.
Plus, Snapchat allows me to download my stories, which of course I do. And I will publish them later (reruns?) in a different venue. Ultimately Snapchat needs to build out its creator tools to make life easier for content creators but I have no doubt this will happen.
I would also point out that Snapchat is becoming one of THE places to see breaking news on video in a way that isn’t reported widely enough. I have found no better platform in a national event like the Paris bombings to see what is happening on the ground by real people. And they also are great for sports events (I watch the Eagles pregame videos from fans aggregated in one place, for example).
3. Authenticity / Endemic
The other thing that matters tremendously to advertisers is knowing that they can reach an “endemic audience,” which basically means a targeted user. Facebook crushed this because they had so much data about whom we were as users and could target us specifically with relevant ads that could be measured by engagement and refined by algorithms if we didn’t engage. Not yet completely reported but Snapchat is snapping up some really great ad technology professionals from FB and from the LA ecosystem.
But Snapchat starts with one hell of an advantage. Their core audience is already segmented heavily towards the hardest to reach demographic (young people) and one of the most important economically because they drive trends and purchasing of music, clothing, video games, movies and so forth.
4. Engagement
Snapchat is a “lean forward” technology. Users are highly engaged. And unlikely some media platforms it is reported that > 50 of users actually produce content vs. just consume. I suspect this % will go down over time as it becomes more of a media platform vs. just a messaging platform but engagement is high however you measure it. Engaged users are paying attention and therefore more likely to take actions and recall what is put in front of them.
5. Geography
Snapchat has encouraged users to turn on geo-location. If you do then you can use “filters” to say what town you’re posting your photo/video from. This also allows users to contribute to local stories as in the case of the breaking news example I gave above or live sporting or other public events. Geography matters because tons of marketing is driven by local businesses or by national brands who want regional campaigns. It also makes purchasing more cost effective.
If a company like MakeSpace that offers physical storage for households in NYC, Chicago and DC wants to advertise why should it waste its resources on a product that serves up ads in Austin, Texas? If a politician is trying to win Iowa they want their reach, immediacy & geography to all be focused.
6. Brand Recall / Uniqueness
The other thing many advertisers crave is the ability to “stand out,” which is why banner ads perform so poorly. We as consumers develop “banner blindness” (which I’ve been talking about for years), which is why publishers who can offer unique ad units like “take overs” can make much more money. Ultimately advertisers want to be remembered and to do that they need to stand out.
This is part of the reason “native advertising” has become a large market and why “content marketing” is on the rise. We’ve seen portfolio companies like GumGum become enormous by riding this trend. The serve authentic and targeted ads that embed themselves in the images as you consume webpages but they do it in a non-intrusive way that has proven increases in recall and click-through rates.
Snapchat can do this in spades. They can build authentic ad campaigns to an engaged, endemic audience that will drive huge recall and calls-to-action.
Finally, one other thing to consider: One unique economic decision relative to Twitter or Facebook
7. Monetizing the Consumer
I never understood why Twitter didn’t find ways to monetize its consumers directly. There are tons of products its users would have happily paid for. Snapchat has already built experiments with this. For example, you can replay a snap one time per day for free. But if you want to replay more snaps per day you buy “packs” to do so. That helps monetize more passionate consumers with an action they care about. They also are selling the ability to create your own geo-fenced filters.
All of this is smart. Platforms need to strike a balance between ad-supported businesses and user-generated revenue. Look at YouTube and its big push into Red having seen the success of Netflix. Ultimately, ad only is a narrow strategy.