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InContext / An inside look at the business of digital content

Does Snapchat have what it takes to become an ad powerhouse?

February 25, 2016 | By Mark Glaser, Founder and Publisher – MediaShift @mediatwit

Snapchat has gone from being a strange ephemeral video platform for teens to send sexy shots, to a walled garden of content where publishers and brands can reach millions with short-form content. With a user base of 100 million, and video views in the billions, it’s no wonder that Snapchat’s ad business is growing as fast as the company itself. But can Snapchat become a transformative platform for mobile advertising, as Facebook has, or is it just a flash in the pan?

For companies and brands looking to reach a young mobile audience, Snapchat offers a lot: The majority  of its users are under the age of 25, it’s slated to improve ad targeting, and it is rumored to be testing longer-form sponsored videos for media channels on its Discover platform. It’s also possibly building its own application programming interface (API) and has recently partnered with Viacom. But these speculations of advertising growth come after the company has long been criticized for unstable pricing on advertising, failing to provide data critical to targeting users, and no guarantee on the ad viewership.

Launching an API?
One major indicator that it might have staying power is that Snapchat is reportedly building its own API which would help automate the targeting and delivery of ads to specific users. Snapchat has yet to comment on these endeavors, but an API could also address key concerns among marketers, including ad targeting, tracking visitor browsing and searches outside of the app (which would help it collect data on its users). Better tracking could help publishers and brands figure out how many people are actually watching their ads.

In building its own API, Snapchat is following in the footsteps of platforms such as Facebook, Instagram and Twitter — companies that have matured as major ad players in the digital marketplace. An API would also allow for more kinds of ads on Snapchat, including those that include a “call to action” for consumers, such as downloading a new app. This is especially important given that Snapchat has previously been selling ads the so-called “old-fashioned way” — by working directly with brands and agencies. But an API, with its ability to execute effective campaigns and automate different orders, would help measure how successful these advertisements actually are.

The API would also help Snapchat grow out of a closed mindset. “The first thing an API does is allows them to create a partnered ecosystem that is technology driven,” Sean O’Neal, president of the online service platform Adaptly, told Digiday. “There’s only so much that a company is going to be able to develop themselves as it relates to their own native ad solutions.”

Viacom partnership
Not only that, but Snapchat and Viacom have also recently struck an advertising deal that allows Viacom to sell ads on Snapchat’s original content. With its mobile video capabilities, Snapchat, after all, is an ideal destination for television and entertainment companies, while Viacom has more experience with larger brands that might not know Snapchat well. The deal wouldn’t just help an aging company like Viacom reach the coveted millennial audience. “Snapchat executives have repeatedly talked up their desire to pull in TV ad dollars, seeing themselves as the video epicenter of smartphones,” the LA Times reports.

However, despite the hype surrounding the potential for advertising on Snapchat, publishers would be right to remain wary as the company sorts out its goals, philosophy and practices. Part of the reason why Snapchat didn’t emerge as a major advertising player to begin with is that its sales team was small, and by some accounts, too old to understand how its digitally native audience would respond to ads on the platform. The fact that it’s most popular among a younger demographic was also a concern for some brands, who feel their core older audiences are more concentrated on Facebook, YouTube and Twitter anyway. And those companies, unlike Snapchat, offer much more data on their users than Snapchat does, which would make it easier to guarantee a return on investment.

Part of the problem is that ad pricing has been erratic on Snapchat. When Snapchat first offered advertising in January 2015, it asked brands to pay at least $750,000 for a one-day ad, according to CNBC. Prices have now dropped far below that threshold, with some saying ads could be had for $50,000 and even others getting ads for free because Snapchat liked the idea. It’s hard for marketers to jump in, when they might figure prices might drop in the near future.

While some folks contend that Snapchat is having its “Facebook moment,” with popular Discover content and attention to ads, it would be wise to proceed with caution until a potential API and more mature ad pricing takes hold.

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