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Straight Talk Media & Entertainment

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Snapchat might be the "flea on the elephant's backside," according to advertising giant WPP's CEO Martin Sorrell, but its popularity with young people – particularly in the US – makes it impossible for advertisers to ignore. The problem is that Snapchat doesn't make it easy for advertisers to reach those young audiences. Indeed, despite improvements in its advertising offerings, it clearly prioritizes user experience over advertiser needs. And while those users have helped the service to grow quickly, reaching 166 million daily users in 1Q17, revenue generation is essential now that Snapchat is a publicly traded company with shareholder obligations.

The problem for Snapchat is that users aren't hugely revenue generating in and of themselves. Snapchat has dialed back its efforts to monetize filters, although users can still purchase Geofilters to personalize Snaps at events such as weddings. For Snapchat to monetize at scale it needs advertisers and, at this time, Snapchat's rivals are doing a much better job in accommodating those advertisers. Even though Snapchat is the effective home of the under-25s, if it can't exploit its position by putting advertisers in touch with that audience, it may as well not exist.

Instagram on the other hand is growing quickly, has great search functions, makes it easy for users to discover content, and has even replicated Snapchat's content expiration. Instagram has a much larger user base (Snapchat's user base is younger than Instagram's) and, according to Ovum's OTT Communications Tracker 4Q16, is growing more quickly than Snapchat. Instagram Stories – Instagram's answer to Snapchat Stories – has helped coax vital social media influencers over to Instagram from Snapchat.

There are three key issues with Snapchat's ad offerings:

  • Advertisers don't have access to the right ad metrics. While Snapchat has made improvements on its advertising platform over the last year to enable granular targeting, advertisers are still complaining that data availability is poor. Advertisers have to rely on Snapchat "scores" rather than number of followers. Since other platforms are offering more granular data, Snapchat's data offering is less compelling to advertisers.

  • Discoverability on the platform is poor. Snapchat's platform was built around the concept of "private sharing" – sharing images with select people which expire quickly. This doesn't fit with what advertisers need, which is to have content shared with or be discovered by as many of their target audience as possible, and for that content to be available for as long as possible.

  • Snapchat's ads are not easy to buy or create for. Snapchat was slow to introduce a self-serve ad-buying tool, but this tool is limited to just one type of advert – its standard video Snap Ad. Sponsored Lenses and Sponsored Geofilters still require purchase through Snapchat's sales team or via an API partner. Snapchat's unique advertising offering in the form of filters means that creatives can't easily reuse content from other campaigns. While Snapchat's video ads follow a more standard format, they also come with restrictions about exactly how the creative can appear in the app, adding to the burden on advertisers using the platform.

Snapchat's advertising limitations doesn't mean that it isn't a great platform for distributing content to the under-25's. For example, Snapchat has 11 TV channels on its Discover platform, with the most-watched show on Snapchat, The Rundown – a Snapchat-only show from E! News covering the latest pop culture stories – attracting 11 million viewers per episode. E! has also recently announced it will collaborate with reality star Kylie Jenner, one of the younger members of the Kardashian clan, to create a new show for its Discover channel. So, while Snapchat is able to attract compelling content to Discover, if such content is difficult to monetize, broadcasters will surely move to alternative platforms.

Snapchat desperately needs to find a balance between user expectations and advertiser needs before content creators and advertisers abandon the platform. Ovum sees huge potential in Snapchat's media and advertising offerings, but its long-term success will depend on how quickly it can find a way to please both users and advertisers. And the key question is this: When users are so fickle, is a balance between the two even possible?

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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