Snapchat's ad rates drop as brands find problems

When Snapchat first offered ads on its platform in January 2015, it was asking brands to pay a minimum of $750,000 for a one-day ad, said several sources who purchase advertising from the company.

Today, however, is a different story.

Prices have dropped far below that, to levels starting at $50,000 — and one media buyer said there is wiggle room to go below that threshold. Another source said that Snapchat gave them an ad for free, just because the team liked their idea.

To be sure, Snapchat has more product offerings for advertisers now than when it launched ads — including traditional video ads that play in between content, sponsorship of their community-led "Live Stories" and branded filters, which are effects that you can put on your photos and videos. Multiple sources also said that the company has hinted it will be adding brand-owned Snapchat Discover stories in the future.

That said, the price reductions are real. For example, the first ad product the company offered was a 30-second video ad called a "Brand Story," which cost a minimum of $750,000. Today, advertisers say getting inside a "Live Story" runs about $250,000. They added that a "takeover" of a Snapchat Discover publisher channel can be had for $50,000.

Snapchat denied claims ad prices were cut, but chalked the price changes to the addition of different kinds of ad units to allow for smaller and larger ad campaigns.

Some argued that Snapchat's drastic reduction in price was mostly because initial rates were far above the industry norms, saying the company was hoping to attract executives at brands who wanted to be first to advertise on any buzzed-about technology platform for bragging rights. Most social media platforms debut ads at a high rate for that reason, the sources said. In any case, it has made some of the advertising agency community hesitant to pay for advertising on Snapchat, unless their clients insisted upon it.

But most of the sources agreed that there were troubling aspects of Snapchat's advertising offerings. For one thing, the platform offered limited data on its users — besides how many people opened its ad and basic information on age and geographic location. It also did not guarantee a minimum number of users who would see that ad. All of which makes it hard to prove return on investment, especially given the high prices.

The informative data have become industry standards for companies like Facebook, Google and Twitter, who also offer much more detailed information on the kinds of people viewing ads, including household income, occupation and previous content they looked at. Those social media outlets are also more capable of targeting a brand's customers. While Facebook, Instagram, YouTube and Twitter are must-buy ads for anyone trying to do digital media marketing, many said Snapchat remains a supplemental buy only if budget allows for experimentation.

The other problem is that Snapchat's young audience isn't desirable for many brands, several sources contended. The majority of users are under the age of 25, and although their older millennial (25 to 35) base is growing, it doesn't have the same concentration levels as Facebook, YouTube and Twitter.

Add to that the fact that creating advertising for Snapchat involves vertical video and a different style of video ad, which means that companies would have to allocate additional resources and funds for something that often could not be reused elsewhere online.

Multiple people also claimed that not many users were seeing the ads. Many companies place ads in between the stories on Snapchat Discover — the company's publisher-led content platform that lets media companies post their own content — and one media buyer said that people were only looking at an average of four to five seconds of the standard 10-second ad because they were easily skippable. (Forty-four percent of users used Snapchat Discover, one media agency was told.)

Another issue that was raised by two media agencies was that Snapchat's sales team was mostly made up of older people — meaning nonmillennials — who didn't understand how it worked, and in one case, had to be "trained" by the agency themselves.

That being said, sources claimed Snapchat was still a valid platform for advertising — as long as you didn't have to pay for it. Many said they were seeing greater success with making free brand-owned accounts, and posting their own content or hiring popular Snapchat users to post brand-sponsored content. One brand said that leading brand-created content using the free accounts' snaps could get more than 115,000 views during high-profile moments, while another said it was seeing more than 40,000 views during peak events.

One source noted that part of the issue was that Snapchat was more effective if brands thought about it as a messaging platform like text messaging, instead of a social media outlet. They said that any forms of "traditional" advertising like its video ads would not work on its young millennial user base, which is highly skeptical of advertising.

To be fair, before Facebook launched its ad platform, many companies were also finding advertising success by creating their own free, brand-owned pages. Many sources believed that there was potential for Snapchat to develop into a mature platform in the future, but it was nowhere near that right now.

UPDATE: The story has been updated to reflect comment and clarification from Snapchat. The original story stated that the sponsored "Live Story" cost $750,000 when advertising launched, but it was actually the "Brand Story" video ad. This version also reflects additional current ad prices from multiple sources.