Social Media

As Snap gets ready for IPO, here's what advertisers say it has going for it

Snapchat preps for IPO: What investors should be watching
Snapchat preps for IPO: What investors should be watching

Social media wunderkind Snap is expected to go public and raise billions in early 2017 in what could be the highest-profile tech IPO of the year.

But in a market dominated by Facebook and Google, does the Snapchat parent really have what it takes to be a digital advertising leader?

Snap is not likely to dominate ad budgets anytime soon. According to multiple ad advertising agencies, the company currently accounts for 2 to 4 percent of total digital advertising budgets, while Google and Facebook get up to 75 to 85 percent.

And while eMarketer is projecting Snapchat will rake in almost $1 billion in ad money this year, it still comes in tied for 14th on the list of top global digital advertising revenue leaders.

However, brands are increasingly interested in Snapchat ads, agencies say. For some youth-facing brands, Snapchat's percentage of the advertising budget already reaches double digits.

"Snapchat just needs time," said Mike Lobikis, head of sales for integrated production company Tool of North America. "A year ago, they were a punchline for sexting and known for sending stuff you want to disappear. Now ... it's a massive pivot and growth story in a short period of time."

Here's what advertisers say Snap has going for it.

It's got a young user base that's highly engaged.

Snap says it has 150 million daily active users, and not all of them are teens. The largest demographic of DAUs is 18 to 24 years old (32 percent), followed by 25 to 34 (28 percent). More than half of new U.S. users are over age 25. (Twenty-one percent are 13 to 17, while 20 percent of users are 35 and over.) Still, while Snapchat has surpassed 10-year-old Twitter in daily active users, Facebook is still far ahead with 1.18 billion DAUs, while Facebook-owned Instagram has 500 million.

Snap users watch more than 10 billion videos per day, up over 350 percent in the last year. In the key North American advertising market, Snapchat has 60 million DAUs as of September. It reaches 41 percent of all 18-to-34-year-olds in the U.S., according to Nielsen research commissioned by Snapchat.

"Advertisers want to go where the eyeballs are," Lobikis said. "Snapchat has done that in a unique way by capturing the way people are consuming media right now."

It's something different

Snapchat's content is more casual. It allows users to be more creative with their posts, whether that's drawing on a picture, adding a special filter or placing stickers to personalize a message.

"It's more real or raw, and less of that manufactured and curated life that you see on Facebook and Instagram," said Zack Green, communications planner at advertising agency BBH NY.

Even though the Facebook-owned Instagram has been adding Snapchat-like disappearing photo and video options on its Instagram Stories feature, people are not accustomed to using Instagram in that way, agency experts say.

"The mindset of how you are creating content on Facebook or Instagram is that you are curating content, like 'This is my vacation photo,'" said David Eisenman, co-founder and CEO of advertising agency Madwell. "With Snapchat, you know this will exist for a moment and go away. You are much more uninhibited."

Another positive for the company: Even though Snapchat allows public posts, much of the communication is one on one. This theoretically will allow it to keep its "cool" factor, even if more older users join the platform — a development that can be worrisome for youth-focused social media companies.

Some of the company's products, like Spectacles — sunglasses that can send snaps — could also have particular appeal to a post-device generation.

"Spectacles are going to be a big deal because it removes clicks and you don't have to take your phone out," said Charlie Fiordalis, chief digital officer of media agency Media Storm. "With this next generation (Gen Z) we're going to see a common trend — a backlash of not wanting to live your life with your phone in your face."

It's very mobile friendly, especially when it comes to ads

Snapchat's ads are mobile-only, making it drastically different from what's offered on other online platforms. With the mobile ad industry expected to reach more than $40 billion in 2017 according to BIA/Kelsey, the company is well-positioned to take advantage.

Many brands tout the effectiveness of its lenses — digital mask effects that users can put on their photos and videos. (Facebook doesn't offer these effects yet, but it bought digital filter company Masquerade, which offers similar editing effects, in March.)

Snapchat also has Geofilters, graphic banners that let users show where they are when they are snapping. The company also offers traditional video ads that go in between Snapchat stories and user snaps. However, the videos are vertical rather than traditional horizontal, making them more mobile friendly.

People seem to actually like their ads

Users play around with Snapchat's branded lenses for an average of 20 seconds, a level of engagement advertisers on other platforms could only wish for. Also, two-thirds of videos, which include some ads, are watched with sound on — another metric advertisers love.

A MediaScience Lab study showed people spent 2x as much time viewing ads on Snapchat as they did on Facebook, 1.5x more than Instagram, and 1.3x more than YouTube.

The MediaScience study also found that Snapchat increased purchase intent more than two times compared with Facebook, YouTube, Instagram and TV. A study by Oracle Data Cloud also found that 92 percent of Snapchat ad campaigns showed a positive effect on offline sales.