By now, Facebook (NASDAQ: FB) and Google (NASDAQ: GOOGL) are well-established as the must-buy platforms for digital advertising. But as Snapchat grows in popularity, especially among millennials and Gen Z, it will become a more important part of the landscape, say industry insiders.
But for now, the startup — which was valued as high as $22.7 billion in late May , according to TechCrunch — still has a way to go. (Snapchat declined to comment on the valuation.)
While advertising industry insiders think Snapchat has the potential to become a big force, it needs to improve in several areas, particularly targeting and increasing its usage across all demographics. And with news that over half of new users in the U.S. are 25 or older and partnerships with measurement firms like Moat, it's making steps in the right direction.
Brands aren't seeing Snapchat as a merely experimental buy anymore, but it's still far from being one of the main players. Several agency insiders said that Snapchat only makes up 2 to 4 percent of the total digital ad budget at most. Another source added that it can be as high as 15 to 18 percent for brands focused on younger consumers, but admitted it's not at that level for all marketers.
While companies are spending more on advertising on Snapchat, it isn't coming at the expense of other digital platforms like Facebook. Rather, it's coming from other media, like print and television, said sources. EMarketer projects that digital ad spend will reach $68.82 billion this year, and will surpass TV next year.
Snapchat says it has more than 100 million daily active users, most of them under 35. On any given day, Nielsen reported that Snapchat reaches 41 percent of U.S. 18 to 34-year-olds on a given day.
Marketing agency The Marketing Arm (NYSE: OMC)'s Jake Schneider said it's seeing an increase of older millennial and Gen Xers adopt the platform. In response, more brands that skew towards those demographics are asking about Snapchat.
"It isn't a question of being on Snapchat anymore," said Schneider, director of digital strategy and innovation at The Marketing Arm. "It's how do we join this community and connect with it in an authentic way."
Another part of Snapchat's appeal to brands is that it is a messaging app , as opposed to a social media platform like Facebook or Twitter or a video-based platform like YouTube. Users incorporate advertising content into their creations, instead of seeing traditional posts or items created by brands. Marketers can sponsor picture filters (called "Lenses") or Live stories. Then, users snap pictures using branded assets or submit their own stories to brand channels.
Because they are created by users themselves and are of the moment, Snapchat's ads can resonate more, said Lindsay Sutton, vice president and group director for social strategy at DigitasLBi. A study released on Thursday by MediaScience of 320 people over 552 sessions showed that people paid twice as much attention to Snapchat video ads over Facebook ads. The report also claimed that Snapchat video ads made people want to purchase products more than twice as much as ads on Facebook, Instagram, YouTube and TV.
"As a brand you are able to create some unique experiences in that story that they cannot see anywhere else," she said.
This doesn't mean that Facebook is becoming irrelevant, Sutton pointed out. For one thing, it still maintains a massive user base of 1.09 billion active daily users. Instagram on its own has 400 million monthly active users. Targeting is still limited for Snapchat, especially when you want to reach people worldwide, Sutton said.
"Facebook is a giant when you think of consumer behavior," said Sutton. "Yes, the young adult consumer may be more drawn to Snapchat, but when you think of advertiser dollars it is still going to Facebook because of that global reach."
In addition, creating ads for Snapchat can be expensive. Outside of its advertising rates, making ads for the platform often involves creating items like filters that can't be reused elsewhere.
And, Facebook could become a competitor. The Marketing Arm's Schneider adds that Facebook has messaging properties that it has yet to open up to advertising. It purchased Masquerade in march, which gives it Snapchat-like picture filter abilities. It's also in the processes of getting more users to use its Messenger app.
Snapchat's biggest problem for now is the lack of widespread use across demographics, according to Tribal Worldwide North American president Richard Guest. He believes most of the advertiser interest in Snapchat is being fueled by press mentions, not because brand executives are using the platform.
Facebook, on the other hand, really boomed after company leaders began using it in their daily lives, he pointed out. Until Snapchat gets there, he believes it will have a hard time becoming a top digital advertising power.
"A lot of our clients from an agency perspective aren't Snapchat users," Guest said,. "They don't understand how it works. It still suffers from the misconceived perceptions of what people were doing on Snapchat a few years ago. People don't appreciate the richness of content that can exist on the platform."
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