If you look at Snapchat’s current revenue growth–from $58.7 million in December 2015 to $404.5 million just one year later–you’d have no idea this company wasn’t sure how to make money off their platform when they first started building it.

The biggest news right now is that Snapchat is rolling out their Ads API and going public.

But are Snapchat ads the best place for a brand to invest their time and money?

Or will they fade in the face of increased competition from Instagram and Facebook?

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There are a few things to consider before answering that question. Today, we’ll cover:

  • Who Will Snapchat Ads Target?
  • What Will Snapchat Ads Look Like?
  • What Makes Snapchat Ads Different?
  • Will Snapchat Ads Drive Conversions?

 

Let’s get started.

Who Will Snapchat Ads Target?

If you still think Snapchat’s biggest users are tweens and teens, it’s time for a refresh.

According to Mediakix, over 50% of new Snapchat adopters are over the age of 25.

Here are a few other key stats about the audience using Snapchat, from a 2016 Medikix infographic:

snapchat ads in america

 

This young audience is mobile-obsessed, but interestingly, Snapchat’s initial ad strategy was driven by something just the opposite–TV advertising spots.

The Snapchat team also believes that TV and desktop ad budgets will shift toward mobile ads as more and more people quit watching traditional TV.

Here’s a quote from their S-1 filing:

We believe that our community enjoyed video advertising on television the most because it was part of the experience, especially when the advertisements were funny, creative, and entertaining…We wanted to figure out how to capture the entertainment and creativity of television advertisements that made them so engaging, and make video advertising part of the fun of watching Stories.

What about the location of their users? Many North Americans don’t seem aware that the majority of the world hasn’t adopted Snapchat like Facebook.

 

screenshot-www.sec.gov 2017-02-06 13-41-54

 

Snapchat is limited not just by their required bandwidth and speed, but also by regulations, particularly in China.

Snapchat’s user base is about 160 million monthly users, mainly concentrated in North America.

Instagram sees almost double that number of active users in one day (300m daily, 500m monthly), and 80% of them come from countries outside the U.S.

International Business Times estimates Instagram brought in $1.53 billion in global mobile ad revenue in 2016. And let’s not even get started comparing that with Facebook’s global numbers.

This is where Snapchat really falls short–their ability to reach a global market. And if they don’t figure out how to reach outside countries and further differentiate from Facebook-owned apps, it could be their downfall.

What Will Snapchat Ads Look Like?

Snapchat started testing their ads API in summer 2016 with select brands, partners, and creative partners.

Their first ads, however, actually ran before that–in October 2014. The two formats Snapchat used were:

  • Brand Story (20 seconds of advertiser photo and video content)
  • Snapchat Our Stories (“brought to you by…” placement)

 

An initial assessment by Millward Brown that asked Snapchat users to rate these formats. About 60% of “Our Stories” viewers and 44% fans of “Brand Stories” responded positively, saying they enjoyed these ads.

That’s 3x more positive than the average for other smartphone ads, and it didn’t just affect viewer emotions–some viewers were actually more likely to make a purchase from a brand with a Brand Story, and overall ad awareness went up. Promising.

However, they didn’t just stick with those formats.

New Snapchat Ad Formats

Today, according to Snapchat’s S-1 Filing, Snapchat Ads include the following:

  • Sponsored Creative Tools
    • Sponsored Lenses
    • Sponsored Geofilters

 

snapchat ad geofilter exampl

Example of Snapchat Geofilter (credit: Snapchat)

 

 

  • Snap Ads with Attachments
    • Vertical full-screen video advertisements in traditional Snap format
    • Shown in Stories
    • Can feature interactive attachments

 

snapchat ad example full screen

Example of full-screen Snapchat Ad (credit: Snapchat)

 

Here’s where these types of full-screen Snapchat Ads appear (taken from Snapchat’s S-1 Filing):

screenshot-www.sec.gov 2017-02-06 13-57-38

Snap Ad Placement in Stories (credit: Snapchat S-1 Filing)

 

What Makes Snapchat Ads Different?

Snapchat doesn’t want to interrupt their users with boring content or worse, gate user content with ads.

They’re about reducing ad friction. It’s why they don’t use pre-roll, and also why they make their ads skippable.

Here’s how Snapchat describes their methodology for ad placements:

We believe that placement and choice are extremely important when it comes to an advertising product as engaging as Snap Ads. We approached this by following existing user behavior in Stories and decided to show Snap Ads in Stories. This means that people only see Snap Ads when they have already chosen to watch a series of full-screen videos with sound.

 

This takes us to the first big reason why Snapchat Ads are different.

Snapchat Advertisers Can Take Advantage of Sound

While 85% of Facebook videos are watched on mute, 60% of Snap Ads are watched with audio on.

While many advertisers on Facebook have adapted and added captions, Snap sound is considered an integral component of the experience. Here’s why, Snapchat says:

Creating and watching Snaps with sound is a more engaging and expressive experience than if the Snaps were muted. Just imagine watching a horror movie without a soundtrack—it might look like a comedy. That’s why we play Snap Ads with sound, unless a user has muted their device.

While Facebook users react negatively to auto-play videos with loud music, Snapchat users seem to expect and even welcome sound on Snapchat.

snapchat ads turbotax filter

Turboxtax Sponsored Lense Ad on Snapchat

 

However, this shouldn’t be abused.

Snapchat users may expect sound, but they’re expecting to hear voices of their friends and celebrities on snaps–not necessarily the soundtrack to an action flick.

When you use sound on Snapchat Ads, make sure it’s integral to the ad–not just an ad on to get people’s attention.

Snapchat Ads are Skippable

Snapchat’s ad success relies heavily not just the placement of the ads, but also the entertainment factor.

Snapchat’s modeling their advertising campaigns more around lighthearted entertaining television ads–think Superbowl ads. They’re avoiding pre-roll and in-feed horizontal ads.

While Facebook and Instagram video watchers can scroll right on down the feed if they don’t like what they see, Snapchat users are subjected to ads between stories. Therefore, if your ad is not immediately captivating to the user, you’ll know–they’ll likely skip it.

Snapchat says the skippability of their ads is positive because it provides a better user experience and protects your brand from being “associated with a forced interaction.”

The bottom line? Film ads specifically for Snapchat–don’t just try to convert your TV video campaign to the right dimensions for Snapchat. Make something unique and irresistible.

Snapchat Ads are Actionable

Snapchat claims 60% of users employ Creative Tools such as geofilters every day, which is great news for brands that choose to invest in those types of ads.

Sponsored Geofilters and Lenses have their own brand awareness appeal, but right now, full-screen Snap Ad Videos have the most potential for driving online conversions.

These types of ads can be very tailored to the context of the content they’re in–unlike traditional ads, which are frequently a break from the content itself. In addition, the ad “attachments” could be huge drivers of real-time conversions.

Attachments enable a user to respond to an ad without leaving the Snapchat app. Here are the different options:

 

screenshot-www.sec.gov 2017-02-06 15-05-18

Snap Ad Attachments (credit: Snapchat S-1 Filing)

  • Long-form video
  • Article
  • App Install
  • Web View

 

More on the conversion power of Snapchat ads later.

Snapchat Ad Rates

Here are the tiers for Snapchat Ad Rates, according to Wallaroommedia. Keep in mind these numbers are simply estimates, are subject to change, and may vary wildly depending on the campaign.

Sponsored Lenses (estimate)

  • $450,000 Sunday – Thursday
  • $500,000 Friday – Saturday
  • $700,000+ holidays or special events

Nationwide Sponsored Geofilters (estimate)

  • 1/5 cost of Sponsored Lenses

Sponsored Local Geofilters (estimate)

  • $5+ (higher for special events)

Snap Ads (estimate)

  • $10,000/month

 

Snapchat’s ad prices have fluctuated quite a bit since 2014, but currently, but prices may drop slightly more now that third-party technology companies and agencies are at the helm for multiple brands.

According to an agency executive quoted by Digiday, “Snapchat…is getting rid of high minimums so brands can experiment in ways they haven’t been able to yet.”

Will Snapchat Ads Drive Ecommerce Conversions?

As we mentioned before, Snapchat ads can drive actionable ecommerce conversions with attachments.

However, CPC experts believe that the ability to match 1st party data on the platform will drive the biggest return for brands.

nii

Nii Ahene, COO and Co-Founder of CPC Strategy

 

“If we look back at what’s been effective for Facebook, big-brand demographic media buys aren’t effective,” says Nii Ahene, COO and Co-Founder of CPC Strategy. “It’s being able to use your 1st party data to see who matches against that data on that platform. I see potential for Snapchat to be a place to re-engage consumers who have interacted with your brand in the past.”

Brands attempting to use Facebook ads in the early days ran into the same challenges without the ability to target an audience based on existing CRM data.

The main appeal in this type of marketing, according to Ahene, isn’t just to drive sales.

It’s also to engage and delight customers in a place they may not expect.

Another huge advantage Facebook advertisers now enjoy is the ability to create Lookalike Audiences based on 1st party CRM data.

Unfortunately, it may be harder for Snapchat to replicate Lookalike Audiences, even if they do offer customer matching.

lookalike

“Facebook sees where its users are all over the web because their “like”, “share”, and “log in via Facebook” buttons are everywhere [on the web and in apps], unlike Snapchat,” says Ahene. “I’m less bullish on Snapchat’s ability to create solid Lookalike audiences, but that remains to be seen.”

Another potential benefit for omnichannel brands may be Snapchat’s documented ability to drive in-store visits–one Sponsored Geofilter for Wendys reportedly drove over 42,000 incremental people to a Wendy’s location within seven days of viewing the filter.

“Right now [Sponsored] Geofilters are a strong driver of brand consideration due to their novelty, but it remains to be seen if the effectiveness of this technique will remain after users are bombarded with filter after filter once the ad API opens up,” says Ahene.

Snapchat’s Future & Current Competition

Why is Snapchat focusing on growing ads right now?

Well, for one thing, Snapchat just went public and filed for an IPO.

Snapchat needs to show revenue growth in order to be a sustainable public company, and their hopeful solution was to create an ad marketplace just like Facebook.

Speaking of Facebook, the company already owns Facebook Messenger, Instagram, and WhatsApp, which are among the top-used apps in the US.

And since they couldn’t buy out Snapchat for $3 billion in 2014, they’re incorporating Snapchat features into their already-popular core apps.

“Everyone has the same amount of time, whether you’re rich or poor,” points out Ahene. “When you’re on your phone you can’t use two apps at once. Snapchat has been taking user time away from the other apps that Facebook owns, so Facebook’s taking it back. Active users are important because as long as people maintain their time on Facebook apps, Facebook can monetize that exposure.”

The bottom line? The biggest factor in Snapchat’s ad success will be whether they can grow their audience.

This requires that they overcome global obstacles (a.k.a regulations). It also means they must continually evolve to offer something different than the Instagrams and Facebooks out there.

Unfortunately, Snapchat’s going to need to come up with more than just a new flower crown filter to make this work.

 

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About the AuthorLeanna graduated from Fairleigh Dickinson University (NJ) in 2012 with a BA in Creative Writing and lived in NYC for two years. In 2014, she returned to her home state of California where she enjoys eating too many fish tacos, skipping winter, and writing quality web content for CPC Strategy. Follow her on Twitter @slylikeasmeagol. See all posts by this author here.