Advertisers are finding fewer reasons to spend on Snapchat.<\/p>\n
The ad dollars (or lack thereof) Snapchat raked in over the holiday season makes this all too clear.\u00a0<\/p>\n
Ad revenue over the fourth quarter was flat compared to the same period the year prior. This was the slowest rate of growth since the mobile app floated onto the stock exchange in 2017.\u00a0 And the slump looks set to continue for a while yet.<\/p>\n
That\u2019s according to Snapchat\u2019s own forecast, which warned ad revenue could drop by as much as 10% over the first three months of the year.<\/p>\n
This protracted slowdown makes sense, considering Snapchat\u2019s business problems. Among them are layoffs, axed initiatives like Snap Originals, the loss of its longtime ad boss and Apple snuffing out its ability to give advertisers effective targeting and measurement.<\/p>\n
Whether advertisers are willing to see how all these issues shake out is anyone\u2019s guess. As it stands, it doesn\u2019t look like they are.<\/p>\n
Take the clients at The Social Standard, for instance. They haven\u2019t inquired about influencer campaigns or paid advertising on Snapchat in over 12 months, said the company\u2019s founder and CEO Jess Philips.<\/p>\n
\u201cThat\u2019s incredibly telling to us,\u201d said Philips. \u201cCoupled with the banner ads on the platform\u2019s business site pushing discounts, as a public company I think the writing is on the wall.\u201d<\/p>\n
The implication here is that Snapchat\u2019s limitations are finally catching up to the company \u2014 at least in the eyes of marketers<\/a>. As Craig Brown, SVP of strategy at digital agency Incubeta U.S., explained, \u201cSnap tends to only be included if it was being used prior to TikTok\u2019s growth, and isn\u2019t a platform that is ever pushed by clients, or asked about by CEOs as \u2018are we missing out?’\u201d<\/p>\n While it may be too soon to count out Snapchat\u2019s ads business entirely, rewiring it into something more appealing to advertisers won\u2019t be easy \u2014 especially when so many marketers aren\u2019t advertising much there in the first place.<\/p>\n This was certainly the case for the advertisers who employ ad agency Blue Wheel. In the fourth quarter, ad spending on Snapchat rose just 3% compared to the previous quarter, and only 7% on the same period a year ago.\u00a0<\/p>\n For context, ad spending on TikTok was a lot higher over a similar period for a number of agencies. The disparity between the two platforms looks set to stretch on well into the year.<\/p>\n \u201cSnapchat spend will slow down initially to start 2023, as brands cut budgets and become efficiency focused,\u201d said Eitan Reshef, CEO of Blue Wheel. \u201cSnap will be out because again, it\u2019s more top of the funnel focused, rather than a profitable conversion channel for many.\u201d<\/p>\n The point is that top of the funnel marketing tends to be bottom of the pile for many advertisers in a downturn, when brand building often takes a backseat to more immediate goals. That\u2019s a tough sell for any media owner, even before considering Snapchat\u2019s problems. And it gets tougher still because even if there were marketers chomping at the bit to advertise on the app, there\u2019s a chance they\u2019d be put off by the price.\u00a0<\/p>\n Granted, Snapchat\u2019s ad prices are not extortionate in the current wave of media inflation. For instance, in the third quarter, the cost to buy 1,000 impressions of ad inventory on Snapchat was 30% compared to Meta for the average advertiser, per agency Tinuiti. But Snapchat\u2019s ads aren\u2019t cheap either \u2014 at least not when compared to other platforms. Indeed, the same number of impressions on TikTok are 42% cheaper than Meta.<\/p>\n Put another way: It\u2019s cheaper to advertise on TikTok than it is to do so on Snapchat \u2014 something marketers will be watching closely. Indeed, in the midst of a downturn, they\u2019re more sensitive than normal to ad prices. This explains \u2014 at least partly \u2014 why marketers are taking money they would\u2019ve spent on Snapchat<\/a> to spend with TikTok.<\/p>\n \u201cTiktok has almost completely replaced Snapchat as the preferred medium to reach Gen Z for our clients,\u201d said Ellen Prinzi, vp of client service and innovation at entertainment marketing agency FlyteVu. \u201cThe app\u2019s growing popularity has created \u2018pressure\u2019 on brands to have a TikTok strategy. Another plus is that TikTok has a sleek and easy-to-use ad platform that\u2019s only improving.\u201d<\/p>\n But there\u2019s only so much Snapchat can do to manage this slowdown in the near-term. Not least because it has more ads than ever to sell at a time when demand for them is the weakest it\u2019s been in a while. In the fourth quarter, the volume of ad impressions it could sell rose by 8% versus the year prior, but the company saw a 9% decline in the cost per thousand impressions.\u00a0<\/p>\n \u201cFrom our recent conversations with our partners it seems like advertising demand hasn\u2019t improved but it hasn\u2019t got significantly worse either,\u201d said Snap\u2019s CEO Evan Spiegel during the company\u2019s earnings call. \u201cThe brand spend has significantly reduced like we saw in the fourth quarter but our direct response business continues to grow in the fourth quarter. In general it seems like our partners are managing their spending more cautiously so that they can react quickly to any changes in the environment.\u201d<\/p>\n As grim as the cloud is over Snapchat\u2019s prospects, it has some silver linings. Its audience is one. Time spent on the app may have decelerated to 7% in the fourth quarter of last year, per SensorTower, but engagement there continues to be strong. In fact, it\u2019s increased since the fourth quarter of 2019 from 58% to 63% over the same period in 2022.<\/p>\n With that said, there\u2019s no point in having users if you can\u2019t cash in. It\u2019s only a matter of time before Snapchat is under significant pressure to kickstart its stuttering ads business.<\/p>\n So far, there have been glimpses of what this plan could look like, from Spotlight to the innovation on augmented reality. More needs to be done, however. The narrative around the ads business in marketing circles borders on apathy<\/a> at times. Worse still, is that Snapchat\u2019s pitch to the market doesn\u2019t seem to have been able to counter this growing indifference.<\/p>\n As far as Baruch Labunski, CEO of Rank Secure, is aware, Snapchat hasn\u2019t done much about changing its pitch or developing new products. In his view, that is a mistake, as the platform should pitch to more businesses or target audiences that would spend money on products being advertised.<\/p>\n It\u2019s a point that gets to the root of one of the key problems with Snapchat\u2019s ads business: It doesn\u2019t offer much variety. A large chunk (90%) of its ad revenue is anchored in the Commercials and Snap Ads served in the Stories and Discover formats, according to New Street Research. Now might be a time for Snapchat to look at ways to diversify its ad revenue.<\/p>\n The platform already took the first leap toward doing so by launching its subscription model, Snapchat+, in August 2022. But as Brown pointed out, the launch indicated that Snap is struggling to find ways to expand its advertising business.<\/p>\n \u201cBy being resistant to change and not evolving like other platforms, Snapchat has a long way to go in becoming competitive amongst other ad revenue strategies,\u201d added Alex Payne, founder of Room Unlocked.<\/p>\n<\/div>\nSnap\u2019s uncertain future<\/h2>\n