UPDATE: Why the Snapchat IPO matters to marketers

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Snap’s stock took off after its late morning debut, with the value shooting up more than 46% to hover around $25 per share.

Snapchat parent Snap Inc.’s highly anticipated debut on the New York Stock Exchange today is getting a lot of attention but, no matter how the stock performs, there are still a lot of questions about the company’s future that marketers will be looking to have answered in the months ahead.

Much of the marketing industry is hoping the initial public offering will be a success, if only because marketers desire a more competitive digital media landscape than the current one, which is overwhelmingly dominated by Google and Facebook. At Mobile World Congress in Barcelona this week, WPP CEO Martin Sorrell said his group wants a more balanced marketplace for the sake of its clients, and that Snapchat could be that desired third force, according to a report from Adweek.

Snapchat also has the potential, with its unique user interface and mix of media, to crack open what is perceived as latent opportunity to engage mobile users and for leveraging augmented reality. According to Adaptly, 65% of Snapchat’s 150 million daily users are creating photos and videos and spending an average of 25 to 30 minutes in-app every day.

“Each social network delivers a unique value proposition and caters to a different audience,” Jessica Liu, senior analyst, B2C marketing, at Forrester told Marketing Dive.

“Snapchat will aim to attract publisher and network partnerships that serve their positioning and their user base,” she said, noting that Snap’s users are distinctly young and focused on short-form content. “It’s not a ‘zero sum game.’”

Tech darlings

Late yesterday, Snapchat set the price for its IPO at $17 per share, which is higher than previous estimates, pointing to strong demand for the stock. If all goes well, the company is expected to be valued at $24 billion and to raise $3.4 billion, money it is likely to invest in building the platform.

With its quick growth over the past couple of years, Snapchat is following the path of previous tech darlings like Facebook and Twitter, who went public in an attempt to translate their success with mobile consumers into the basis of a broad-reaching digital platform monetized by advertising from big brands.

But Snap could find, like its predecessors did, that the intense scrutiny that comes with being a public company can be difficult. While Facebook weathered grumblings about its monetization potential following its IPO in 2012 to become a dominant force in digital advertising, Twitter has so far not been able to recapture the early excitement around its platform once its limitations manifested.

“Snapchat needs to provide a scalable monetization platform into its service for advertisers.”

— Chris Tolles, CEO of Topix

Snapchat faces some of the same challenges Facebook and Twitter did, including whether or not its co-founder and the face of the company — CEO Evan Spiegel, in this case — is the kind of visionary who can lead it to new heights in the face of headwinds, such as slowing user growth and a maturing landscape.

A few of the challenges and opportunities faced by Snapchat are also unique to the platform, like how the unusual move of only selling non-voting shares will influence the company’s evolution.

Early adopters

Although Snapchat has seen significant growth as a marketing vehicle over the past couple of years, it is still relatively small, pulling in just $404.5 million in revenue last year from Sponsored Lenses and video ads, as compared to Facebook’s $27.6 billion across offerings.

Still, brands who jumped on board quickly have benefited from unique opportunities to get in front of its highly engaged users.

“L’Oreal has done a great job bringing their products to life by adding an element of ‘try before you buy’ through sponsored lenses,” said Hillary Pitts, product strategist at mobile product agency Willow Tree. “L’Oreal has long dabbled with home try-on through augmented reality, so this was a natural next step for them in digital.

“The other brand integration, and one of my personal favorites, that is really memorable is the Taco Bell sponsored Cinco de Mayo lens,” she added. “This lens was playful, timely, and showed proactivity on Taco Bell’s part for meeting their audience on a platform they saw continuing to gain traction.”

Snapchat’s role in marketing could continue to grow if the young consumers who are ardent users remain loyal to the platform as they embark on careers and families and their purchasing power ramps up.

The app could also expand on the back of its successful content strategy, with a consistently growing list of publishers and broadcasters signing on to Discover. Recent research from eMarketer suggests these efforts are helping Snapchat attract older users as well.

Building a better marketing platform

From the beginning, Snapchat has been a difficult platform for marketers. For example, the user experience is unique — offering a mix of media and touch interaction — challenging marketers to figure out ways to engage with users.

In the early days, Snapchat also did not offer many of the services and features that marketers look for. This began to change last fall when Snapchat released an ads API to make it easier for advertisers to automate buying, with nine partners at launch. That API also offers real-time reporting.

Going forward, Snapchat will need to further build out its programmatic capabilities if it is to attract big advertising buys.

“Snapchat needs to provide a scalable monetization platform into its service for advertisers,” said Chris Tolles, CEO of Topix. “Ideally, they toe the line between user experience and revenue that other successful platforms have done such as Facebook and Google.

“Specifically, if Snapchat can provide a programmatic interface for advertisers that can bypass the ad tech morass others are subjected to — much like Facebook has done — they’ll be able to scale their monetization much faster and be able to easily support their initial valuation,” he added.

Snapchat will also need to offer metrics that are independently verified by the Media Ratings Council or another respected organization now that both Google and Facebook have agreed to such audits as pressure grows from marketers like P&G for accreditation to take place. If Snapchat doesn’t follow suit, brands — increasingly frustrated with a lack of transparency in digital media buying — could opt for another platform.

As Snapchat grows, marketers will also look for easier ways to link an ad to an in-store purchase or other real-world activity. This could require Snap to partner with other platforms, something it hasn’t done a lot of so far.

“Snapchat has already proved they can attract big advertisers,” said Willow Tree’s Pitts. “To continue to work with brands of the caliber we’ve seen today, they should focus on proving the business value of allocating spend toward sponsored products.

“ROI measurement based on beacons or geolocation for brick-and-mortar retailers is something I hope to see Snapchat offer post-IPO,” she added.

Beyond the nuts and bolts, it will also be important for Snapchat to make big bets on new and innovative technology and strategies if it is to continue to attract new users and brands.

A new Lens into AR

Where Snap ultimately decides to dedicate its attentions post-IPO will also determine whether it grows to be a digital advertising giant like Facebook or remains relatively niche, as Twitter is. Given the moves the company has been making of late, there are three areas Snap appears focused on that will likely see more R&D in the near future.

While not considered an AR-centric app, Snapchat actually derives much of its distinctness and value from the technology. Marquee features like Lenses leverage AR to offer users and brands virtual overlays of the real-world, greatly enhancing Snapchat’s core video messaging product.

“The biggest opportunity for Snap is to own an outsized percentage of the augmented reality future. The AR space […] will be a platform unto itself.”

— Ophir Tanz, CEO of GumGum

Though Snapchat’s AR offerings have been rudimentary in the past — essentially variations on the selfie filter — Snap has been active in expanding its capabilities to better recognize attributes including landscapes, and is reportedly looking to generate virtual objects that interact with the real world.

Following that, the company also acquired the AR startup Cimaginelate last year. Cimagine has developed a patent-pending, markerless technology that enables smartphone users to scan real-world products without the need of a reference marker.

As competitor platforms including Instagram and Facebook continue to mercilessly crib from Snapchat’s user-facing AR playbook — and steal the app’s users — Snap would do well to tie its AR products closer to something like the retail space, potentially carving out a unique market. It’s not hard to imagine brick-and-mortar stores letting shoppers scan or demo products using Snapchat, especially if it integrates features like what Cimagine has developed.

“The biggest opportunity for Snap is to own an outsized percentage of the augmented reality future. The AR space is going to experience massive growth and will be a platform unto itself,” Ophir Tanz, founder and CEO of the AI firm GumGum, told Marketing Dive in a statement. “If Snap can make its users’ interactions with the world akin to a virtual TV screen in a way that makes Snap the major AR gatekeeper, it will own mindshare and, as a result, brand dollars.”

Bridging TV and social

As video grows to become a dominant medium on mobile, social platforms, Snapchat and others are making bets on premium content to attract more advertising dollars. In the past few months alone, Snap has either brokered or extended a variety of deals with media brands including Disney, NBCUniversal and Turner to produce original video series for the Snapchat Discover portal.

Unfortunately for Snap, it is not alone in extending its video offerings past the user-to-user experience. Facebook, for example, is reportedly eyeing long-form, premium content and recently rolled out a set-top box application for TVs; Twitter plans to double down on its live video offerings this year as well.

Recent research by the firm Fluent also found that the majority of surveyed Snapchat users do not turn to the app to follow news, sports or entertainment. Snapchat’s core content model, which is focused on seconds-long video messages that disappear after 24 hours, also seems an odd fit for longer content.

However, just because the TV-like space is getting crowded doesn’t mean Snapchat’s premium output won’t attract eyeballs. The strength of Snap’s media partnerships — and the fact that the platform continues to attract new ones — signals that the best of what the app has in store is yet to come. And though Snap’s user base is relatively small at just over 150 million DAUs, it has shown to be dedicated.

More than a Spectacle?

When Snapchat officially rebranded as Snap Inc. in late September last year, it also introduced its first piece of hardware: the wearable sunglass-like Spectacles, which CEO Evan Spiegel referred to as a “toy” at the time.

Spectacles initially saw a limited rollout via vending machine bots, but they’re now widely available for sale online in the U.S., suggesting they might become more of staple product than a one-off novelty, as originally implied.

Reports also suggest that Snap has been dabbling in everything from constructing drones to 360-degree cameras. As Snap hammers home the idea that its a “camera company” first and foremost, it’s not difficult to see more Snap-branded hardware arriving post-IPO.

“[Snap’s] already shown that marketers don’t have to feel confined to traditional placements […] continuing to lead in this space will expand the opportunities for more engaging brand experiences.”

— Hillary Pitts, Product Strategist at Willow Tree

The problem with hardware is that it rarely catches on with consumers. While Spectacles are hot at the moment, they also recall wearable flubs like Google Glass, which screamed potential but ended up being clunky or off-putting for end users.

However, if Snap is able to successfully create its own hardware system and keep users within it, it will have accomplished something no one else in the social space — and, indeed, few tech companies outside of Apple — have been able to.

“I’d love to see Snapchat continue to innovate and add more sponsored products to their offering,” said Willow Tree’s Pitts. “They’ve already shown that marketers don’t have to feel confined to traditional placements, and continuing to lead in this space will expand the opportunities for more engaging brand experiences.”

The original article can be found on MarketingDIVE.