The Fiksu Blog

Snapchat’s app install gap

Snapchat

With 100,000,000 daily active users, 8 billion daily video views, 9,000 snaps shared per second and, according to eMarketer, nearly 71 percent of its users in the coveted millennial demographic (age 18-34), it’s no wonder Snapchat’s star is growing more brilliant by the second. Their simple interface presents brand advertisers with an elegantly designed new video medium to attract mobile eyeballs at a massive scale. This has proven especially beneficial as advertisers look to reach audiences that have shifted from television to mobile in recent years. It is a way for an ad to appear, and be viewed, in a frictionless environment where the user is exposed to the content without having to interact (beyond the initial swipe). But there’s one thing that Snapchat hasn’t figured out just yet — while this format works great for widely-targeted brand advertising, the real power of mobile is in targeting specific groups of users, especially for performance-based campaigns such as app install advertising.

It’s been just over a month since Snapchat started offering app install ads in a move to demonstrate it can compete with the likes of Facebook and Twitter, particularly when it comes to data that maps to performance results. But how will app install ads play in an environment that’s not built for them? How does Snapchat’s strategy need to differ from the path Facebook took, and what will app install ads mean for its future stardom?

Learning from the Best

Not unlike Snapchat, Facebook didn’t take the direct route into the app install ad market. Facebook was, at first, resistant to go down the app path and was focused squarely on monetizing through the mobile web. Over time, though, Facebook found the mobile app install unit: a better match for the app-focused, identifier-focused mobile app environment, and full of targeting potential. They guessed, rightly, that highly-targeted app install ads would be a premium product.

So how did Facebook grow its mobile ad practice to fuel 80 percent of its revenue stream? It began with a significant, but necessary, change in their advertising structure. After struggling with low stock prices, post-IPO— likely due to the fact that they had no ad revenue from mobile —they made the change and turned those mobile eyeballs and fans into opportunities for developers looking to gain visibility for their apps with targeted audiences.

The key to Facebook’s success with app install ads was putting data to work to help with precision targets for ads. Specifically, app usage data. Not the demographics, not the interests and likes: rather, specific information on the apps people use, which is the single best predictor of what apps an individual will download and use. Of course, Facebook didn’t have much of that data when they first launched their app ads, so they had to use other data—and that showed in the results, which weren’t particularly impressive at first. But as they built up more data on app install patterns, their accuracy got better and better, making the product increasingly effective.

Facebook also realized that for this strategy to really pay off, they needed to work more closely with developers to give them the tools to create ads and promote their apps within the Facebook mobile environment. They created a partner program for tracking and ad management to take advantage of capabilities that already existed in the ecosystem.

With the new ad unit and partner ecosystem in place, Facebook opened the floodgates of profits from app install ads. Once that took off, they then capitalized on the network they created and built the Facebook Audience Network that took revenues to the next level by selling even more targeted ads in other apps outside of Facebook, and were able to capitalize on that data on as well.

Today Facebook has potentially the greatest database of app usage of any company and over 3 million active advertisers have bought in. Snapchat finds itself in this shadow that Facebook has built, but with the same opportunity to pivot and capitalize on the data available to it.

Snapchat’s Opportunity to Win

Snapchat doesn’t have to worry about making the wrong bet on mobile web vs. native app, as they’ve been app-focused from the beginning. Today’s data shows that 87 percent of time spent in mobile is in-app (and, corresponding advertising dollars follow.) However Snapchat will have an uphill battle when it comes to getting into the app install ads game after their early bets on brand advertising. Like Facebook, they need to understand the opportunity in front of them and determine the best strategy for gathering the pertinent user data. This means both data they have access to now as well as the data they don’t currently have access to. Once they have the data at their disposal, they need to create a way to track and manage it and ultimately put a value on the ads they offer.

Can Snapchat learn from Facebook’s success and develop a way to accurately target their ads to the right audiences? Will this allow them to move into a revenue-generating leadership position among social networks and become the next role model for those that come after? If they’re following Facebook’s lead, it’ll depend on their ability to put data to work on behalf of their advertisers.

This type of data is hard to come by. Even other mobile leaders like Twitter don’t have depth here, which is one reason their app advertising performance has been markedly lower than Facebook’s. Snapchat is likely very aware of the challenge ahead, and perhaps this is the catalyst behind their recent hiring of former Facebook Audience Network executive Sriram Krishnan. Hiring someone with this kind of experience could help Snapchat navigate the transition.

Snapchat’s branded video ads present a fantastic and unique opportunity to engage with brand fans in the streams where they’re already spending all their time. That said, while mega brands can afford, and have paid, hundreds of thousands for a day of disappearing ads on Snapchat, ad rates have reportedly dropped recently to levels starting at $50K. Despite falling rates, it’s still not a feasible outlet for all advertisers, especially smaller ones that require performance metrics for success. If Snapchat could target the right audiences AND demonstrate how its ads are performing — so advertisers can leverage that data to build on campaign success to do more of what’s working and less of what’s not —it will have found the new holy grail of app advertising that would appeal to both groups.

Beyond App Install Ads for Snapchat

Snapchat is in a unique position in that it has already identified and captured revenue streams from an underserved market– brands looking to reach the elusive millennial audience with high-quality mobile video. While this niche opportunity is a valuable one, Snapchat’s long term success will require a broader approach. That will have to include creating a developer program to extend its ad placements and revenue potential and partnering with technology and data providers to better align audiences and targeting capabilities. Once they move beyond the eyeballs and begin to take advantage of the massive opportunity data presents to them, they will be on the path to creating a more sustainable revenue opportunity.

 

Spencer Scott is Fiksu’s Chief Revenue Officer.

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