Snapchat has defined itself in opposition to the internet establishment. It didn’t want to be a digital hangout like Facebook that lured the masses to perform for strangers. Snapchat’s advertisements wouldn’t be “creepy” like other internet ads. Web-video programs from partners such as ESPN wouldn’t be the schlock people saw elsewhere.
Now, though, Snapchat is borrowing liberally from the internet conventions it has scorned. Snapchat is — irony alert — copying Facebook by refashioning its advertising business for companies that want quick payoffs from their ads. It’s tracking people to prove those messages worked. And Snapchat loosened demands for tailor-made video programs, which makes it more like the rest of the web.
The adoption of more internet conventions could make parent company Snap Inc. financially viable and valuable. Snapchat squeezed more ad revenue out of its (declining) users in the second quarter, the company said on Tuesday. But the quality that made Snapchat successful in the first place was its bucking of internet norms. It’s not clear Snapchat can thrive as its business evolves into a more conventional digital species.
The principal shift is in Snap’s ad business. The company initially pitched itself as ideal for high-gloss video advertisements similar to television commercials. Snapchat set itself apart from Google and Facebook, which became rich by fulfilling quick-hit marketing goals: Click on a link. Download an app. Buy a product. These “direct response” ads with an immediately identifiable outcome aren’t beautiful or subtle, but they dominate the internet and smartphones.
Snapchat has gotten on board, too. It now boasts about how useful it is for companies that want to pitch wallets, shoes or a mobile trivia game. It’s generating about 40 percent of its revenue from direct-response ads, according to technology news publication the Information.
This evolution is natural for internet advertising companies. Like Facebook and others, Snap developed technology to let companies buy ads through computerized auctions. This allowed Snapchat to attract a larger pool of advertisers. In the second quarter, Snapchat said 75 percent of its ad revenue came from these computerized auctions. That is a potent sign of Snapchat’s diversification beyond the companies that can afford TV-like ads.
On Wall Street, the broadening of Snapchat’s ad business has been seen as a healthy sign. The company’s revenue most likely had a ceiling if it confined itself to TV-style ads. But there’s a downside to this advertising transformation. If Snapchat’s ads are similar to those online elsewhere, why would a shoe seller opt for ads on Snapchat rather than on Facebook, Google, Twitter or Amazon? Snapchat says its audience is younger and more immersed than those elsewhere online. My rebuttal: Instagram.
Snapchat has also pitched the relatively low cost of its ads compared with those on Facebook and other places. Snapchat ads may be cheap for a reason. Direct-response advertising is a game of odds. The more people a digital hangout attracts, the better the chance some people will respond to pitches for a trivia app. But Snapchat doesn’t draw huge numbers, by design. The company’s biggest selling point — digital intimacy for its users — may conflict with its advertising customers’ goals. (To be fair, 188 million daily users is still be plenty big for many advertisers.)
Another potential for clashes with Snapchat’s philosophy is the use of digital data for advertising. In this area, Snapchat is again borrowing from Facebook. Like that company, Snapchat has a “pixel” to prove that a person who saw a Snapchat ad for shoes eventually bought that pair online or in a store. It even uses the same term as Facebook — the “lookalike audience” — for technology that lets advertisers show Snapchat ads to people who are similar to those companies’ existing customers.
These are conventional tools demanded by companies that buy ads online, but Snapchat has always said it was opposed to digital advertising norms. Snapchat is less aggressive about harnessing user information to sell ads, but it’s hard to look down on the data-collection pigs when Snapchat is eating from a nearby trough. Snapchat CEO Evan Siegel hasn’t explained how his company’s user tracking for advertising purposes is different from the creepy internet ads he disparaged.
Snapchat’s media partnerships also don’t look as exclusive as they used to. Snapchat used to require companies that made video shows for Snapchat — cooking how-to videos and news programs, for example — to tailor them for Snapchat’s style and design. Those requirements have been significantly watered down. Snap still screens offerings in its “Discover” section for media partners, but some of the videos are essentially the same ones that pop up elsewhere online. As with the Snapchat ad changes, the scaled-back demands on media partners are sensible but make Snapchat more of an internet conformist.
It’s understandable for Snapchat’s business to evolve significantly. Investors didn’t buy Snap stock figuring the company had its revenue model all figured out. But Snapchat has maintained that its philosophy of gathering people online hasn’t changed and that its values are pure compared with those of other internet companies — even as its business inches closer to emulating those same internet companies. Those two Snapchats, the ideological purist and the business pragmatic, coexist awkwardly.
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Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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