Will Snap’s New Strategy Of Courting Small Businesses Work?

Snap (NYSE:SNAP) recently introduced a new suite of self-serve ad tools that allow advertisers of all sizes to buy and manage ad campaigns on Snapchat. The offering will be widely available in June in the U.S. and other major markets. The success of the new tools, which Snap hopes will allow it to win over ad dollars from smaller businesses, could be crucial to expanding its advertising business at a time when user growth appears to be slowing down. Below we provide a brief overview of the new tool and Snap’s broader strategy of courting smaller businesses, which it has largely ignored in the past.

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The Evolution Of Snap’s Advertising Sales 

When Snap began its advertising operations a few years ago,  marketers had to go through Snap’s ad sales team to advertise, while typically spending hundreds of thousands of dollars on campaigns. In late 2016, the company began its shift towards automated ad sales, rolling out an API (application programming interface) that allowed it to sell some of its ad inventory via third parties to marketers digitally, with the third-party platforms typically charging a small mark up. Now, with the new tool, business of all sizes will be able to buy ads from Snap directly without incurring any additional fees. The tool will also offer capabilities to manage campaigns from end to end, providing targeting options, reporting, and more advanced features such as configuration of permissions for larger ad teams. At present, the tool will only allow customers to purchase Snap’s ad (video ads), as more advanced formats such as Sponsored Geo filters and Lenses will be available only via direct sales.

Will This Help Snap Win Share From The Digital Duopoly?

Google and Facebook currently rule the roost in the digital advertising space, and the two are projected to hold ~ 60% of the U.S. digital ad market combined this year. Tapping into the ad dollars of small and medium businesses will be important for Snap to win over share from the two behemoths, as social media is typically the primary digital marketing strategy for small business owners.  Snap does have a couple of advantages over its larger rivals in this space: for example, the new self-serve tool is reportedly easier to use compared to Facebook and Google’s offering, with a simpler user interface, especially on mobile (which could be important for small businesses). Moreover, Snap’s demographic comprises largely of millennials – who are likely less exposed to traditional small business marketing tactics such as print ads and flyers. Despite Facebook’s recent strategy of copying Snap’s best features, a report by App Annie indicated that Snapchat continues to have a very unique user base, reaching a large base of users that aren’t active on Facebook. For instance, around 35% of Snapchat’s users cannot be reached by Facebook and ~46% can’t be reached by Instagram. That said, there could be some challenges to the self-serve ad strategy as well. Unlike Facebook, which typically relies on just text, links or images for ads, Snap Ads are typically richer, more video focused and have a vertical orientation, which could make it more difficult for small business owners to come up with engaging and creative ads on their own.

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