Snapchat thinks its ads are better than TV - here's why
In the filing Snap, tells the story of how it set out to create an "engaging, creative, and fun" ad format for its mobile app.
First, Snap looked around at its digital video competitors and concluded that the existing video ad options were horrible. Here's how the company described it:
"Two of the most popular forms of digital video advertising at the time were pre-roll horizontal video advertisements and in-feed horizontal video advertisements. Pre-roll advertisements played before the content that a user wanted to watch, leaving users feeling like they had been blocked by an advertisement and frustrated that they had to wait to see what they had selected to watch. In-feed advertisements were less obstructive, but they weren't full screen and users often scrolled right past them-just like a banner advertisement on a website."
So the two dominant forms were lacking, according to Snap. But the company found some light in television ads, which its community of users enjoyed "the most because it was part of the experience, especially when the advertisements were funny, creative, and entertaining" (which sounds suspiciously similar to the ad product Snap wanted to create).
TV, but for young people
TV is where Snap saw an opening.
The demographic that loves Snapchat is also the demographic that is watching less TV, according to Snap, so if the company could recreate TV ads on mobile, it could score big.
"We wanted to figure out how to capture the entertainment and creativity of television advertisements," Snap wrote.
There were, however, a few changes that Snapchat made from TV ads. First, the ads were "vertical video," meaning they were meant to be viewed when holding your phone the normal way. Second they were "skippable," because Snap wanted to give its users the choice of whether or not they watched them (to be fair, YouTube pioneered skippable online video ads years ago with its TrueView ad format).
Like TV, Snapchat showed ads only when users had chosen to watch a series of videos with sound (a "Story"). Ads appeared in the midst of the series of videos, very much like TV - except in Snapchat, you could skip them.
With this formulation, Snap declared that its ad product was "as good as television."
Up and up
But Snap wanted to make its ads better than TV by "using some of the unique features of smartphones and Snapchat."
In the S-1, Snap went over the two main ways it thinks its ads improved on the TV experience:
- Swiping up. "For example, a user who views a Snap Ad about a new product can swipe up on the Snap Ad to buy the product instantly from the advertiser's website without leaving the Snapchat application."
- Targeting. Snap takes context into account to serve up the ad most relevant to the user.
And there you have it: Snap's thesis for why Snapchat video ads are not only better than other mobile competitors, but also better than TV.
TV ad budgets
There's a very good reason why Snap, in its S-1, compared its ads to TV.
TV ad budgets have been slow to follow video consumption to your smartphone, and there's still a huge pool of money floating around (over $70+ billion in ad spending on TV in the US alone, according to eMarketer).
Snap thinks those TV ad dollars are ripe for the taking.
"Worldwide advertising spend is expected to grow from $652 billion in 2016 to $767 billion in 2020," Snap wrote. "The fastest growing segment is mobile advertising, which is expected to grow nearly 3x from $66 billion in 2016 to $196 billion in 2020. We believe that one of the major factors driving this growth is the shift of people's attention from their televisions to their mobile phones."
If ad budgets do indeed move away from TV and toward your mobile phone, it makes sense that those new dollars might gravitate toward something that feels more like old school TV. Snapchat's pitch is that its ads are like TV, only improved.
Advertisers aren't jumping on the Snapchat bandwagon just yet - the company's revenue in 2016 was only $400 million, although Snapchat is still in the early stages of ramping up its video ad business.
And Snapchat certainly isn't the only tech company going for these budgets. Facebook's latest quarterly earnings call focused a lot on how its video product was about to get better, specifically more "premium" and more episodic. Sound familiar?
What remains to be seen is whether TV advertisers will buy it: either from Snap, Facebook, YouTube, or anyone who is trying to convince them that THIS is the generation of mobile products that will finally make sense for them.