Snapchat proves its reinvention credentials

A cheeky silhouette of a ghost was soldered into the wrought iron gates at Snap’s compound at the Cannes Lions festival, giving a subtle clue that the fast-growing start-up was shaking hands on advertising deals inside.

The photo messaging company, formerly known as Snapchat, signed bankers last week to prepare for an initial public offering that could value it at between $20bn and $25bn, according to people briefed on the matter. Listing as soon as March, it would be one of the largest technology companies to go public in recent years.

When Snap came to Cannes in June, it was preparing to go public in a different way: setting out to accelerate revenue dramatically. Its playful yet secretive presence at the festival “captured the spirit of Snapchat” and was well received by advertisers, says Ben Winkler, chief investment officer for media agency OMD.

“They are extremely good at marketing themselves, which reflects in their success at marketing others as well,” he says.

But it was the serious work the company completed in the past year that really won over marketers. Snap had just hired Jeff Lucas, a Viacom veteran, as head of sales. It was armed with four new advertising formats to sell and was finalising plans to address advertisers’ biggest moans about the app — the struggle to target the right users and measure the effectiveness of ads.

“They have responded neck-snappingly quick to client and advertiser requests,” Mr Winkler says.

Snap might be experimenting with hardware, launching sunglasses with video cameras known as Spectacles, and defining itself as a camera-centric company — but for now it is primarily an advertising-based app.

While public market investors will have to wait to peek into Snap’s financials, because it qualifies to file for an IPO privately under the Jobs Act, research firm eMarketer forecasts Snap could hit $1bn in revenues in 2017, up more than 150 per cent from this year. One advertising industry executive thinks this is a reasonable target for a company that sometimes commands up to three times as much in annual spending commitments from brands than rival Twitter.

Cathy Boyle, a mobile analyst at eMarketer, says Cannes was a “really distinct point in my mind”, when a year after launching the basic Snapchat video ad, the company expanded into direct response adverts, where users can click through to download an app or make a purchase in a web browser.

Snapchat started life as a place to exchange disappearing photos with friends — and became notorious as a place to share unrobed selfies with potential lovers. But the four-year-old company has grown up fast: the product is now used by 150m people every day to do everything from compile 24-hour “stories” — collections of pictures from their life — to watching publisher channels from Cosmopolitan to the Wall Street Journal.

This speed of change in the product — and now in the formats available to advertisers — has invited comparisons not to Twitter but to Facebook. “No one would have bet on Snapchat being as big as it is. It used to get dismissed as a naked selfie platform,” says Rich Greenfield, an analyst at BTIG. “What we’ve been impressed with the most is the rapid pace of innovation,” he says. “Trying to copy the Zuckerberg edict of ‘move fast and break things’ — innovating — if it doesn’t work, crush it and move on.”

Snap has benefited from being able to copy some of the social media platforms that went before it, quickly adopting tools that advertisers like. Marketers can now upload their email lists to target existing customers on Snap and find “look-a-likes” who could become new consumers, just like they can on Facebook and Twitter. They can target by interest — for example, who watches sports on Snap — as well as demographics, though it has so far held off from “retargeting” — showing people ads based on what they’ve been looking to buy elsewhere. Marketers can now choose between 10 different partners to measure how effective the ads are.

Sarah Hofstetter, chief executive at ad agency 360i, says even a year and a half ago advertisers were not sure Snap was “ready” for ads. But they made progress much more quickly than their rivals. “Like Moore’s Law, Facebook was faster than Google, Twitter was faster than Facebook and Snap is faster than Twitter, because they all learnt from each other,” she says.

The company’s main attraction to marketers is simple: it has millennials. It reaches 41 per cent of all 18 to 34-year-olds in the US every day, according to research by Nielsen commissioned by the company. “They are capturing an audience that normally doesn’t pay attention to media. They are an ad-blocker generation and yet they are highly addicted to Snap as the last bastion for a younger audience,” she says.

Millennials are drawn to the casual way they can communicate with friends, scribbling over pictures, playing with filters and funny faces, all without storing photos on a profile forever such as on other sites. Publishers have created content specifically for the app and this young audience: a recent Cosmo article on Snap featured a test of whether using a Brita water filter to pour vodka would make it taste more expensive, while the Daily Mail posted on expert pumpkin carvers competing to make the gourd look like Donald Trump.

What we’ve been impressed with the most is the rapid pace of innovation. Trying to copy the Zuckerberg edict of ‘move fast and break things’ — innovating — if it doesn’t work, crush it and move on

Advertisers buy video ads that slot in between these stories — or collections of photos from friends — and play vertically. McDonald’s shows a video of someone sipping its pumpkin spiced-latte, which users can then swipe to download the chain’s app and collect loyalty points. Maybelline showed a TV-style ad of a dressed-up model, showing off mascara that made her eyelashes look as dramatic as fakes.

As well as adopting the tactics of its social media rivals, Snap developed some unique, interactive formats: the sponsored lens and the sponsored filter. Taco Bell, the US Mexican-inspired fast-food chain, created a lens for the Cinco de Mayo celebration (commemorating the Mexican Army’s victory over French forces at the Battle of Puebla) where users could make their face into a taco. Snapchatters spent 24 seconds on average engaging with the ad, an unusually long time, and it was viewed 224m times, as people sent it back and forth to their friends. Filters can be used to show an ad in a particular location, such as a Burger King or an Equinox Gym. Users can even buy their own geofilters, which are becoming popular for weddings and birthdays.

Ms Boyle says Snap was the only messaging app that had found a way to insert advertising into people’s chats without being disruptive. “The geofilters and the lenses give advertisers a more natural way to be in a conversation,” she says.

But as Snap prepares for an IPO, it will have to try to get advertisers to increase their spending, while recruiting new brands to the platform.

On measurement, no one is entirely sure how to judge what to spend. Another advertising executive says: “Everybody is looking at what is a filter worth?” adding that while Snap has become a “line item” on media plans, it is not yet a “cornerstone” of a strategy for major brands. Like many of its social media rivals, marketers would also like more research that links viewing of ads to purchases in-store.

Mr Winkler says one of its biggest priorities will be recruiting a larger salesforce. “Snapchat’s salesforce is still small, which is challenging when it is moving so fast,” he says. “But even Google had that problem.”

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