Understanding Snapchat’s severe disadvantage

snapchat

It’s a good time to be a shareholder of Snapchat equity. Nearly every piece of news we read about the private company indicates that its value has nowhere to go but up. Some predict it could have as many as 200 million monthly active users. It’s incredibly popular with younger users, including the much-coveted millennial demographic. In 2013 it rebuffed a $3 billion takeover bid from Facebook, a decision that was vindicated by its recent $10 – $20 billion valuation. All signs point to it becoming a major rival to nearly every major social media network, from Facebook to Twitter to Instagram.

Yet I’ve been thoroughly unimpressed by two of its recent ventures, both of which are attempts to transform the company from VC-backed startup to money-making behemoth. The first is its roll-out of “my story” ads for brands, and the second was the announcement this week of partnerships with several major media companies to deliver their content to Snapchat’s users. Both efforts were undermined by what’s ironically credited as one of Snapchat’s main appeals to users: its lack of data collection.

Even if you’ve never used Snapchat before, it’s usually the one fact you know about it: photos and videos sent through it are deleted within seconds after they’re seen by whomever they were sent to. Not only deleted from the phone, but deleted from Snapchat’s servers completely. This has made it impossible for Snapchat to collect the kind of data that make companies like Facebook and Google so valuable — data that can be used in the distribution of hyper-targeted ads. Almost since the company’s inception we’ve seen tech journalists point out the difficulties this presents in terms of monetization, and with the launch of these two new features, we’re seeing those difficulties born out.

Let’s start with the “Discover” feature that allows you to browse news content. Though news organizations have long been able to run and broadcast from their Snapshat accounts, Discover is a partnership with 10 major media companies to deliver a rich media experience to users (I’ve played around with it, the aesthetics really are pleasing). But in an era when most news aggregation apps are employing the use of machine learning to try to predict what news you want to read, Discover, because it can’t collect any data, is not really customizable. In the wake of the announcement, Rebecca Searles published a Medium post predicting that “Snapchat is going to beat Facebook at news.” Why is it going to beat Facebook?

What does seem like a game-changer (as far as social media and news is concerned) is that with Discover, news orgs like CNN get to retain some semblance of a Front Page again. Instead of users seeing news that is filtered by “friends,” likes, comments, and shares, users see a series of videos and cards curated by an editor. An editor who is trained and skilled at knowing what news matters and what news doesn’t.

For a moment while reading that passage I wondered if had been transferred back to 2005, because that’s the last time anyone could make that kind of argument with a straight face. If there’s anything we’ve learned in the last decade, it’s that the expertly-curated front page has lost and the customizable news feed won. Assuming that users are vying to hand over their browsing choices back to a small subset of professional editors is to ignore every instance of newspapers being gutted at the expense of data-rich technology companies, companies that are siphoning off advertising revenue and redirecting it to their gargantuan, algorithm-centric platforms.

At least the Discover tool allows you to choose which media outlet you want to browse, thereby giving at least some level of customization (ESPN is likely to have far different content offerings compared to Comedy Central). But Snapchat’s “my story” ads are even more of a blunt force instrument. To purchase one, a company needs to pay a minimum of $750,000, and that’s because the ad is blasted out to every single user that’s opted in to the service. As Travis Bernard detailed at TechCrunch:

So you just spent $750,000 to run an ad on Snapchat for 24 hours. What did you get out of it? According to the AdWeek report, the reporting capabilities of Snapchat are “limited.” There are no age breakouts and Snapchat can’t even tell brands how many women versus men saw an ad.

The lack of detailed analytics makes Snapchat exactly like television advertising, except the price tag is even higher than most prime-time television advertising. ESPN’s Monday Night Football is one of the most expensive places for a brand to advertise, and ESPN only asks for an average of $408,000. Last year, Monday Night Football’s viewership averaged 9.6 million households.

“So what?” you say. “Maybe Snapchat can just service Fortune 500 companies with massive marketing budgets.” The problem is that that leaves a huge market that Snapchat can’t touch, a market that Facebook, Twitter, and Google are aggressively competing for. According to the Small Business Administration, there are currently 28.2 million small businesses in the U.S., and it doesn’t take a major leap of logic to conclude that almost all of them couldn’t afford a $750,000 Snapchat ad. Even if those 28.2 million businesses could only afford an average $1,000 a year in advertising, that’s $28 billion that Snapchat can’t compete for.

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The ultimate irony is that Snapchat’s popularity is directly contributing to its weakness, because as its audience grows it prices out more advertising clients. This isn’t the first time something like this has happened. In 1936, Time, Inc launched LIFE, a magazine that relied heavily on photography for visual storytelling. According to Alan Brinkley’s biography of Henry Luce, the anticipation for the first issue was so immense that it sold out immediately and Luce was accused of lowering the print run to increase demand and buzz. It quickly rose to become the most popular magazine in existence, selling at one point 13.5 million copies a week.  But in the 1960s the magazine began to struggle financially, and part of the reason was that its high circulation necessitated incredibly high ad rates, but many advertisers realized they could spend the same amount of money advertising on television, a much richer form of media that was quickly spreading to U.S. households. LIFE was also hindered by the fact it was a general interest magazine when companies were looking to advertise in niche publications (the 1960s versions of Facebook and Twitter targeting). “Despite the exceptional efforts of a number of talented publishers and editors, the publishing formula for a monthly, general interest magazine was just not sustainable,” its editor-in-chief said when the magazine announced its closure in 2000.

That’s what Snapchat is, a general interest magazine, a LIFE for the modern era. Its scale, impressive as it is, is not good enough by itself. If it wants to truly capitalize on its 200 million users, then it needs to figure out how to chop that audience up into niche fragments and offer those fragments to both low and high end advertisers. Until it does, it’ll be nothing more than a blunt instrument in a land ruled by scalpels.

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on TwitterFacebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.

Image via Mashable