Snap’s IPO isn’t Everything, Its Advertising Is
Mass marketing won’t cut it as targeting on social media continues to grow
As the buzz around Snap’s IPO dies down, it is crucial to look beyond its launch and to its advertising. Is Snap a “Third Player” alongside Google and Facebook, or is it another one of the also-rans? How well Snap monetizes its audience, how advertisers use Snap, and how Snap’s audience grows will play largely into its continuing success, which many now doubt.
The Value of Targeted Ads on Social Media
For marketers, understanding each customer requires capturing a significant amount of data about that person—age, sex, life stage, communication preferences, car owned, purchasing power, previous purchases, brand affinity, planned future purchases—and parsing through that information continuously. As more data about each customer is collected and understood, advertising evolves into personalized communication. Targeted ads result in improved conversion and less waste, enabling the advertiser to then bid higher for the smaller number of ads that they send out.
What Snap is Doing Right
I am optimistic that Snap and other mobile apps that generate large audiences, will do a good job of monetizing their audiences by utilizing targeted ads. Social media companies doing a good job only build direct relationships with around 100 large advertisers, and then build an ecosystem of partnerships to serve both them and the remainder of the market. This helps them scale faster with lower costs. The smart companies (including Snap) are following the blueprint demonstrated by Facebook, offering a range of amazing targeting options, plus 5-10 ad formats that cater to major marketing goals. However, adopting new best practices is often a slow process in the marketing industry.
The Next Step for Mobile Ads
Given that all ad inventory in the future will be auction based, advertisers with better data, customer segmentation and precision targeting capabilities will be able to outbid their competitors for the highest potential customers. This will create a virtuous cycle of gaining more customers, spending more money, providing more data, and enabling better targeted advertising.
Conversely, advertisers that fall behind in adapting this new approach (e.g. those who continue with mass marketing) will ultimately fail, because they will be paying too much for low value customers—the ones their competitors didn’t want to target. This dynamic, driven by auction based pricing and big data, will drive a “winner takes all” dynamic in most B2C industries.
The social media industry still has a long ramp of growth ahead. As trailblazer companies like Facebook and Snap prove the success of social advertising and a customer lifetime approach, more marketers will adopt those practices. Prices for social ads will more than double while advertisers eliminate waste and improve targeting, making the social platforms rich and driving mass marketing companies out of business.
Please note: This article contains the sole views and opinions of Ben Legg and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security.