When Snapchat‘s chief executive, Evan Spiegel, took the stage in June 2015 at a marketing conference in Cannes, France, to champion advertising on the ephemeral messaging service, advertisers were wary.
Yet by this June, when the conference was held again in Cannes, Snapchat had become one of the most buzzed-about marketing platforms. It is convincing companies that its ads – which let users adorn pictures and videos with all manner of images and branding – create a more interactive experience than Facebook and YouTube ads, which most users watch passively.
“Advertisers want to be associated with the trendiest, newest thing, and this year, that’s Snapchat,” said Chad Stoller, executive vice-president and global innovation director of IPG Mediabrands. How Snapchat got its ad business on track is a case study of a fast-growing start-up overcoming growing pains and persuading companies to try untested ways to reach consumers.
When Snapchat opened itself up to advertisers more than a year ago, many initially griped that the company needed to lower its ad prices. Some were mystified about how to reach the right audience with the ads, since Snapchat did not provide traditional ad-targeting tools. Most of all, brands wondered how Snapchat could be effective when the ads – like Snapchat messages – disappeared.
In the last 15 months, Snapchat has moved to respond. It introduced new ad formats. It dangled its attractive user base – the service now claims 150 million daily users, including nearly half the country’s population from ages 18 to 34 – to lure advertisers. Most important, Snapchat has persuaded brands like Tiffany & Company, Kraft Foods and Burger King that its ads let them interact playfully with this young audience.
When Snapchat entered the ad business, “it didn’t quite have the infrastructure, and the market didn’t understand it,” said Sarah Hofstetter, chief executive of the ad agency 360i. “It was a bumpy beginning.” Now Snapchat faces the challenge of keeping up its nascent ad business as its early success raises the competitive hackles of rivals. On Tuesday, Instagram, the photo-sharing app owned by Facebook, introduced a near carbon copy of a Snapchat photo and video service known as Stories.
The company, which Spiegel helped found in 2011 and is now based in the Venice Beach neighbourhood of Los Angeles, needs to justify a valuation of about $19 billion that its investors have placed on it. The company also faces sky-high revenue expectations; the investment bank Jefferies recently projected that Snapchat’s revenue would grow to $1 billion next year from more than $350 million this year.
In an interview, Imran Khan, Snapchat’s chief strategy officer, said the company’s ad formats gave brands “a creative platform” that made ads a “natural experience.” Snapchat declined to comment on its revenue.
While Snapchat’s best-known figure, aside from its ghostly logo, is the youthful Mr. Spiegel – who in the last year has been photographed for the Italian magazine L’Uomo Vogue as well as frolicking with his supermodel fiancee at beaches – it is Mr. Khan, a former investment banker, who has been overseeing the company’s advertising efforts. Mr. Khan joined Snapchat in late 2014.
At the time, Snapchat had just run its first ad, a short trailer for the teenage horror movie “Ouija.” Advertisers say those early video ad campaigns cost as much as the most expensive ads on YouTube, which run in the hundreds of thousands of dollars.
“At that price, it was too hard to test the waters and learn in a new environment,” said Ms. Hofstetter of 360i.