How Snapchat aims to become a huge player in ads

cnbc.com

Snapchat is stepping up its ad game.

Adweek reported on Monday that Snapchat will launch its first advertising application-programming interface (API), and has invited eight advertising sales and 15 creative agency partners to use it.

While the company was mum on when the API will be available, it's expected to be ready in the near future. For users, it will be snapping as usual — except ads will appear between their friends' Snapchat stories.

In basic words, Snapchat is opening itself up to outside business. The mobile platform currently handles all creation of ads and sales in-house. When the API opens up, select third-parties will be able to make their own ads, and brands can use programmatic (or automated) ad technology platforms to buy Snapchat placement.

Much digital advertising — including ads placed on Google, Facebook, Instagram and Twitter — are sold through programmatic ad platforms, which use data like Web history and mobile app use to show the right ads to the right people. Allowing Snapchat ads to be sold using these means letting ad technology firms use their own proprietary targeting formulas. It may make companies more comfortable spending marketing dollars on the platform's ads.

Reema Mitra, group director of social for agency Huge, said while opening up the API to third-parties is something every major social media platform has already done, Snapchat has had the benefit of being able to fine-tune its ad products to exactly what marketers want.

"Instead of having to go first like Instagram and Facebook did, they really got to sit and wait it out," Mitra said. "They got the luxury of learning from other people's mistakes. This waiting game has always worked for them."

More than 100 million people use Snapchat every day, according to the company. The majority of its users are under 35.

"[Snapchat] is really a compelling mobile platform," said SocialCode CEO Laura O'Shaughnessy. "It's incredibly engaged by millennials and Generation Z. It's a better place to connect with them, and serve them awesome, relevant ads. It's humongous for brands."

SocialCode, which will be one of Snapchat's ad sales partners, sells digital advertising on platforms including Facebook, Instagram and Pinterest using its proprietary analytics. It works with brands including AB-InBev, Macy's, Visa and Nestle.

O'Shaughnessy said from SocialCode's previous history with Snapchat, it found its users were more likely to interact with its ads, including using branded photo filters (called "lenses") in their own snaps. Snapchat has reported its top lenses — Gatorade's Super Bowl lens and Taco Bell's sponsored lens in May — got 165 million views and 224 million views respectively. The company added that its average user plays around with a sponsored filter for 20 seconds before sending it out, which gives valuable direct brand exposure.

"They are coming out of the games with a very strong position to be a major player," O'Shaughnessy said. "There is so much attention on mobile and video. The devil will be in the details over the next couple of quarters and how it performs for brands. But they are in a good position in how they are helping brands tell stories to an incredibly different demographic."

But some agencies and advertisers have had issues with Snapchat, including the fact that it has a smaller user base than Facebook and limited targeting capabilities. The platform has recently added age, gender, location, device or operating system, carrier and content affinity targeting in response to those concerns.

"Snapchat is no longer a niche buy," Mindshare NA's managing director of digital Mike McLaughlin said in a statement. "Especially among millennials, if you look at the scale and daily time spent, you have to consider Snapchat a core reach vehicle. But they'll need to continue to make advances in terms of targeting and accountability to steal share from other platforms and become an absolute necessity for brands."