Snap's Latest Ad Tools Show That It Still Has a Lot of Catching Up to Do

 | Apr 07, 2017 | 8:33 PM EDT
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Though some big question marks exist about the health of Snap Inc.'s (SNAP)  business, particularly regarding its heavy losses and Facebook's (FB) no-holds-barred assault on the company, it's hard to criticize the company's ability to come up with quality ad products that are embraced by brands and don't alienate Snapchat's core user base. The strong revenue growth these ad products have delivered over the last several quarters makes it clear that the company has figured out a thing or two about monetizing its roughly 160 million daily active users (DAUs).

Snap's two newest ad offerings provide more reasons to think the company can meaningfully grow its average revenue per user from a fairly modest fourth-quarter level of $1.05. But when contrasted with rival offerings from Facebook and others, they also show how much Snap still trails rivals in providing advanced targeting abilities for its ads, and how the limitations of its platform make it tough to catch up.

On Wednesday, Snap unveiled Engagement Audiences, a tool that lets brands send a "follow-up" ad to a targeted subset of the users who previously engaged with one of their ads. It also updated its app install ad product, which charges ad-buyers based on the number of ad impressions shown, so that buyers can set a target for how much they're willing to pay on average for each app installation -- a buyer offering more per installation will have its ads shown to more users, including ones less likely to install its app.

Engagement Audiences raises some interesting possibilities. One raised by Marketing Land: A movie studio targeting some of those who used one of its Sponsored Lenses in photo or video with a video ad (shown within Snapchat Stories) that can be swiped up to load a page that lets users buy tickets for a film promoted through the Sponsored Lens. One could also see restaurants and retailers sending follow-up ads that provide coupons/discounts that can be used during a store visit.

Marketing Land notes advertisers can't easily run campaigns featuring multiple stages of follow-up ads, something that could be useful for winning over a consumer who is on the fence about buying something. But this seems like an issue that Snap can fix. The bigger problem, arguably, is that Snap has a relatively limited amount of data that they can use to target consumers with.

With Snapchat lacking profile pages and news feeds, Snap often doesn't know much about its users outside of their age, gender, location and the Snapchat Stories they like to view. The company did launch a tool in September that lets advertisers target users based on e-mail addresses, but even then, the advertisers need to have an e-mail address on hand in advance and the user typically needs to be logged in to the advertiser's site or app with an account containing that e-mail address.

By contrast, Facebook offers a wealth of targeting options relying on its extensive demographic, profile and interest data. It also supports targeting based on location, purchase activity, device usage, site/app visits and yes, e-mail addresses.

Also: The use of certain Snap ad products isn't necessarily a great indicator of the user's interest in an advertiser's goods or services. For example, someone who used Taco Bell's popular taco Sponsored Lens may have done so because he or she thought it looked cool, not out of any love for Taco Bell's food. Showing follow-up ads to millions of taco lens users with Snap's limited targeting tools might not yield a great return.

A dearth of targeting data is also a challenge for Snap's app install ad offerings. Facebook has been the top player in the app ad space since pioneering the category in 2012, and has gotten very good at showing ads relying on some of its aforementioned targeting abilities, as well as the data it has built up about its users' app downloading and usage habits. In addition, the company has given developers buying its ads a software development kit (SDK) that lets them see what kind of users download its apps and how they engage with the apps afterwards, in order to improve future targeting.

Alphabet/Google (GOOGL) and Apple (AAPL) , who have also entered this space, can't provide the same kind of targeting tools. But they do run massive app stores on which users are frequently searching for various types of apps, and Google also sees many app-related queries on its core search engine. Thus the companies often have a good idea about what kind of apps consumers are looking to download at a particular moment, and can show them relevant ads.

Moreover, Google can show search ads that aim to get users to engage with specific pages on apps they've already installed. Facebook also supports ads meant to compel a user to re-engage with a downloaded app.

Chances are that Snap already has a good understanding of the targeting advantages that certain rival ad products possess, and is exploring ways to narrow the gap. But barring major changes to Snapchat's core services, pulling this off so could be much easier said than done.

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