Snap's (NYSE: SNAP) flagship app, Snapchat, is a bit complex. The company included a diagram illustrating how to use Snapchat in its registration filing with the SEC, and it recently instituted a massive redesign in an effort to simplify the product.
But Snap is facing an even bigger complexity challenge: Marketers find it really hard to create and buy ads for Snapchat. Forty-two percent of marketers say Snapchat is the most difficult digital advertising platform to use, according to a recent survey from Digiday. Meanwhile, just 9% picked Facebook (NASDAQ: FB), which prides itself on making it easy to start advertising.
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Even after developing a self-serve platform and migrating most of its ad purchases to it, Snap is still presents challenges to marketers. Snap's inability to make advertising simple will put continued pressure on both its top-line growth and its operating income as it must hire more salespeople to provide customer support.
Building out a suite of tools
Snap has built several tools for advertisers over the last year or so. Starting with its self-serve platform, Snap created a way for advertisers to make targeted advertisements using an auction-style pricing system instead of the fixed price for ad campaigns booked with a salesperson. The result has been a massive decline in average ad price, but a huge increase in total ad impressions served.
Snap also released Snap Publisher, its ad creation tool, last summer. The tool aims to make it easy to convert content into vertical videos (with the same aspect ratio as a smartphone screen) that perform well on Snapchat.
The company also made it possible to create and buy custom geofilters (graphics that overlay on Snaps based on users' locations) within the app. And it launched Lens Studio for creating custom augmented reality objects in December, partnering with seven ad agencies to create custom face filters for marketers.
Perhaps its most important tool is the Snap Pixel, which allows marketers to embed a piece of code on their website in order to track how well Snap ads actually convert into traffic. Snap Pixel can also be used to retarget advertisements to people that visited a website, but didn't perform a desired action. Think about when certain products you left in an online shopping cart seem to follow you onto Facebook or Instagram? Now they'll follow you on to Snapchat, too.
The Snap Pixel addresses one of the biggest challenges in creating ads for Snapchat: targeting. Snap's targeting data is lacking, especially when compared with a competitor like Facebook. And it's a problem that will be much more difficult to overcome than relatively simple creative challenges.
Cutting into ROI
The most important metric for advertisers is return on investment (ROI), and digital advertising platforms know it. Investment, however, isn't just what marketers pay per conversion. It also includes the time and money spent creating a new ad for a smaller platform like Snapchat. For a marketer that's just experimenting with Snapchat, which is pretty much every advertiser on Snapchat right now, that overhead can be a major drag on return on investment.
Comparatively, Facebook stands at a major advantage. Marketers are already familiar with the platform, and its ad products are simpler and easier to create for. What's more, Facebook offers marketers the option to use the same ad-buying tool they already use to buy ads on Facebook to buy Instagram ads with as well. That gives Instagram a huge advantage over Snapchat.
Instagram is just starting to ramp up advertising in Stories, a feature it blatantly copied from Snapchat. For a marketer deciding between advertising on Instagram Stories and Snapchat Stories, Instagram Stories will win those ad dollars nearly every time, all else being equal.
Snap has a major challenge to overcome in making ad creation, targeting, and buying more simple. Its suite of tools released over the past year are still in their early days, and there's plenty of room for improvement. But until it makes those improvements, the difficulty of using the platform will prevent it from growing the top line as quickly as it could while competitors benefit from the massive shift in ad budgets to digital.
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