By Adam Fraser
In the good old days of traditional media, with tightly controlled distribution across capital intensive media platforms, there was a reasonably predictable relationship between audience and profit.
Grow readership of the NY Times and the front page display ad sold for more. Boost viewers for the soap opera and the 30 second slot increased in price.
The stability and predictability seems almost comforting and like a glimpse into calmer and simpler times. The old days.
Fast forward to 2015. The internet revolution is approximately 20 years old. Social media has changed the way we communicate with each other (and increasingly with businesses) forever. A new infrastructure and medium of connection is in play.
So the concept of audience, and how it is potentially monetised in the media world has changed. As Twitter is discovering, circa 350m users does not necessarily translate into a profitable business. Does advertising naturally work in these platforms? Who will pay and how much? Does the user experience get impacted to the point of no return? Would a subscription model actually be more appropriate?
Facebook seems to have been by far the most successful – to date – at navigating that delicate relationship between native advertising in the stream and maintaining a large, loyal audience. Not an easy balance. For media buyers, the sheer granularity of Facebook’s targeting reins supreme (want to target 21-25 year old males with an interest in surfing in the Bondi region – you can….).
So to Snapchat. No real issues on the “audience” front – user numbers and engagement amongst the younger demographic (60% of its 100m users are aged 13-24) remain extremely strong. The attention is certainly there and there are encouraging signs in terms of the videos it is publishing on its Discovery channel, recently adding new content. But how to monetise? A valuation of $16bn demands some pretty serious revenue and profitability and Snapchat is yet to demonstrate a sustainable profitable business model. One investor Fidelity has already written down its book value.
Like all the social networks Snapchat has instinctively jumped to advertising as the first port of call, business model wise. As with Twitter, it is not clear this will ever be enough. Snapchat went for a premium pricing model – a limited number of partners asked to pay up to $500k per package.
Not cheap. However cool it is to put your brand on Snapchat, ultimately an ROI is required. Approximately 100 companies have tried Snapchat to date with a lukewarm response. The jury remains out on effectiveness. The targeting available on Snapchat is nowhere near the capability of Facebook.
The growth in ad blockers shows an unavoidable truth – consumers don’t like ads. Wherever possible they will avoid ads. Snapchat has a pretty unique offering and is admittedly trying some create ways to distribute its ads but it is still putting all of its eggs into a basket which is declining in efficacy.
Snapchat is entering a post honeymoon period – the glamour of its $16bn valuation is turning into a sober look in the mirror as to how it can ever justify such a sum. Whilst clearly successful in building a highly engaged, targeted audience, being priced to perfection comes with inevitable pressures.