Snapchat has replaced one problem with another, to advertisers' potential benefit: Prices for ads on the platform have gone from ungodly to low, low, low.
About two years ago, Snapchat was charging brands $300,000 to $500,000 to sponsor a Lens, an animated filter that transforms people's faces in funny ways—into a Taco Bell taco, for example. For its video ads, which filled the entire screen and played automatically with the sound on, it wanted $750,000 a pop.
"Brands put them in the penalty box," says James Douglas, head of media at Reprise, an IPG-owned digital marketing agency.
The costs came on top of all the other hurdles intertwined with the app's appeal: Using Snapchat was a mystery to anyone older than 25; brands couldn't reuse their Snapchat ads elsewhere easily, if at all; users could skip its video ads immediately with just a tap on the screen; and it wasn't clear whether its ads on selfies achieved much at all.
Agency execs like Douglas were bringing brands to Snapchat for its young audience, but when they couldn't measure the impact of the ads, it became a no-go zone for many. "Sometimes marketers didn't get it," Douglas says. When Snapchat lowered the price after a year, video ads still cost $20 for a thousand impressions, or 2 cents a view.
Today, Snapchat has the lowest ad prices of its peers, according to 4C, a marketing technology firm that's one of Snapchat's biggest sources of demand for ads. Snapchat ads in the first quarter of the year cost an average of $2.95 per thousand impressions, compared with $4.20 at Instagram and $5.12 on Facebook's app, 4C says.
What changed? Snapchat decided to lower the barriers to purchase by shifting from a direct-sales ad team with a highly personal touch to a fully automated programmatic ad platform. In the first quarter, 95 percent of its ads were sold programmatically—and prices were 65 percent lower than in the period a year before.
By the end of June, every type of ad product Snapchat offers will be available programmatically, through auctions, with ad targeting and measurement. It will promote the milestone at this month's Cannes Lions International Festival of Creativity.
It's a bold move, letting auctions dictate the prices like they do on Facebook and Google, and has risks. Snapchat revenue is not growing as quickly as many of its investors had hoped when it went public in 2017. In the first quarter, it reported $230 million in ad sales, up 66 percent from the quarter a year earlier but below expectations.
The reason for the lower pricing on Snapchat is simple: Its auctions are not as competitive as they are for ad space on, say, Facebook. Facebook has 6 million advertisers competing to run ads, and Snapchat doesn't reveal how many it has, but it's not that many by a social media mile.
Snapchat says its price drop will help it over time. "It turns out cheap prices are a great marketing tool," says Peter Sellis, Snapchat's director of product for revenue.
Snapchat hopes it can use the discounts to drive more advertisers into the auctions, and if it can get them there, then it could hopefully deliver business results.
It has beefed up direct-response ads with a way to target ads to consumers most likely interested in certain brands based on online habits outside Snapchat. It's rolling out a new type of Shoppable Snap Ad, which can display multiple products and take people directly to a checkout page.
And Snapchat is putting finishing touches on new ways for brand advertisers to schedule ad buys with "reach and frequency" parameters, which means they can plan ahead with guaranteed prices and audience sizes. Even sponsored Lenses are about to be offered through the self-serve ad platform for the first time, also with the "reach and frequency" option. Anheuser-Busch has already tested using self-serve to buy Lenses, and what happened? Prices dropped almost 50 percent, according to Snapchat.
"The people willing to put the work in to learn the platform, they're in a good situation right now," Sellis says.
Don't print that!
HiSmile, a marketer of teeth-whitening products, has started to use Snapchat as one of its main sales channels, alongside Facebook. The company puts about 40 percent of its marketing budget toward Snapchat, and is on pace to spend $10 million there this year. "Snapchat, being such a newcomer to the advertising game, there's a lot less competition," says Sean Fisher, head of advertising at HiSmile. "Getting web traffic and sales is much cheaper."
Snapchat costs HiSmile about half as much per thousand impressions as Facebook does, according to Fisher. Its cost per click, or per "swipe" in Snapchat's system, can be 70 percent cheaper, Fisher says. Snap ads can let consumers swipe up to visit brand websites or sales pages within the overall Snapchat app.
HiSmile three months ago started testing Snapchat's Story Ads, sponsored videos introduced this year that appear among professional media posts in the app's Discover section, similar to a sponsored post in Facebook's News Feed. They've helped increase total average daily revenue by 15 percent, Fisher says.
Snapchat executives believe the in-feed Story Ads, with their resemblance to traditional social media ads, could be easier for advertisers to grasp. Brands might just start to "get it." If they bring more buyers to the auction, more competition could drive up prices.
Until then, Reprise exec Douglas isn't complaining. "There is a significant price advantage," he says. "I don't want you to print that because everybody will move into it."
Correction: An earlier version of this story incorrectly attributed quotes from Justin Gaggino, HiSmile's head of marketing, to Sean Fisher, HiSmile's head of advertising.