In late January, Snapchat launched a content section within its app called Discover, which allowed a small number of hand-picked media partners to reach the platform's massive user base (the exact number is unclear, but it was estimated at 100MM MAUs in August and could possibly be as high as 200MM) with videos. Users navigate to Discover via a tab at the top of the app, and Discover videos are refreshed each day.
The positioning of the navigation to reach Discover and the speed with which Discover videos are replaced is important: users must go out of their way to view the videos by clicking on a button, and they know that they'll never be more than one day old (and, thus, fans of the service are enticed to use the app each day, even if they're not sending or receiving snaps). With Discover, Snapchat has essentially built an opt-in content channel, and its intentions have always been clear: to monetize that channel with ads.
Snapchat started selling ads – promoted snaps and placements in the Our Stories feed, at a reported daily rate of $750k – late last year, but Discover is different: it's curated, professional-quality video content. Because of this, publishers on the service have been able to command princely sums for running ads in their videos; Re/Code reports that some publishers have seen ad rates of $0.10 per view on between 500k and 1MM daily impressions, or between $50 and $100 CPMs. These numbers are significantly higher than the average mobile CPM rate, and Snapchat is taking a large cut of the ad revenue: if a publisher books the placements directly, it receives 70% of the revenue, but if the placement is booked by Snapchat, it only receives 50%.
The massive premium that brands are willing to pay for ads on Snapchat Discover and the success Snapchat (and its publishing partners) have experienced in selling placements thus far surfaces an interesting question: with Discover, has Snapchat ushered in a watershed moment for brands on mobile? Or, put another way: is Snapchat Discover the type of ad format that will finally bring appreciable brand money to mobile?
Ad spending on mobile has increased rapidly over the past two years and is expected to continue to do so for the foreseeable future, with total spend estimated at $42BN in 2018 according to Business Insider, for a 5-year CAGR of 43%. But brand spending has largely been absent from that trend, with most mobile ad spending being made on direct-response mobile app install ads, especially for mobile games.
The reason brand money hasn't yet infiltrated the mobile advertising ecosystem is most likely due to the fact that the entire infrastructure of mobile advertising was built for promoting apps within other apps, and those standard formats – interstitials, banners, and incentivized videos – are not compatible with brand advertising (and generally perform very poorly, even for mobile app installs). The industry has been trending toward native ads and other more interactive, contextual formats for a while, but these changes have been gradual, with many publishers being slow to warm to formats that take more consideration and effort to implement into their apps (which are, again, mostly mobile games) than the dominant mobile ad formats. This has created a vicious cycle of low volumes of available impressions for native ad formats.
With Discover, Snapchat may have accomplished two important things:
- It may have convinced publishers that native ads are worth integrating deeply into their apps, based on the CPMs it is commanding. By showcasing the “build it and they will come” nature of brand advertising revenue for high quality, interactive placements on mobile, Snapchat may end the chicken-and-the-egg impasse keeping native ads from becoming the dominant mobile format.
- It may have convinced brands that they should begin pursuing mobile more aggressively, which could accelerate the speed with which developers (and ad networks) shift to native formats.
It will be hard for mobile publishers hosting generic, incentivized video ads to see the $100 CPM revenues of publishers on Discover and simply ignore them. Snapchat's Discover product could very well be the motivation that developers and mobile ad networks needed to pursue rich media, native placements in earnest – which could lay the foundation for a surge in brand spending on mobile.