Commentary

This New Snapchat Feature Could Be the Boost Snap Inc. Needs

Apr 06, 2017

Snap Inc. has launched a new search function in its Snapchat app to help users more easily discover photo and video stories. This change moves Snap closer to becoming a major online video hub, and is likely to help the company increase advertising revenue and grow its user base.

The new “Stories in Search” feature takes Snaps (photos) and Stories (videos) shared with public, and creates new Stories out of them using machine learning. As a result, users can now search over one million unique Stories on Snapchat, in addition to the professionally curated Stories that have already been available.

The new search feature is a logical addition to Snapchat’s functionality. Engagement level on Snapchat is high and one of the hallmarks of the site. The picture-centric, chronologically displayed content has hit the sweet spot with its primarily teenage and millennial audience. In the U.S., Snapchat users younger than 25 visit the app an average of over 20 times per day. As a sign of how popular this content is, Facebook is trying to catch up with its own versions of ephemeral sharing products including Instagram Stories, WhatsApp Status, and Messenger Day.

Snapchat’s new search feature plays into a broader ongoing theme in content consumption: the gradual shift away from broadcast television to digital video consumption. Time spent on mobile video is on the rise and comprising a growing share of consumers' time spent with media. Android and iPhone users open their devices on average 76 and 80 times day, respectively. Nielsen estimates that time spent watching broadcast television by 12- to 17-year-olds in the U.S. has declined 37.6% over the past five years. With Snapchat evolving into a video consumption hub, it stands to benefit greatly from this trend. By allowing access to a wider swath of content across the platform in real time, Snapchat will be well positioned to compete against Google’s YouTube and Twitter’s real-time events platform.

Maintaining a high engagement level is a challenge for any social media site, but is especially challenging for a company such as Snap due to its heavy reliance on millennials. This group tends to be tech-savvy and highly fickle. While they are early adopters and trendsetters, they also register low on the loyalty scale. The history of social media is littered with companies that failed to sustain a millennial audience: Friendster, MySpace, Alta Vista, and, more recently, Yahoo and Twitter. All these companies had early leads that eroded as new and more innovative companies entered the competitive arena, or as they simply failed to monetize to full potential.

Ultimately, this new feature is about advertising dollars. Snap is looking to monetize its content more effectively than other social media sites have done in the past. Increasing penetration with advertisers, who are still relatively new to using the Snap platform, is the next leg up for the company. As advertising budgets shift increasingly to digital platforms, the two magnets to attract advertisers have been—and will continue to be—fresh, native content and a highly engaged user base. Snap has both of these attributes. Explosive user-generated native content, combined with free content from the prominent media partners such as CNN and ABC, has attracted leading advertisers including Gatorade, BMW, T-Mobile, and Sperry. According to recent market data, Snap’s engagement level has now surpassed that of Twitter, which has been around for longer.

While the new search feature won’t significantly improve Snap’s stock valuation in the near term, it should help the company’s drive to improve monetization and ultimately its long-term outlook. It should help in attracting new users to the site and expand advertising options via new initiatives, such as sponsored Stories in search results and location-based ads.

According to Magna Global, the total market for mobile advertising is expected to grow roughly three times from $80 billion in 2016 to about $215 billion in 2021. And digital ad spending as a whole is expected to comprise 45% of total worldwide ad spending by 2020, according to eMarketer. To capitalize on this, Snap needs to maintain its unique appeal; broaden the platform to other “sticky” services and features like gaming, e-commerce, payments, voice calling, and streaming music; and keep refining its income generation through introducing features like buy buttons and selling valuable user data.

This is all the more important in the face of Snap’s anemic user growth last quarter and Facebook’s aggressive inroads into Snap’s arena. As a social platform that serves video ads in a mobile environment, Snap is well-positioned to benefit from growing social, video, and mobile ad budgets.

Santosh Rao is head of research at Manhattan Venture Partners. He does not have investments in any of the companies mentioned in this article.

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