Social media giant Snap has seen revenues fall and exposed itself as a programmatic amateur
Programmatic advertising is the automated process of purchasing ad space in real time. It allows advertisers to buy space on websites and platforms generating ultra-high, ultra-relevant impressions.
For publishers, creating a clamour around your advertising inventory seems like an ideal way to drum up profits. Cutting out humans reduces costs and fast-tracks relevant new ads to their rightful place. But Snap’s troubles show it’s not all plain sailing.
Snapchat snaps
Last year, 80% of ad impressions on Snap, the company behind Snapchat, came from programmatic – an increase of 400% year on year. However, the platform is reporting significant declines and revenue expectations are falling short.
CEO Evan Spiegel reckons the shift away from direct selling is depressing unit prices and therefore revenues. “The substantial decline in average CPMs (cost per minute) during the transition to the auction means the majority of revenue growth has come from new advertisers,” he says.
There are a few possible reasons why the new model isn’t quite meeting expectations.
First, any sudden shift to auction-based selling is as much of a shock to advertisers as it is to publishers. But it’s the latter who stand to lose out.
During the initial shift to programmatic a few years ago, many complained that buyers were bidding on the cheapest prices and driving down unit costs. Over time, demand increases, prices even out, publishers get better at managing the dynamic and revenue becomes more reliable. It appears this is something Snap is only just starting to realise.
Another fly in the programmatic ointment is that publishers using it need to restrict buyers or they will end up with all sorts of inappropriate ads on their websites.
What steps has Snap taken?
There are two main options.
- Whitelists permit certain buyers and prevent the rest from winning business. In theory, this creates a more exclusive pool of high-paying, ultra-relevant advertisers. But often it means that supply exceeds demand.
- Blacklisting: blocking the worst offenders but allowing all others. This does mean more ads are sold – but at a lower price.
For mobile-only providers such as Snap it’s a particularly sticky situation either way. Whitelists are really the only option on mobile – ad fraud tends to be highest on the platform and revenues are lower than on desktop.
The theoretical advantages make programmatic unavoidable for B2C publishers, but the practical constraints amid the drive to mobile are difficult to overcome.
B2B bonanza
There are a few good reasons why B2B platforms shouldn’t be deterred by Snap’s pessimism.
First of all, Snap’s handling of this whole saga has been poor. Competition and demand for advertising space take time to even out once automation is introduced – so a wholesale shift away from direct selling was always likely to knock revenue streams. The fact this seems to have come as a surprise is more of a reflection on their marketers than on programmatic itself.
It’s also worth noting that B2B content is mainly consumed on desktop devices, where programmatic revenues tend to be more stable. Lower rates of fraud and better-established ad formatting both help with this.
But the key point is that programmatic advertising offers the perfect opportunity to provide ads that are both tailored and profitable. As noted in our analysis of closed audiences, B2B publishers have unique insight into who their content reaches and how engaged their audiences are. This could go some way towards solving the whitelist problem, favouring the most relevant advertisers from the outset.
Programmatic advertising is still in its relative infancy and publishers are understandably dubious of the transition to automation. But don’t be deterred by Snap’s foibles – B2B publishers are ideally positioned to make the format the foundation of a healthy, long-term revenue stream.
