Snapchat is used by over 150 million people, and its parent company just went public in an IPO that gave it a market cap of $25 billion. But it appears Snap might have some work to do in terms of convincing advertisers the platform is worth putting their money into.
According to a series of studies published recently by RBC Capital Markets, in partnership with Ad Age magazine, advertisers and marketers are significantly less interested in spending money on Snapchat than they are in doing so with competing services like Instagram and Facebook.
When the 1,600 marketers who were surveyed as part of these studies were asked which platforms they were most interested in advertising on, almost 65% of them said Instagram, while less than 40% of those who responded said they were interested in doing so with Snapchat.
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This reluctance appears to stem from a lack of return on the investment that some advertisers have made in Snapchat, as well as concerns about measurement, and declining engagement from users.
The marketers and advertisers were asked as part of the RBC Capital Markets survey to rank various digital outlets and services on a scale of one to eight points, based on their satisfaction with the return on investment or ROI.
Snapchat got a score of just 3.43, which put it in second-last place out of eight outlets, just above AOL. Google and Facebook were number one and two, with scores of 6.98 and 6.72 respectively.
The proportion of advertisers who want to work with Instagram is bound to be a concern for Snap, because the Facebook-owned service has become a significant competitor to Snapchat over the past year or so, primarily by duplicating its features.
Last fall, for example, Instagram added a new feature called Stories, which is identical in both name and function to one of the most popular features on Snapchat — one that allows users to collect photos and videos about an event and share them with friends.
Since Instagram added its competing feature, there have been a number of reports from industry observers and media companies that both users and brands have been moving away from Snapchat and spending more time on Instagram.
Concerns about how Instagram’s competitive threat might affect growth at Snap were cited by many as a factor in the lead-up to the company’s initial public offering. With a $24 billion market cap, the pressure will be intense to show strong growth — in both users and advertising revenue.
The RBC Capital Markets study surveyed a range of marketers, Ad Age magazine said, including some with large budgets of more than $500 million, but also those with smaller budgets of only a few hundred thousand dollars. While more than 450 said they wanted to increase their spending with Google and Facebook, only 119 said the same of Snapchat.