Although Snap (SNAP) has sought to diversify into making hardware products, it still derives nearly all of its revenues from advertising. As the competition for digital advertising dollars has intensified, Snap has one key advantage over its major peers. The company has largely avoided data privacy and online misinformation challenges. In contrast, the issues have plagued Facebook (FB) and Google (GOOGL).
Snap avoids data privacy issues
Snap designed its Snapchat app for private conversations. Snapchat automatically deletes the content that people share after the recipient sees the information. Also, Snapchat posts aren’t public. Snapchat makes users feel like they’re having natural and private conversations, which appeals to a lot to privacy-conscious people. Snapchat’s privacy focus helped Snap avoid troubles with privacy regulators and activists.
Due to disappearing Snapchat posts, individuals or groups would struggle to use the platform to spread misinformation, which is a big plus for Snap.
Recently, Facebook and Google have come under fire due to misinformation and privacy breaches on their platforms. The public nature of Facebook and Google’s platforms made them convenient tools for people to spread objectionable content. As a result, the platforms are in regulators’ crosshairs. Also, the issues have strained Facebook and Google’s relationships with some advertisers.
On Wednesday, the FTC (Federal Trade Commission) fined Facebook due to data privacy issues. After months of investigations, the FTC concluded that Facebook didn’t adequately protect users’ data and privacy. As a result, the FTC imposed a record $5.0 billion fine on the company. Also, Facebook has to make a number of changes in its data privacy safeguards.
Facebook’s data privacy issues
The FTC ordered changes that will place additional responsibility on Facebook. Additional regulatory mandated responsibilities might be a financial burden for the company. The extra responsibilities might distract Facebook from its core objectives. A number of regulators around the world are watching Facebook due to privacy and bad content issues. Recently, German regulators slapped Facebook with a $2.3 million fine due to bad content.
Snap focuses on brand safety
During Snap’s second-quarter earnings call, CEO Evan Spiegel discussed the company’s privacy focus. He said, “We’ve invested a lot in privacy, and we care a lot about the safety of our community.” Brand safety has become a major concern for online advertisers. There has been an explosion of misinformation and privacy breaches online. Advertisers consider more than the audience size when choosing an advertising platform. For instance, Procter & Gamble (PG) only wants to spend its advertising dollars on platforms that can guarantee brand safety.
Terrorist videos on YouTube caused some large companies to boycott advertising on the Google platform. The companies were concerned about their brand reputation. Procter & Gamble was one of the brands that boycotted YouTube advertising. The company’s commercials appeared next to bad content. Facebook also faced advertiser boycott threats due to misinformation and data privacy scandals. Advertisers like Procter & Gamble aren’t happy with privacy breaches and misleading and violent content on some digital platforms. As a result, Procter & Gamble wants to prioritize advertising on platforms that can ensure brand safety.
Brand-safety conscious companies like Procter & Gamble are the types of advertisers that Snap wants to win. As other companies struggle to assure advertisers of their brand safety, Snap has made brand safety a cornerstone of its pitch. During the company’s second-quarter earnings call, Jeremi Gorman, Snap’s chief business officer, said, “It’s [Snapchat] a private conversation and communication that deletes by default…which makes it brand safe across the board.”
Gorman also said that Snap carefully selects Snapchat publisher content, which adds to its brand-safety credentials.
Snap pursues advertising dollars
Beyond focusing on data privacy, Snap is pursuing advertising dollars. Snapchat is very popular with Millennials. Snapchat is the top social platform for US teens—one of the demographics that advertisers covet. Snap said that its Snapchat platform helps advertisers reach more 13–34-year-olds in the US than Facebook or Twitter. Snap is in a better position to capture more of the advertising dollars that brands devote to marketing geared towards Millennials.
$130 billion up for grabs in US digital advertising marketplace
Billions of dollars are up for grabs in the digital advertising marketplace this year. According to eMarketer estimates, marketers around the world will spend over $333 billion on digital advertising in 2019. In the US, marketers will spend close to $130 billion on digital advertising in 2019. The digital advertising market in the US will top $200 billion by 2023.
Currently, Snap doesn’t break down its advertising sales by country. However, eMarketer estimates show that the company generated advertising revenues of $669.2 million in the US last year—up from $550 million in 2017. This year, Snap will likely generate $832 million in US advertising revenues, which will grow to over $1.0 billion in 2020.
Google and Facebook dominate the digital advertising scene in the US. However, their missteps in areas like data privacy and online misinformation could provide a big opportunity for Snap.