7 Challenges Snapchat’s Parent Company Has to Overcome Before It Can Be Wall Street’s ‘New Facebook’

And avoid Twitter's rocky relationship with investors

The mobile app faces dilemmas thanks to both its unusual features and many rivals. Getty Images
Headshot of Christopher Heine

Snap Inc., the parent company of Snapchat, today is expected to begin trading on the New York Stock Exchange, where it’s reportedly being valued at $24 billion, or $17 per share. The mobile-focused player, founded by CEO Evan Spiegel in 2011, is a classic challenger brand, taking on digital behemoths that came before it as well as traditional media companies.

Its initial public offering will be closely watched in light of how successful social-media forerunner Facebook turned out to be on Wall Street compared with Twitter, which has struggled among investors due to lagging user growth. Whether Snap is the new Facebook or the new Twitter—or something completely different—will almost certainly be more than just a footnote when the next chapters of digital media history are written.

We asked marketing execs to weigh in on what Snap’s biggest challenges will be after the IPO. Here are seven themes that stood out:

Make colossal cash off of bespoke formats

It’s no small task that the company is competing with Google, Facebook and Instagram for ad dollars, but it seems to be off to an auspicious start—for instance, the rumored $200 million ad commitment from an unnamed holding company reported last week by the New York Post. Snapchat will bring in $1 billion in ad sales this year, per a report from eMarketer in September 2016.

At the same time, as Adweek reported earlier this week, challenges exist around building bespoke content for the mobile app’s vertical videos product called Snap Ads as well as its sponsored lenses and geofilters. Those ad products, which are often costly to create, as well as increased competition from Instagram have likely hampered Snapchat’s sales in the last three to five months and could continue to do so when it comes to nailing down major deals. The level of success achieved by its ads API, which became widely available in October, will be worth keeping an eye on in the weeks ahead.

“Its first task is to convince advertisers that it’s the right platform to translate user activity to brand engagement,” said Guillaume Lelait, U.S. managing director at Fetch.

Overcome a Wall Street wistful for the next Facebook

Sean Zepps, associate director of digital strategy at creative agency Deep Focus, part of Engine Group, suggested that the biggest challenge for Snap may be investors weighing the company not on its own terms but against the success of Facebook. It’s a similar problem Twitter has battled since going public in November 2013.

“Whether it’s their lack of understanding of the app and its young audience or the constant comparison they’ll make to the more mature platforms who are borrowing from them left and right, I’m preparing myself for an ongoing Spiegel vs. investor battle,” Zepps said.

Grow, grow, grow your base

One thing is unusually obvious: For Snap to avoid Twitter’s current situation on Wall Street, Snapchat’s user base must continue to expand.

And there’s reason for optimism on that front. The app’s U.S. audience will grow to 70.4 million by the end of 2017, according to eMarketer. That represents an increase of 14.2 percent from 2016. American adults between 45 and 54 years old are one of the biggest areas of growth, currently making up 6.4 percent of Snapchat’s U.S. patrons, according to eMarketer, whose previous projections saw that demo come in at only 4.2 percent.

Meanwhile, because big brands love international scale, Snapchat, which has 158 million global daily users, will also have to continue to build its audience in other countries.

“It’s going to feel some pressure to grow the user base at a more aggressive pace once they have investors at the table,” Zepps said. “Sadly, the legacy of Twitter lives on in the mind of most technology investors that saw Twitter’s growth stall. Snap Inc. is going to have to constantly remind them that they didn’t mistakenly back a flashy young social-media company, especially with such a lofty evaluation.”

Richard McDonald, president of Epsilon Agency, added, “Snapchat might be able to find a healthy revenue stream if they can figure out how to grow their audience and monetize effectively without alienating their users. If they can’t figure this out, they might very well become the next Twitter.”

Avoid ad fatigue

John Sampogna, co-CEO at interactive shop Wondersauce, pointed to a recent study that more than 60 percent of Snapchat users skip ads. He suggested that stat might represent a bigger problem for the app down the road, since it’s probably going to have to serve up more video ads to drive revenue and satisfy investors while risking turning off users—which could hurt brands’ performances.

“Now that [Spiegel] is about to be beholden to someone other than himself, something will have to give, and that pressure may begin to erode the high engagement that the platform sees among younger consumers,” Sampogna said.

Mark Read, global CEO at WPP-owned Wunderman, largely concurred. “Just like Facebook in its early days, there are bound to be some false starts before they work out how to bring brands onto the platform without disrupting the consumer experience,” he said.

Though Read was optimistic about its longer-term prospects with users, stating that “while the younger audience is even more fickle, all the evidence points to Snapchat as being the media and social destination of choice.”

Battle for video territory 

Many of Snap’s challenges are interwoven into competing with digital video giants and TV networks for ad dollars. That’s been the case for a while. But now, when it comes to streaming video, getting consumers to watch something has seemingly never been so cutthroat, with Netflix, Hulu, Google-owned YouTube and others increasingly offering content via their over-the-top (OTT) systems.

Just Tuesday, YouTube revealed its $35-per-month subscription service that directly challenges cable television. What’s more, in mid-February, Facebook announced that it will debut a video app for television set-top boxes. Of course, both of those platforms already had rivalries with Snapchat over uploaded mobile videos. In 2017, YouTube and Facebook—which have more developed ad sales teams and superior scale—are clearly diversifying their video offerings. As one more example to that end, few would question that Facebook-owned Instagram is coming of age as its own video-advertising dynamo.

Snapchat, meanwhile, has been busy ramping up on TV-like programming, inking deals for its media program, called Discover, in the past year or so with the NFL, MTV, Food Network, Turner Broadcasting, NBC, ESPN and CNN. Nick Cicero, CEO of startup creative studio Delmondo, suggested that the app needs to do even more to keep up in an environment where television-esque content is available via various channels on smartphones.

“If Snap wants to become more like TV,” he said, “they’re going to need to roll out more YouTube-like features to build true audiences around that content like notifications, meaningful subscriptions … They’re also going to have to keep pumping in unique and original content for Snap from partners if they don’t want to rely on celebrities and influencers to drive daily video consumption.”

Keep up with ad metrics demands

Google and Facebook are under greater and greater scrutiny when it comes to their ad metrics, and the pair of digital giants have recently responded by agreeing to an audit by the Media Ratings Council. On Tuesday, The Wall Street Journal reported that advertisers were now demanding Snapchat to do the same, and marketers speaking with Adweek essentially echoed such sentiment.

“As they are looking to court advertisers,” explained Cicero, “their platform remains a black box as they haven’t opened their analytics up like their competitors Facebook and YouTube. So brands will be hesitant to invest on a platform with an understanding of the returns.”

Jason Beckerman, CEO at social marketing company Unified, said he believes that Snap’s existing partnerships with metrics companies like Nielsen, Millward Brown, Moat and Integral Ad Science will help steer it through the stormy data conditions affecting the current digital landscape.

“Snapchat has set itself up well to avoid major metrics issues post-IPO,” he said. “Companies like Nielsen and Millward Brown are already set up with Snapchat and [it is] poised to easily add more partners to this roster over time.”

Fulfill “camera company” potential

Spiegel calls Snap “a camera company,” which some industry players say points to an ambition to combine devices like Spectacles with his app to drive sales. Spectacles are souped-up sunglasses that record video via an integrated camera from the wearer’s eye-level perspective. Users can then upload 10-second video clips to the Snapchat platform via a smartphone synced through Bluetooth or Wi-Fi. The devices cost $130 apiece.

The potential for hardware sales aside, there’s probably a long-game strategy by Spiegel and his engineers to monetize how Spectacles and Snapchat can work together for marketers. It’s extremely early for the sunglasses, but it’s not hard to imagine custom packaging of Spectacles content and Snapchat ads in the offing at some point down the road. Brands like Sour Patch Kids and Mountain Dew have been testing the devices for months. And branded Spectacles—Ray-Ban would seem like a possible candidate—could also conceivably emerge.

“I think [Spectacles] are an interesting preview of what’s to come,” said Rye Clifton, director of experience, GSD&M. “I’ll admit I felt too old for ‘Specs’ when I tried wearing them for a week, but they do change the way you approach photography—what’s worth capturing and how you remember it.”

And what about the next generation?

“It was really interesting to watch my three-year-old play with them, then to play back his perspective on the world,” Clifton described. “That’s where the gold is.”

@Chris_Heine Christopher Heine is a New York-based editor and writer.