Why Snap's Growth Bets on AR Look Uncertain

Snap's tumultuous few weeks may have been a surprise for Wall Street, but not so much for the advertisers making up the bulk of the platform's revenue. Adweek spoke to five media buyers, none of whom said their clients had increased their investment in Snap in 2022. Three said they maintained a minimal investment in the platform—and two said they are spending less. With increasing competition from rivals like TikTok, a fractured ads business (thanks, Apple), fewer performance-driven formats and a relatively lower-value user base, Snap's return to focus on augmented reality, community growth and revenue growth has some challenges. “Snap never reached [a client’s] core marketing budget,” said Calla Murphy, vice president, digital and integrated marketing at direct-to-consumer agency Belardi Wong. “It never got out of experimental.” For a platform that’s been around for more than a decade, not moving out of marketers’ experimental budget is not a great place to be—especially as newer entrants like TikTok eat up market and mind share, sources said. Snap is anticipated to command $2.72 billion in U.S. ad spend in 2022, less than half TikTok’s estimate of $5.96 billion—and behind Twitter and LinkedIn, per Insider Intelligence. Several platforms have reported tepid growth this year, amid a pullback from the ferocious ad spend in 2021 and recession rumblings. But users are still growing, boasting favorable user growth to competitors, a Snap spokesperson said. “Snapchat continues to grow, reaching nearly 350 million daily active users on average—and posting faster revenue and daily active user growth last quarter than our peers, including Meta, Pinterest and Twitter,” the spokesperson said. But to meet its financial goals, the platform will have to do more to show advertisers that people are spending time on the platform—and offer compelling ad formats that deliver on objectives, like performance marketing. Snap’s return to focus—a noted tactic during an economic downturn—centers on growing its community and AR capabilities, said CEO Evan Spiegel. Some brands have found success with the tactic; the Shopping Lenses tool, which lets customers try on products virtually, drove $6 million in revenue for Ulta Beauty and purchase lift for MAC Cosmetics, per brand case studies. However, sources said that for more cost-conscious brands, AR would also be an experiment at best, especially given the lower uptake from users. “The AR products are compelling, [considered as] an innovation factor," said Natalie Abouk, senior biddable account manager at performance-focused digital agency Croud, "but will likely be used sparingly as a brand identifying moment, rather than pushing the brand forward.” Snapchat+ Tops 1M Paying Subscribers Not a high spend, performance channel Ultimately, sources said that Snap mostly delivers on upper-funnel tactics—think of its well-touted augmented reality lenses used by brands like Cheetos, Tide and Uber Eats—and struggles to deliver on performance marketing tactics, where advertisers only have to pay for the results, an enticing method during economic uncertainty. The platform, spurred by Apple's privacy changes, has been building out its first-party data tracking and direct response platform—and aims to invest heavily in this part of its ad business. “Overall investment with Snap has been light, considering many of our clients are strictly performance-focused,” said Abouk. Not only do advertisers want to reach more people on Snap, they also want them to be more valuable. Snap users tend to have a lower than average order value, averaging around $55, said Katya Constantine, CEO of DTC agency DigiShopGirl. Given the fast-paced nature of the app, it tends to be best for pushing lower-ticket items that don’t take weeks of research, like makeup rather than a couch, Murphy said. Eyeballs vs. ad spend Snap's reliability to reach younger people has waned as TikTok's popularity has risen. “[Snap is] still one of the top Gen Z apps,” said David Herrmann, president of DTC agency Herrmann Digital. “However, TikTok has taken a ton of its thunder.” Herrmann Digital paused all ad spend on Snap in 2022. Last year, the app was the agency's third or fourth highest-spend platform. Now those spots have been claimed by TikTok and YouTube. Facebook and Google take the top two spots. Advertisers follow eyeballs. People in the U.S. spend an average of eight minutes on Snap, which Insider Intelligence anticipates will decrease in 2023 and 2024. Meanwhile, the average time spent on TikTok in the U.S. is 13 minutes, a figure that is projected to increase over the next two years. “[TikTok] is better at creating a community of content discovery and virality in a way that Snap lost,” said Constantine, who added that her clients' spend on the platform has remained stable from 2021 to 2022. “For a brand that is thinking 'how do I diversify or shift my dollars out of Facebook,' they are thinking about TikTok before they’re thinking about Snap,” she added. This article has been updated to include that Ultra Beauty and MAC have successfully used AR lenses. Snap Introduces Catalog-Powered AR Shopping Lenses

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Stuck in 'Experimental': Why Snap's Growth Bets on AR Look Uncertain

Media buyers said they haven’t increased spend on the platform

Catherine Perloff

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Catherine Perloff