What's going on?
Snap Inc., the firm behind the mobile app Snapchat and now the Spectacles, is vying to become a publicly traded company worth more than $25 billion; meanwhile, Facebook struggles to measure its users’ engagement.
What does this mean?
Late on Tuesday, Snapchat officially filed its intention to make its shares available to be traded by anyone (i.e. go through an IPO). If Snap Inc. achieves its targeted valuation, it will be the biggest US tech IPO since Facebook in 2012 (tweet this).
Facebook’s stock price has almost tripled since its IPO as it’s successfully monetized its users’ News Feed usage via ads. The trove of data it has on its users is, supposedly, gold dust to advertisers who can target cohorts of people like never before. But a problem has arisen: Facebook has been misreporting its users’ engagement with ads on its platform (e.g. overstating the reach of Pages).
Why should I care?
The bigger picture: Digital advertising is still establishing its credibility – but that’s not stopping its innovation.
“Targeting” users is nothing new in advertising: beer commercials run during live sports because young men have historically been the dominant demographic consuming that content. But, in theory, the granularity of the data that platforms, like Facebook, hold on their users makes for the most efficient advertising yet. However, when the measurements are found to be inaccurate, that argument becomes less convincing. Meanwhile, Snapchat is pushing forward new ad formats, including hyper-local targeting – so the ad revolution continues.
For the stocks: How much of a threat is Snapchat to Facebook?
Snapchat is small compared to Facebook: 150 million daily users versus Facebook’s 1 billion. But Snapchat appears to be the social media platform of choice for anyone under the age of 25 – and its network effect is certainly reminiscent of Facebook’s earlier days. Facebook is clearly trying to ward off the threat by doing things like adding “Stories” to its Instagram platform. It will be a fascinating battle to watch as the Snapchat generation grows older and begins to dominate the lucrative 18-35 year old advertising demographic.