Snapchat is winning the wrong kind of business

Snap cofounders Evan Spiegel and Bobby Murphy.

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Snap cofounders Evan Spiegel and Bobby Murphy.
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Reuters

    Snapchat’s ad pricing decline, and its success in automated ad buying, will make it really hard for the company to stick to the narrative that it’s just like TV. The company was forced to bring in more low- paying advertisers following its IPO, which may have hurt its ability to command high prices in the future.

When is signing on five-times as many advertisers as you had at the start of a quarter a bad thing? When most of them are cheapskates, and you’ve billed your platform as a premium, TV advertising substitute.

That’s the weird place Snapchat finds itself. During a disappointing earnings announcement on Tuesday, the company announced that it’s prices had plummeted by 60% year over year! Snapchat executives attributed that to the fact that more and more advertisers were buying ads using programmatic, self serve tools, which would seemingly be a great thing – except that it’s diluting pricing overall.

The company says that over time, that dynamic will reverse itself, as more advertisers compete for ads via Snapchat’s automated buying platform. Maybe.

The new TV? Not at these prices

The problem is that Snapchat initially billed itself as a TV advertising equivalent. It’s early pitch to advertisers was that for young people, mobile was the new TV, and Snapchat was the best place for beer and car and retail brands to run broad, national ad campaigns.

The thinking was, Snapchat has a huge daily audience. It’s ads were supposed to work like TV ads. It hired a top sales executive from Viacom. It sought big upfront commitments from major ad agencies.

The problem is, Snap stopped growing, making it much harder to claim it was the new TV. And it went public so early in its lifespan that it needed to crank up revenue fast – and lower-paying, programmatic advertisers provided quick, easy money.

That’s fine. Google and Facebook thrive on selling ads to millions of advertisers.

But if you’re a big TV media buyer or chief marketing officer, are you going to question why you need to pay high, TV-like ad prices by going directly to Snapchat’s sales staff ,when it seems you can get ads pretty cheap through programmatic?

Especially given that Snap’s slowing growing probably makes it a lot less of a sexy, must try for big marketers.