The user growth at Snapchat has been phenomenal, to say the least. Earlier this month, Bloomberg reported that Snapchat has more daily active users than Twitter (NYSE:TWTR). Analysts have made a big deal out of Snapchat's user growth because it represents the potential for the disappearing-photo app to impact the more established social networks such as Twitter, Facebook (NASDAQ:FB), and Instagram.
But that's all it's really been: potential. Now, Snapchat has announced some new updates to its ad products that turn that potential into a reality.
The next wave of Snapchat advertisers is coming
The biggest announcements Snapchat made are that it's releasing an applications programming interface and that users will be able to interact with ads.
An applications programming interface, or API, allows ad buyers to purchase ads programmatically with software, instead of making a call to Snapchat's sales team. This will allow Snapchat to scale the number of advertisers on its platform much more quickly. It still says it will review every ad, just as Instagram does, to protect the quality of content on its platform. Still, it's removing a huge barrier to entry.
Marketers will be able to use the API to target users using very basic demographics: age, gender, location, device, and carrier. It's also able to target users by the amount they watch certain Discover channels. Eventually it could expand targeting based on the other users a person follows and implied interests just like on Instagram or Twitter.
The new expandable ads will allow advertisers to include a call to action that users can swipe on to do something. From app-install ads to opening a webpage to completing a purchase, these ads offer all sorts of possibilities and represent a direct threat to some of Facebook and Twitter's most profitable ad units.
Snapchat has also partnered with Moat, Nielsen, and Google DoubleClick to provide better third-party measurement tools for the effectiveness of its advertisements. That's something very important to advertisers, and it's been a focus of both Twitter and Facebook for some time now. The data show that Snapchat's ads are extremely effective, receiving 5 times the engagement of the average ads on other social platforms.
This is a major threat to Twitter and Instagram
During Twitter's first-quarter earnings call, one analyst asked why the outlook for Twitter's second quarter showed such a sequential slowdown in advertising growth. Twitter expects just $590 million to $610 million this quarter, compared with the $595 million it reported in the first quarter. CFO Anthony Noto told analysts that a big part of the slowdown is the shift from growing the number of brand advertisers it works with to only growing its share of those advertisers' ad budgets.
In other words, Twitter needs brand advertisers to spend more money with them in order to grow revenue. But Snapchat's new ad buying tools and ad formats make it immensely more attractive and easier to buy from, making them more likely to spread their ad spend to Snapchat instead of investing more in Twitter.
While Facebook doesn't break out numbers for Instagram, the photo-sharing network has been riding a big growth wave since opening up its API and new ad formats with call-to-action buttons. Those are the exact same steps Snapchat is taking, and with similar audiences it could curb the rapid growth Instagram has seen over the last three quarters or so since opening up its ads business.
In its first six months, Instagram attracted a whopping 200,000 advertisers, quickly surpassing Twitter. While Snapchat's ad units are designed mostly for brand advertisers, those types of ads make up the majority of revenue on Twitter and appear to account for most of Instagram's business as well.
With the new products Snapchat just announced for marketers, the potential of its growing user base is about to become a real threat to Twitter and Facebook as it looks to attract more advertisers.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.