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Snap Is Getting Into E-Commerce

By Evan Niu, CFA – Apr 18, 2018 at 5:28PM

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Will users purchase products directly in Snapchat?

Snap's (SNAP 1.34%) core advertising business is still fairly young and inchoate, although the Snapchat operator has made meaningful progress with scaling its ad platform through automation. Meanwhile, the company is starting to be more cognizant of costs, which has entailed numerous rounds of layoffs. While Snap's self-characterization of being a "camera" company is laughable in terms of hardware, it has undeniably made a name for itself in augmented reality (AR). Lenses are easily among Snapchat's most popular feature.

Snap now wants to let users purchase products through Lenses.

Snapchat logo

Image source: Snap.

A natural expansion

TechCrunch reports that the social media company is introducing Shoppable AR, which will allow advertisers to sell products directly through Sponsored Lenses. There will be a "Shop Now" button that advertisers can incorporate into their Sponsored Lenses, allowing users to complete purchases all within the primary Snapchat app, removing friction and improving the chances that the transaction will be completed. Alternatively, advertisers can instead choose to use buttons that display video ads, direct to a website to learn more about the product, or install an app.

"Shoppable AR Lenses give brands a new way to leverage our unique scale to drive real and measurable ROI, whether that's through sales, downloads, lead gen, or video views," said Director of Revenue Product Peter Sellis, according to Business Insider.

It's Snap's turn to copy Facebook

Facebook (META 0.07%) has been relentlessly copying Snap for years, replicating its most popular features and implementing them across its growing portfolio of social media properties. The tables are turning, as Snap is now borrowing a page out of Facebook's playbook.

The dominant social network has been working on turning Instagram into an e-commerce platform for quite some time, similarly allowing Instagrammers -- whose monthly active user (MAU) base is quickly approaching 1 billion -- to seamlessly purchase products directly within the app. Instagram has partnered with prominent third-party e-commerce platforms to enable the functionality.

Instagram is evolving from a simple photo/video-sharing service into more of an AR platform, introducing AR face filters for Stories about a year ago. More broadly, Instagram and Snapchat are both fundamentally visual-heavy services that naturally lend themselves very well to ads. In some cases, the experience can be so seamless that users don't even realize they're interacting with an advertisement.

Snap is under immense pressure to grow its advertising business. Not only are investors starting to lose patience with the company (shares have given up all the gains from the February earnings pop), but Snap is still on the hook for those massive cloud spending commitments in the years ahead. Expanding into e-commerce definitely has some potential.

Snap reports first-quarter earnings on May 1.

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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