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Snap Risks Turning Off Users With New Shoppable AR

By Rich Duprey - Apr 27, 2018 at 7:14PM

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New lenses become an avenue for selling products to users.

What's good for Snap (SNAP -2.40%) may not be good for its users.

The vanishing-message app is introducing "shoppable AR," new sponsored lenses that also function as ads that let users take an action like purchase a product or download an app. While Snap has had similar ads on its app before, such as those found in its Discover section, this is the first time there will be a call to action on the lenses.

And because they're in the camera -- obviously the most used and visible part of the app -- Snap runs the risk of alienating its users by making advertising so obtrusive.

Man and woman taking a selfie

Image source: Getty Images.

Take a picture, it lasts longer

The call to action -- to download an app, visit a web page, or buy a product -- is a potentially lucrative feature that turns Snap's popular lenses into a revenue creator. CNBC reports there's no price hike for advertisers to add the capabilities to some of their existing ad products, though depending on how specific an audience sponsors want to target, they'll be able to bid on placement with prices ranging from $100 per day to $40,000 per day, with pre-negotiated rates per thousand users. Advertisers can also pay extra to be the first lens that appears to anyone using the app.

Snap is starting off with four media partners: Adidas; Clairol; Candy Crush Saga game maker King; and media company STX Entertainment, which will offer a link to a trailer of the new Amy Schumer movie, I Feel Pretty.

Snap generated some $825 million in revenue last year, almost all of it from advertising, and it ended 2017 with 187 million users, an 18% increase from the prior year. Being able to put ads with a call to action right in front of all those people will obviously be an attractive lure to advertisers because it increases engagement with the ad, and therefore the likelihood the user will make a purchase.

The question is, will users want to be sold something every time they open the app?

Sell me more

There is some evidence to suggest they will. Numerous studies over the years show that nearly three-quarters of consumers use social media to influence their purchase decisions, which adds to research Marketing Week did in 2016 that found 19% of Facebook users, 10% of Twitter users, and 9% of Instagram users wanted to be able to purchase items directly from their social media feeds.

That seemingly insatiable potential demand, coupled with Snap's own data showing 70 million users use its lenses every day, points to the possibility for this mutually beneficial relationship to develop further.

Are you experienced?

Yet, there could be a backlash. First, a sponsored lens is already an advertisement to begin with, and now the user will be hit with the option of making a purchase, a situation that could degrade the quality of the user experience. While some people may want to be able to purchase products through an app, that's not the reason they use the app.

People don't go on Facebook to buy stuff, but rather to check up on what friends and family are doing. They don't go to YouTube to purchase things either, even though there are ads in and around videos; they're there to view videos. And people aren't going to Snapchat to be sold sneakers and hair care products, but to share moments with friends.

Making Snap's lenses shoppable, and putting these ads front and center to users, is changing the site from being more about the user, to increasingly about the advertiser. And Snap has allowed some terrible ads to appear, such as the one making a reference to musician Rihanna's domestic violence experience.

These could be growing pains, and the company needs to get better at filtering out offensive content. The shoppable AR (augmented reality) feature Snap is introducing could benefit both users and advertisers. But making ad revenue the raison d'etre for the app carries with it a lot of risk, and though the company may end up making a lot of money initially, it could run into a case of diminishing returns as users are turned off because they are being bombarded with ads.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.

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