Snapchat is finally looking to monetize its millions of users. The app company's 24-year-old CEO, Evan Spiegel, told Katie Couric that the planned ads are "not fancy." They're not targeted, and users can elect to bypass the ads if they're so inclined -- which sounds like almost everybody.
Snapchat, by its nature, doesn't collect a lot of data on its users, the way Facebook (NASDAQ:FB) or Twitter (NYSE:TWTR) do. Just about the only information Snapchat has on its users is a phone number and email address. This data alone makes it really difficult for Snapchat to target users on its own. That buyout offer from Facebook for $3 billion isn't looking so bad now, is it?
Luckily, Snapchat doesn't have to go it alone. It can tap Facebook.
The oldest form of digital advertising
It seems as if ever since email was invented, email spam has existed. Spam is untargeted, seldom creative, and easily recognizable in your inbox (although most email clients rarely let spam advertisements make their way into your inbox anymore). If you do see a spammy subject line, it's highly likely you'll delete it without opening it.
This is the mechanism Snapchat is planning for selling brands. It's going to let companies spam its user base, and it's likely a very large percentage of users will ignore the message.
Snapchat isn't offering a very valuable form of advertising. As such, advertisers aren't going to pay very much for the product.
What's really disappointing is that Snapchat could have integrated ads into its Our Story feature, which collects Snaps from big events such as college football games, music festivals, or Oktoberfest. These events have clear audiences with expressed interests -- sports, music, beer -- that are easy targets for advertisers. What's more, it could have included the advertisement within the content people want, forcing them to view the advertisement to see more content.
Using Facebook's data
There's an even better solution, though. If Snapchat feels it's too early to throw ads into the middle of its Our Story feature, Snapchat can just tap the assets of Facebook and Twitter.
Facebook just opened to every app developer its Facebook Audience Network, which lets those developers show Facebook ads in their own app. As more advertisers buy ads on Facebook, Facebook is forced to either raise prices or increase the number of ads it shows on its site. By expanding its reach to other apps, Facebook will be able to better serve its 1.5 million advertising partners.
Snapchat can take advantage of Facebook's network. The ads can be targeted using Facebook's data, but Snapchat will have to install Facebook's software development kit, which allows the social network to glean data from the app.
If Snapchat wants to go one better, however, it could partner with a supply side ad platform like Twitter's MoPub and use targeting data from Facebook by working with Facebook's Atlas. While it's not clear whether Atlas will work with Twitter's MoPub, it would be hard to avoid. MoPub is one of the biggest, if not the biggest, mobile ad servers on the planet. MoPub hasn't had any problems working with Facebook in the past. Working with Atlas will allow advertisers to better track the effectiveness of ads on mobile apps like Snapchat.
And if Snapchat really wanted to go all out, it could simply integrate Facebook's application programming interface into its app, so advertisers could use the data to target users with ads made specifically for Snapchat. This approach would result in the highest-value ads for Snapchat, but would require more engineering effort and for the company to work directly with brands. Luckily, the whole company is full of engineers, and Spiegel has already indicated his willingness to work with advertisers.
Earning its keep
Many thought Snapchat was crazy to turn down Facebook's buyout offer. The company reportedly has over 100 million monthly active users and zero revenue. And without any data of its own, Snapchat is resorting to the most basic of digital advertising now.
Whether it's pressure from outside investors pushing Snapchat into advertising or Spiegel's own acceptance that it's time to start experimenting is unclear. Management seems to be overly cautious with the opt-in mechanism (users don't see an ad unless they choose to) for these advertisements, which makes them very low-value for brands. At the very least, Snapchat could use Facebook and Twitter to annoy its users even less by targeting its advertisements at users more likely interested in a brand.
There's a lot more Snapchat can do with its large user base. I expect its current advertising plan is just a small proof of concept for advertisers and investors. At least I hope so.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.