Snapchat, with its 100 million daily users watching 8 billion videos per day, is a growing threat to all social media companies. Twitter (NYSE:TWTR) felt so much pressure from the disappearing-video app that it practically copied one of its most popular features, Stories, and made its own version -- Moments. Facebook (NASDAQ:FB) has remained considerably strong, but its popularity among teens has dwindled significantly since Snapchat's release.
But Snapchat's threat has remained bottled up in its potential for a while now, which has led to a $16 billion valuation for the company. Now, Snapchat is getting serious about making money, and that's where the potential starts to affect the businesses of Facebook and Twitter.
A new hire
Snapchat recently brought on board Sriram Krishnan, the Facebook exec who was in charge of the Facebook Audience Network. Within 18 months of launching the advertising network for third-party app developers, Krishnan saw the annual revenue run rate grow to $1 billion. Before leaving, he saw the expansion of the Audience Network to the mobile Web, opening the door for even more revenue.
Krishnan's expertise in ad technology is exactly what Snapchat needs. The company has been selling ads for about 17 months, but it requires a dedicated sales team to make calls and place ad orders. Krishnan could help Snapchat launch an application programming interface, which would allow it to automate the ad buying process. Facebook, Twitter, and Google all feature APIs, which is what has allowed them to grow their active advertiser base.
Automating the ad buying process not only makes it easier for existing customer to buy more advertisements, but it also opens the door for smaller businesses to buy ads as they do on YouTube and Facebook already. Facebook recently announced that it has 3 million active advertisers, most of which are small or medium-sized businesses. Small businesses could greatly expand the revenue opportunity for Snapchat and help it compete with bigger companies such as Facebook, Google, and Twitter.
An API could also help improve Snapchat's ad targeting, increasing the value of its ads and the opportunities for advertisers. Snapchat currently only targets users based on gender, location, and operating system. An API could help target users based on the type of content they watch. That means advertisers wouldn't have to only advertise next to specific content from publishers, they could advertise anywhere in the app with the same effectiveness. That opens more advertising opportunities for Snapchat.
Facebook will be just fine
While Snapchat's 100 million daily users watch just as many videos as Facebook's 1 billion daily users, Facebook's size and ad tech is enough to keep advertisers from looking elsewhere. In the past year, Facebook has doubled its customer base from 1.5 billion to 3 million, so advertisers certainly seem to like its products.
Not to mention that Facebook just opened the door to Instagram for smaller advertisers. Instagram's audience is most similar to Snapchat's of all the large social media companies. Its young audience will help make Instagram another big growth driver for Facebook.
Twitter might have to worry, however. Its ability to grow its advertiser base has been overshadowed by competition, reaching just 130,000 at the end of last year. For comparison, Instagram already has 200,000 active advertisers. More importantly, its strength in brand advertising may take some hits as its user base fails to grow and Snapchat grabs share of larger business ad budgets.
Snapchat also caters to the real-time interactions of Twitter. Its Stories product, which curates content from across its network based on specific topics, is a direct competitor with Twitter's new Moments feature, which does the same thing with Twitter content. With a similar product, but with more video, a younger audience, and a growing user base, Snapchat looks much more attractive than Twitter.
If the ease of buying ads on Snapchat catches up with Facebook and Twitter, the latter may have to work harder to fend it off.
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.