Personal Finance

Snap Needs to Adopt This Ad Format

The Snapchat logo.

Snap (NYSE: SNAP) has an advertising problem.

That much should be evident by its repeatedly disappointing earnings results. Snap missed third-quarter revenue estimates by 12% after falling short by 4% in the second quarter.

While some of those disappointing results have to do with lower-than-expected user growth , it's also clear advertisers aren't completely satisfied with the return on investment for Snap ads. That's why Snap saw a decline in average ad price when it opened its self-serve ad platform, allowing marketers to bid on ads instead of paying a fixed price.

Now, Snap is considering forced-view ads, which won't allow users to skip them for at least three seconds, according to a report from AdAge . YouTube features a similar ad product, and while it can be annoying, it's effective. Just look at the growing Google properties' revenue in Alphabet 's (NASDAQ: GOOG) (NASDAQ: GOOGL) quarterly reports.

Snapchat suffers from low engagement on its Snap Ads, and forced-view ads would certainly help convince advertisers to pay up for them.

The Snapchat logo.

Image source: Snap.

Everybody is skipping Snap ads

All it takes is one tap to skip an ad on Snapchat. That's a functionality that's purposefully built into the app to allow users to skip through Stories (collections of Snaps from the past 24 hours) at their own pace. It comes with the negative side effect that most users skip the ads almost instantly.

Sixty-nine percent of users skip ads "always" or "often," according to a survey from Fluent last year. That number climbs to 80% when looking at users aged 18 to 24.

Millennials are a bit better about sitting through YouTube's TrueView ads (which are skippable after five seconds). Fifty-nine percent only watch the ads up until the point where they can skip them, according to a survey from UBS Evidence Lab.

One top advertiser says the average view time on its Snap Ads is barely over one second. For reference, the Media Rating Council has determined two seconds as the minimum time needed to be "viewable."

Will forced-view ads really make a difference?

You might think the difference between skipping an ad immediately and skipping it after three seconds is negligible, but research shows just a few extra seconds can make a big difference.

The most effective online video ads for millennials are just five or six seconds, according to a comScore survey. Many advertisers on Snapchat are already crafting extremely short messages to fit the format and increase the chances of engagement. YouTube's TrueView ads have helped marketers craft similar messages over the past couple years.

What's more, 3 seconds of a digital video ad on a platform like Snapchat can be much more valuable than a traditional television commercial. Google found attention paid to advertisements on YouTube's mobile app is 84% higher than advertising on TV. So, even if many are skipping ads as soon as possible, they're all paying attention, and the ones that stick around are truly showing interest in the advertisement.

Snap needs to do something

Snap's biggest challenge is showing advertisers it can produce a return on investment that makes it a legitimate alternative to Google. So far, it's failed to produce the results advertisers need to justify further investment in the ad platform.

The impact of testing forced-view ads should be relatively minimal for Snap, but the payoff could be huge. YouTube's TrueView ads show the potential of the ad format to engage users more effectively and produce meaningful revenue.

The current state of Snap Ads leaves much to be desired. A little experimenting wouldn't hurt. In fact, it may be exactly what Snap needs.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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