This month, Snapchat’s parent company filed to go public. The success of Snap’s upcoming IPO valuation, estimated for March 1, is largely dependent on how much advertisers are willing to invest.

There’s no doubting the huge potential in the app, but Snapchat’s ad revenues pale in comparison to its peers. Facebook currently generates $62 of advertising revenue for each user in North America, while Snapchat receives just $5.64. Closing this gap will depend on Snapchat dealing with threats and exploiting opportunities:
THE THREATS

Competition: Facebook currently has 1.87 billion monthly active users, and owns Whatsapp, FB Messenger (1bn MAUs each) and Instagram (600m MAUs). By comparison, Snapchat has a comparatively paltry 300m MAUs.

Facebook will ruthlessly protect its position. Last summer Instagram copied Snapchat’s popular stories feature and by January it had as many users as Snapchat. Last week, a similar ’Stories’ feature rolled out on WhatsApp. So often has Facebook copied Snapchat, that Business Insider compiled a comprehensive list to accentuate this point. We can expect to see a similar Stories proposition on Facebook very soon.

Given the superior targeting and reach available through the competition, Snapchat faces a tough task in attracting ad spend away from Facebook’s platforms – especially if its most successful products are again appropriated by the social giants.

Controversy: The calls for third-party auditing of digital walled gardens have been growing since last September’s revelation that Facebook was over-egging its video metrics. While Facebook so far seems to be weathering the storm, similar rumours circulating around Snapchat’s figures could do serious damage to its reputation, if proven true.

THE OPPORTUNITIES
Innovation: Snap calls itself a ‘camera company’ rather than a social or messaging company, which suggests an attempt to lessen competition with Zuckerberg’s network. Indeed, it has focused on developing photographic software and hardware, in particular for its Spectacles product, which launched across the US last week.  The camera is genuinely innovative – it captures video in a circular format, allowing video to fill a mobile screen in portrait, landscape, or at any angle in between. For advertisers it raises the potential of video ads by fully utilising the mobile screen, rather than being confined to a small rectangle, or dependent on users turning their screens.

Ad-Integration: Snapchat’s well-integrated ad formats are best in class when it comes to delivering stand-out within a mobile environment.  It has pioneered vertical video, which has far more impact on the mobile screen than ads based on standard TV dimensions. Sponsored lenses and filters are formats which truly complement the way in which the platform is used. From tennis games to taco shaped heads, Snapchat’s advertising experience works because it enhances the platform rather than placing old formats in a new environment.

Whether it’s investment in shares or ad formats, Snap’s success will depend on how well it does the things that Facebook can’t.

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