Cheap con­tent and a grow­ing reach are mak­ing the Venice start-up a fast-ris­ing star. Ad­ver­tis­ers are tak­ing no­tice.

Los Angeles Times - - BUSINESS - By Paresh Dave and David Pierson

Thou­sands of rev­el­ers de­scended on the Coachella mu­sic fes­ti­val last week­end to rock out to their fa­vorite bands and party day and night. But a far big­ger au­di­ence from around the world — at least 40 mil­lion — joined in re­motely through video snip­pets from Snapchat.

Those snip­pets, no more than 10 sec­onds long — bands on stage, crazy dancers, peo­ple in swim­suits glid­ing down a Slip ‘n Slide — were shot and posted by Snapchat users at no cost to Snapchat. The fast-grow­ing Venice start-up sim­ply stitched clips to­gether us­ing soft­ware. It’s now sell­ing ad­ver­tis­ing for those pro­grams; with free con­tent, the profit mar­gins would be huge.

Crit­ics dis­missed Snapchat early on as a smart­phone app that didn’t do much but let lovers trade the type of pho­tos they didn’t want saved. But the huge au­di­ences that Snapchat is gath­er­ing on a new fea­ture called Sto­ries is the lat­est ex­am­ple of how a tiny com­pany can rise up fast with a busi­ness strat­egy that could make it the next hot tech­nol­ogy sen­sa­tion out of Cal­i­for­nia — much like Face­book in its early days. Early Sto­ries ad­ver­tis­ers in­clude Co­caCola, Uni­ver­sal Pic­tures, Macy’s and Sam­sung.

Con­sider the po­ten­tial: Top broad­cast shows, such as CBS’ “NCIS,” av­er­age about 20 mil­lion view­ers, half the Coachella au­di­ence. Snapchat’s reach, ad­ver­tis­ing in­dus­try an­a­lysts say, is big enough to siphon ad dol­lars oth­er­wise spent on tele­vi­sion and YouTube.

“You have a TV-sized au­di­ence all view­ing at once, or at least within a day,” said Michael Boland, chief an­a­lyst at ad con­sul­tancy BIA/ Kelsey. “Brand ad­ver­tis­ers re­ally like that.”

The un­der-35 crowd, spend­ing less time with TV, has been a pesky lot to track down for ad­ver­tis­ers, but Snapchat is among the few so­cial me­dia apps in which they see pos­si­bil­ity. Spend­ing on mo­bile ads that take a user’s lo­ca­tion into ac­count is ex­pected to bal­loon to $19.3 bil­lion in 2018 from $4.3 bil­lion in 2014, ac­cord­ing to BIA/Kelsey. Snapchat aims to take a big piece.

There’s no cer­tainty that it will. The pri­vate com­pany’s prof­its will have to be huge and sus­tained for many years be­fore it can jus­tify its mar­ket value, reput-

‘It was cool to get into L.A. Sto­ries.’ — JENNY CHAO, who re­cently shot danc­ing rollerbladers at Davey Wayne’s, a retro 1970s bar in Hol­ly­wood, which found its way into the Los An­ge­les story

edly about $15 bil­lion based on re­cent ven­ture cap­i­tal in­vest­ments.

That as­sumes some hefty ad­ver­tis­ing rev­enue. Ad­week re­ported this year that the com­pany was ask­ing brands for $750,000 a day to place ads on the plat­form. Snapchat de­clined to say how much it makes from ad­ver­tis­ers.

Face­book, founded in 2004, de-em­pha­sized ad­ver­tis­ing in its early years, when founder and Chief Ex­ec­u­tive Mark Zucker­berg talked about build­ing a so­cial net­work first. When it got big enough, ad­ver­tis­ing dol­lars would fol­low, and they did. Now Face­book is be­com­ing a chan­nel for videos and other con­tent and is pulling in an­nual rev­enue of $12 bil­lion a year and grow­ing.

Snapchat is tak­ing a more ag­gres­sive ap­proach to ad rev­enue than Face­book did. The dis­ap­pear­ing mes­sage fea­ture grew fast by at­tract­ing mostly young users who sought a more shrouded so­cial net­work than the highly public Face­book could pro­vide. And then it took off yet again as it added mo­bile video. When Face­book launched, tech­nol­ogy for on­line video was still fairly crude.

Snapchat’s con­tent is cheap. User-sent video costs next to noth­ing — just some soft­ware and hu­man cu­ra­tors to piece to­gether com­pelling snip­pets, which dif­fers sub­stan­tially from the dis­or­ga­nized mess that con­fronts vis­i­tors to YouTube.

Snapchat gets free con­tent from me­dia com­pa­nies too, some of it high qual­ity. Snapchat’s new Dis­cover fea­ture dis­plays but­tons that take Snapchat users into short, splashy video pro­duc­tions by Vice, CNN, Na­tional Geo­graphic and oth­ers. Ad­ver­tis­ers on Dis­cover in­clude Ver­i­zon, BMW and Sperry Top-Sider.

For­get prof­its for now, though. It’s be­lieved that Snapchat barely brings in any rev­enue, with its ex­per­i­ments in ad­ver­tis­ing at an early stage.

Still, the nearly 4-yearold com­pany’s suc­cess with new forms of ephemeral con­tent is likely to keep early in­vestors happy.

“I see what Snapchat is do­ing around Sto­ries and Dis­cover, and I feel it’s safe to as­sume that Snapchat will be­come a vi­able plat­form for video ad­ver­tis­ing,” said Jared Lake, direc­tor of dig­i­tal strat­egy at ad buy­ing agency Ocean Me­dia. “They have some re­fin­ing to do, but I would be shocked if they didn’t get there very soon.”

The suc­cess with Coachella high­lights the pos­si­bil­i­ties for Sto­ries, a grass­roots look into what life is like at fes­ti­vals, awards shows, sport­ing matches, col­lege cam­puses and cities near and far. The glimpses of daily life are or­ga­nized into three- to five-minute videos by a small team of Snapchat em­ploy­ees. Their source ma­te­rial: hun­dreds of hours of user-gen­er­ated pho­tos and videos. At­ten­tion from Snapchat can am­plify the chat­ter about an over­looked event — like last week­end’s Ox­ford vs. Cam­bridge boat race on the River Thames — as much as a highly or­ches­trated TV pro­duc­tion.

Re­quests for cer­tain events f lood Snapchat work­ers on Twit­ter and email, clu­ing them in to items the com­pany might never have imag­ined: cheer­lead­ing com­pe­ti­tions, uni­ver­sity dance-a-thons, horse races. Each clip in a story is avail­able for 24 hours only; then it dis­ap­pears.

Over the week­end, Jaime Bon­ven­tre cap­tured a bit­ter­sweet mo­ment in sports his­tory she thought a few fel­low fans would also en­joy: a six-sec­ond record­ing of a worker push­ing a goal cage off the ice af­ter the New York Is­lan­ders played their fi­nal regular sea­son game at Nas­sau Coli­seum.

She didn’t ex­pect 3.6 mil­lion peo­ple to watch the clip, in­cluded in a Snapchat com­pi­la­tion fea­tured in the app as “Our Is­lan­ders Story.”

“It was just in­sane,” said Bon­ven­tre, 26, a so­cial me­dia pro­ducer at News 12 Net­works in Long Is­land, N.Y., who ended her snap with a sad face emoji.

Bon­ven­tre has been a Snapchat fan since the app be­came avail­able, check­ing daily com­pi­la­tions from var­i­ous cities and events.

“Like Coachella, those were awe­some,” she said. “It made me wish I was there.”

With more than 100 Sto­ries pro­duced since last June, Snapchat is tak­ing its dig­i­tal jet-set­ting to more ex­otic lo­cales.

On Tues­day, for the first time, Snapchat re­ported back from Dubai, where a camel tanned on the beach, a man trou­bled by swel­ter­ing heat U-turned back into the shade and jet skiers raced along the shore, all pieced to­gether from images users up­loaded with a tap on a smart­phone screen. Snapchat ze­roed in on Toronto and Seat­tle over the next two days.

Sto­ries for Los An­ge­les and New York City, the two cities where Snapchat has of­fices, have be­come main­stays since launch­ing in Fe­bru­ary and have drawn mil­lions of views a day. Snapchat also has pro­duced Sto­ries for 70 col­lege cam­puses, though the videos are view­able only to those nearby.

“The ex­pe­ri­ence is through the lens of the com­mu­nity, and that hu­man per­spec­tive is pretty unique and ex­cit­ing,” Snapchat spokes­woman Mary Ritti said.

On the Los An­ge­les video mid­day Thurs­day, view­ers were greeted with videos of chicks, kit­tens and lizards, then a woman sig­nal­ing out a mes­sage for Amer­i­can Sign Lan­guage Day, fol­lowed by a trio of Lak­ers thank­ing fans af­ter a mis­er­able sea­son.

Jenny Chao re­cently shot danc­ing rollerbladers at Davey Wayne’s, a retro 1970s bar in Hol­ly­wood, which found its way into the Los An­ge­les story.

“It was cool to get into L.A. Sto­ries,” said Chao, an ac­count ex­ec­u­tive at Moxie Com­mu­ni­ca­tions, a public re­la­tions firm with of­fices in Ma­rina del Rey. But she’s not des­per­ate. “It’s not like my fin­gers are crossed all the time that I’ll make it.”

Snapchat is play­ing with ways to in­cor­po­rate ads into the new fea­tures. It has slipped ad­ver­tis­ing in be­tween clips in a few event-based Sto­ries, but not yet into any city- or col­lege-themed ones.

It’s the lat­ter group, how­ever, that could widen Snapchat’s rev­enue po­ten­tial as it taps into niche or re­gional ad­ver­tis­ers in thou­sands of mar­kets, not just na­tional ac­counts such as Ver­i­zon Wire­less and Sperry Top­Sider.

“Multi-lo­ca­tion busi­nesses, restau­rants, re­tail or down even fur­ther to the small-busi­ness mar­ket­ing space,” said Boland, the an­a­lyst. “The more frag­mented uni­verse of lo­cal ad­ver­tis­ers is where Snapchat could re­ally get scale.”

The ads prob­a­bly would have to re­main high-qual­ity, ver­ti­cally shot, short and spo­radic — as they are now — ac­cord­ing to ex­perts. Snapchat’s avoid­ance of sloppy and in­fu­ri­at­ing ads is pay­ing off, said Stephen Boidock, so­cial en­gage­ment direc­tor for the Austin, Texasbased ad­ver­tis­ing agency Drum­roll.

“What’s great about Snapchat is they’re learn­ing how peo­ple use the tools and apps to cre­ate the best way to in­te­grate ad­ver­tis­ing nat­u­rally,” Boidock said.

Mar­cus Yam Los An­ge­les Times

SNAPCHAT’S suc­cess with its Coachella fes­ti­val pro­grams high­lights the pos­si­bil­i­ties for Sto­ries, a grass­roots look into what life is like at fes­ti­vals and other events. Above, fans at the Coachella fes­ti­val last week­end.

Jay L. Clen­denin Los An­ge­les Times

AFP/Getty Images

SNAPCHAT has slipped ads in be­tween clips in a few event-based Sto­ries.

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