Snapchat's Q3, Implications for Digital Marketing Writ Large
Snapchat's Q3 Earnings Call has left a large number of questions unanswered for digital marketers, and the platforms they rely on.
The Update:
In Snap Inc. Q3 Earnings Call, senior executives alluded to major disruptions in the digital advertising landscape resulting from Apple’s iOS 14 Update:
Evan Spiegel, CEO:
Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple in June and July. While we anticipated some degree of business disruption, the new Apple provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS.
The above complications led to reported revenue coming in 1% under expectations and caused a -25% drop to the stock price in after-hours trading. Rightly so in my opinion. Firstly, the great innovation of the digital-marketing revolution has been a businesses ability to quickly discover return on investment. If you can discover this quickly you can also test different strategies quickly. Consequently you can find what works best quickly. Secondly, Snapchat has underestimated the effect that iOS 14 would have on their advertising business. Many have played down the negative implications but it appear’s that the magnitude of the changes may be worse and more drawn out than anticipated.
This impact was compounded by the ongoing macroeconomic effects of the global pandemic with our advertising partners facing a variety of supply chain interruptions and labor shortages.
More disturbing is the above revelation that the circumstances that have turbo-charged digital marketing and ecommerce over the past 18 months, are now constraining it. This point makes sense. If you can’t sell physical product and have a large backlog of orders your marginal operational dollars will be invested in your supply chain, not in acquiring new customers.
Jeremi Gorman, Chief Business Officer:
Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA, Apple's unique device identifier for advertising over the past decade, which now require a double opt-in by users in order to access directly.
Essentially Apple have completely disrupted, and perhaps retarded, the way in which digital advertisers measure their results. It is important to note that many of the tools used in this regard are up to a decade old. Not to delve too deeply into the proprietary tools which Apple have since rolled out, but they have proven to be unreliable for those relying on app-based advertisements:
For example, advertisers are no longer able to understand the impact of their unique campaigns based on things like time between viewing an ad, and taking an action or the time spent viewing and ad. Additionally, real-time campaign and creative management is hindered by extended reporting delays and advertisers are unable to target advertising based on whether or not people have already installed their app.
This is concerning for those applications which rely on collecting a lot of 3rd-party data, as these applications (at least in the short term) will be forced to fine tune their 1st-party data which they can then provide to their advertising partners.
Derek Andersen, CFO:
We expect that the measurement and optimization foundations of the digital advertising economy will continue to experience significant changes in the months ahead. Including additional disruptions, we expect related to the adoption of iOS 15. We are focused on helping our partners navigate these changes, but we still expect these headwinds to continue to impact our business throughout Q4 as the adoption of new measurement solutions will take time. It is still not clear what the longer-term impact of the iOS platform changes may be, and this may not be clear until at least several months or more after the ecosystem stabilizes and advertisers are able to fully implement the new solutions we are developing.
It is striking to see that even to the likes of a Snapchat that the implications of Apple’s privacy policy, which may get more difficult to deal with over time, are unclear. Also, they will remain so for some time. One of the key takeaways from this Earnings Call is that a good deal of time, and investment, will be attributed toward playing catch-up. Instead of resources being allocated toward exciting new products and services, they will be directed toward getting advertising partners back to where they were pre-iOS 14. I would like to point out that this is a near term issue, not existential one. Digital advertising is verging on being a $1 trillion business annually so the likelihood that these issues are obviated are good.
The true test of iOS 14’s impact on the app based digital marketing landscape will come on Monday when Facebook reports Q3 Earnings.
Stay tuned!