Can Snap make it as an AR company?

It is perhaps necessary for Snap to pivot to AR, much like Facebook and Instagram parent Meta eventually needed to diversify its slowing social media business. Plus, there have been challenges both for the company and across the industry. Last year, Snap lost key advertising leadership who were poached by Netflix to lead the streamer’s ad business, while the company laid off 20% of employees as part of a major restructuring.

Experts believe that there are growing use cases for AR to engage people, which could form a path back to growth for Snap. Some marketers have been testing AR as an easy way to experiment with the metaverse, which can attract younger audiences. They also point out that Snap’s ability to quickly roll out and update these types of features makes the app more appealing over others.

“In a social arena plagued by chaos, Snap has been a steady, reliable partner,” said Ben James, Chief Innovation Officer at data-driven media agency GALE. “While the industry doesn’t always appreciate steady versus the shiny new thing, it’s Snap’s focus [in AR] that has differentiated them from their competitors.”

Advertising growth potential

Even as the giants of social media experienced their first revenue slowdowns due to uncertainty in the economy and softness in the advertising sector, Snap outperformed some of its competitors and showed steady growth to its ad portal. For instance, Snap last quarter began to attract more traffic to its ad portal in October as Twitter’s traffic decreased.

Specifically, traffic to Twitter’s ad portal, which is different from activity on the platform, declined 19% year over year last October, while traffic to Snap’s ad portal increased 47% year over year, according to intelligence platform Similarweb. Traffic to Snap’s subdomain for ad buying activity was also up 163% last October, as Tesla boss Elon Musk continued his takeover of Twitter.

With regulators still pursuing bans on TikTok, Meta apps stagnating in user growth and Twitter’s future uncertain after Musk’s acquisition, Snap may stand to benefit from its rivals’ challenges. Based on its Q3 2022 earnings, Snap revenues increased a relatively meager 5.7% year over year to total $1.13 billion, with daily active users up 19% year over year reaching 363 million. But even as Snap differentiates itself as a leader in AR, it is likely years away from seeing a return on those investments. Snap is expected to report its Q4 2022 earnings on Jan. 31.

Yet, as agency executives explained, AR has the potential to help Snap attract younger users and let brands try out other forms of social ads on the platform. “Snap’s potential to produce experiences like this, combined with commerce enablement, would give them different ways to add value to young audiences,” said James Townsend, Global Chief Executive of Stagwell Brand Performance Network.

Additionally, some AR content may have advantages over other forms of advertising, said James Addlestone, Chief Strategy Officer at performance marketing agency Journey Further.

“AR executions typically involve the brand, or distinctive assets of that brand, to be ever-present throughout the experience, providing significant advantages for well-executed AR over, say, a static social ad or digital display, where attention is particularly low and subsequent brand recall is poor,” Addlestone added.

Snap declined to comment. However, the company said in December 2022 its users overall engaged with AR experiences an average of 6 billion times per day.

AR’s potential beyond entertainment

While much of the function of AR currently is for entertainment purposes — for things like changing appearances and trying new fashions — experts say there is room for more business use cases. Ben Ducker, executive creative director at Journey Further, mentioned that Snap’s AR features also empower the platform to focus on social commerce, for example.

“We’ve all had a piece of furniture or clothing arrive and it looks nothing like that static image on the website,” Ducker said. “The future power of AR in this space is vast and exciting and will allow for fresh product advertising techniques. Gone are the days of catalog photography.”

Addlestone added that while Snap isn’t currently part of the “standard” marketing mix, like Meta’s properties and Google are, Snap may eventually attract a larger share of budgets.

“Snap and AR in general is seen as being stunt-based, top-of-the-funnel awareness but we see this shifting towards product and bottom-of-the-funnel activity more going forwards,” Addlestone said.

What gives Snap the edge here is that the user behavior of interacting with AR is already “happening at scale on Snap,” said an agency exec. “We can expect more brands to adopt AR as part of their broader marketing plans, beyond just social. This will be Snap’s keys to success in this coming year,” they added.

Snap said last year it had more than 300,000 creators and developer teams globally that created some 3 million AR Lenses, the name for the platform’s AR experiences that include games, shopping and other interactive content. Snap is also experimenting with a small group of creators and developers to build Lenses with digital goods, AR items and tools that will be rolling out in select markets in the future.