Snap sees growth opportunity in SMBs

“You can see Snap is [now] applying the playbook that has worked so well for the bigger ad platforms [Meta and Google],” said Jamie MacEwan, senior analyst at Enders Analysis. “It is still far behind [the bigger platforms] on revenues and [average revenue per user], so there is room for decent growth in SMB advertiser numbers and revenues if it gets the execution right.”

During Snap’s earnings call on Feb. 4, CEO Evan Spiegel told analysts that SMBs were the “largest contributor to ad revenue growth in 2024” — though he didn’t share any specific breakdowns of the platform’s $5.36 billion in full-year revenue.

“I think they’ve realized they can’t spread themselves too thin, and they need to focus on their bread and butter — Snap’s software and ad products,” said Shamsul Chowdhury, evp of paid social at Jellyfish. “They’ve merged the ads and product team together so the ad team is influencing what products need to be prioritized according to what the market wants and needs, effectively building a little money-making cycle.”

Which is to say that Snapchat’s focus on SMBs has required foundational investments over the last couple of years, to improve its product to become what those advertisers need.

As Sid Malhotra, Snap’s vp of global small and medium businesses, explained, the team has been working on three foundational areas to its ad stack. And it’s that combination that has led to better performance for SMBs.

“We’ve improved the targeting and optimizations that will allow a business owner to target and optimize their ads in a very privacy safe and efficient way which ultimately leads to stronger performance against KPIs,” he said. “We’ve also improved the signals advertisers can share with Snapchat and use to optimize their ads, we’ve built out our conversion API and we’ve redesigned our ad formats so they have a much more unified look and feel the same across Snapchat organic and ad posts.”

And this is just the beginning. While Malhotra did not divulge specifics about the “robust product roadmap” that Snap CFO Derek Andersen hinted at on the recent earnings call, Malhotra did confirm that automation solutions are a “big priority” for the team this year.

Until recently, Snap had resisted AI-driven campaign tools. But that’s less about bucking trends. It’s more so a sign of how long it has taken the company to come around to the reality that its ad platform needed to be more accessible to a broader range of advertisers. While its rivals have optimized for scale, Snap has remained an outlier, historically slow to court smaller advertisers.

But that’s changing. In a note to staff last fall, Spiegel made it clear that SMBs will be central to turning Snap’s revenue around.

“Over the years, we have found that lower funnel revenue generated by small- and medium-sized customers is more predictable and stable than upper funnel revenue,” Spiegel wrote. “It also represents a larger long-term opportunity for revenue growth.”

A huge benefit to introducing these AI campaign tools is Snap is becoming far more accessible to SMBs. And more SMB advertisers equal more revenue.

What sets Snapchat apart from the tech behemoths like Google and Meta, though, is cost. Sure, the biggest players consistently deliver return on ad spend, but that tends to come at a price.

To compare, Google Search and Display CPMs are currently around $40 and $8, respectively, and Meta’s CPM costs $10, while Snap comes in under those figures at around $7, said one U.S. ad exec, who preferred to remain anonymous.

“SMBs don’t have big budgets like the fortune 500s, so they’re trying to figure out how to market cost effectively. So the cost effective reach component definitely plays a part,” said Chowdhury.

Translation: Snap is learning that growth doesn’t just come from deep pockets — it comes from making every ad dollar work harder.

“We believe that continuing to deliver on that strong return on their ad dollar and performance will ultimately enable us to continue increasing the share of wallet in a highly competitive environment,” Malhotra said.

What’s probably also worked in the platform’s favor is the timing of the (ongoing) uncertainty around TikTok, enabling Snap to create its own opportunity.

“Typically, most advertisers that advertise on social media, go with the status quo — Meta — if it ain’t broke, don’t fix it,” said Chowdhury. “It seems like advertisers aren’t sure if they should come back to TikTok, or explore other options.” Though Chowdhury did caveat that those clients who were impacted by the 14-hour TikTok blackout have returned to the platform.

And then of course there’s been the ongoing issue around its perceived young audience. Snapchat historically focused on Gen Z, but has really pushed home the point that its users age with the platform. Those 18-to-24-year-olds are now entering the workforce, getting married, having kids and buying homes. This is why Snap often leads its presentations with key figures on its user demographic.

“It’s a whole new ball game and the addressable and engaged audience on Snap is growing as such,” said Jack Johnston, senior social innovation director at Tinuiti.

But the journey so far hasn’t been smooth sailing.

Throughout the last couple of years, each time Digiday has caught up with advertisers about Snapchat, the narrative felt like it was almost set in stone. According to numerous ad execs, Snapchat was typically a tier-two platform at best because the audience was too small and skewed young, and ad execs weren’t getting the same bang for their buck like they would on the likes of Meta, for example.

“Snap spent most of 2022 and 2023 really focusing on app improvements that benefited their users and grew loyalty with the platform,” said Johnston. “For advertisers, the platform [at that time] felt a bit stagnant in terms of ad innovation.”

Simply put, Snap’s recent moves have been a very long time coming.

“While Snap is later to the game here, other platforms have done a lot of the heavy lifting in pioneering,” said Johnston. “As a result, when Snap really goes to market with solutions like these, we should be able to see adoption rates increase because advertisers are already comfortable with these types of solutions.”