As parent company Snap Inc prepares to sell shares in its wildly-popular messaging app sometime this spring, advertisers are wishing it would behave more like its chief rivals, who together dominate the market for digital advertising. But just as Spiegel and Murphy resisted an oh-so tempting offer to sell to Facebook three years ago for $3 billion in cash, the budding multi-millionaires have dismissed calls by marketers to give them the same kinds of analytics they get from Facebook and Google.
Though Snap recently launched a programmatic advertising platform that allows marketers to buy ads based on certain measurements that track user engagement and better target certain kinds of consumer, its new interface has been met with some head-shaking from advertisers accustomed to getting reams of user data about their marketing campaigns. Typically, Facebook and Google aggregate data from multiple mobile users and then make that pool of analytics available for marketers to tailor messages either around brand awareness, or encouraging consumers to actually buy a product.
Partly as a result, ad spending on Snap is typically much smaller than what's allocated to Facebook and Google, which accounted for 61% of digital ad spending in the world excluding China, according to data compiled by Bloomberg.
"A lot of advertisers like the option of having an alternative to Google and Facebook but their Snap spending is mostly in the experimental category right now," Jan Dawson, an independent equity analyst who runs Jackdaw Research, said in a phone interview. "Snap has really resisted making a lot of this tracking and targeting analytics available but it's absolutely critical if they want to get to an IPO anytime soon."
And that initial public offering, which could value Snap as high as $25 billion, could come as early as March.
Though going public could force Spiegel and Murphy to behave more like Mark Zuckerberg, Larry Page or Sergey Brin, investors might be wise to expect Snap's leadership to act more like media company executives than tech entrepreneurs.
After all, Snap was founded on the idea of disappearing data, which might explain its co-founders possessive guarding of the site's content and its apprehensive relationship with the advertising industry. In the five short years its taken Snapchat to amass a stunning 150 million daily active users -- compared to less than 140 million for Twitter -- Snap could easily be confused for a media company along the lines of CBS (CBS) or 21st Century Fox (FOXA) .
"They're still looking at themselves from a consumer point of view," Ian Schafer, chief executive of Deep Focus, a digital ad agency, said in a phone interview in New York. "They like the valuation that a technology company gets and expect to see that in an IPO, but when you traffic in scarcity, you behave more like a media company, which means you're more careful about which advertisers and content get onto the platform. You've seen them really gate their site."
That's clear in how Snapchat manages its Discover platform, a news feed that's limited to a few dozen publishers that agree to create unique content each day. Snap wasn't immediately available for comment.
Snap is variously described as an image-sharing service, a disappearing messaging app and even a camera company (the last is how Snap describes itself on its home page). But above all, its service is only available on mobile devices, unlike Facebook or Google. For the uninitiated, or those over 35, Snap allows users to send images and short videos that disappear in seconds or hours. In September, Snap introduced Spectacles, its first hardware product, which sells for $130 and allows users to create 10-second videos that to post on Snapchat.
It's easy to imagine Snap evolving into a video platform, and even introducing its own original content. Michael Lynton, chief executive of Sony's (SNE) film and television studios, said last week that he will become chairman of the board at Snap, for which he was an early investor. Lynton advised Spiegel in 2012 after making a $200,000 investment in the company, according to leaked e-mails made public in a hacking later tied to the North Korean government.
True to form, Spiegel and Murphy are preparing to structure an IPO that would give investors no control of the company, similar to how media moguls Sumner Redstone and Rupert Murdoch control CBS, Viacom and Fox, The Wall Street Journal reported on Monday. Snap's two co-founders are expected to retain 70% of the company's voting shares despite owning less than 50% of its common stock (to be sure, Facebook created a dual-stock structure when it went public in 2012, and Google did something similar when it reorganized in 2015 under the Alphabet umbrella).
But ad agencies may be content to work with Snap on its own terms, mindful that as consumers under 35 years old turn away from traditional media, reaching them is becoming more and more difficult. The cohort known as Millennials or Gen Z, is more apt to watch on-demand content like Netflix (NFLX) , Hulu or any number of video-centric web sites. They're not going to go to a website unless they come across it on their social feeds.
"If you really want to get in front of this younger generation, Snapchat is the way to go," Monique Lemus of The Media Kitchen, a New York media planning agency, said in a phone interview. "For advertisers, they seem to be trying to take some slower steps, to make sure that the users are OK with the experience. They want to make sure that they stay relevant to the user."
And for the moment, that means operating an advertising platform that isn't nearly as robust as that of Facebook and Google even though marketers are eager for a third major digital option.
Yet as Snap moves closer to an IPO, Spiegel and Murphy are likely to feel increasing pressure to appease marketers who are even expected to increase their allocations to Google and Facebook in the coming year. For the moment, though Snap has stood firm to doing things its own way.
"It may be pride, or a certain amount of arrogance," Dawson said. "They're kind of saying, 'we're Snapchat, we know best how to reach our users, trust us.' And partly, they haven't had to. They're not a public company, so they haven't had enormous pressure to drive performance -- yet."