Snap (SNAP) has a long way to go in order to upend Facebook (FB) and Alphabet's (GOOGL) stranglehold over the internet advertising space, according to several marketing firms. 

Concerns about Snap's smaller user base, vertical video format and return on investment are some of the issues pulling advertisers away from the ephemeral messaging app and toward its larger competitors, according to executives from marketing firms Merkle/RKG, Omnicom Group (OMC) and Wpromote who were interviewed by Nomura.

Snap's greatest threat appears to be coming from Facebook's Instagram Stories, a Snapchat-like feature launched last August. Small to mid-sized advertisers are more keen to buy spots on Instagram because it has more users (400 million vs. Snap's 185 million) and the company has yet to integrate more tools to track ad impressions and engagements. Facebook also has superior data for advertisers, better ad targeting and a "myriad" of inventory options across its four properties -- core Facebook, Instagram, Messenger and WhatsApp, according to Needham analyst Laura Martin. 

On Wednesday, Instagram announced that it now has one million active monthly advertisers, double the amount it had in September and five times its number just over a year ago.

Snapchat advertisements are presented in a vertical video format, which requires companies and marketers to create entirely separate (and sometimes expensive) ad campaigns, rather than using material produced for desktops or mid-roll ads on other platforms. Brands and marketing firms want to spend the most money at the cheapest cost per consumer reached with the least amount of effort, Martin wrote.

Additionally, many advertising firms still view Snap as experimental ad spending, fitting into their research and development budget, rather than a traditional marketing opportunity.

"Instagram has its knives out," said Drew Huening, director of programmatic ad buying operations at Omicom subsidiary OMD Programmatic. "It's almost fascinating how little Instagram was directly competing with Snapchat and then it's like one day they just flipped a switch and now it's brutal."

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Snap's big pull for advertisers is its access to the highly sought-after millennial user demographic, but Instagram is estimated to have nearly 50 million millennial users, meaning that it also has strong roots among users between the ages of 18 to 24. 

Instagram is also simplifying the ways that customers can interact with businesses by letting them book appointments and other services from within the app, CNBC reports. The social media platform will also provide companies with additional data on how much of their business is being driven by their Instagram presence, which could deter advertisers from spending on Snap, where return on investment information isn't readily available. 

"I haven't broken [those Instagram numbers] apart, but that represents a large portion...of the Facebook growth, and that is going to hurt the ability when Snapchat does roll out their [ad targeting] platform," said Michael Mothner, CEO of Wpromote, which counts companies like Marriott (MAR) , Forever 21 and Toyota (TM) as clients.

Snap faces signifiant pressure to resolve these issues as advertising accounts for the vast majority of its total revenue, making up 96% of its top line in 2016. Unlike Facebook, which can spread its ad load across four different platforms, Snap only shows ads on its Snapchat app and risks overwhelming users with ads if they incorporate too many, Martin wrote. 

CEO Evan Spiegel has famously opposed adding advertisements to private user conversations in Snapchat's one-to-one message section, and it's unclear whether or not Snap is missing out on ad dollars by making this exclusion. By contrast, Facebook has been testing card-style ads that can be added to a users' home screen on the Messenger app.

Instagram seems to be the clearest threat to Snap as it provides a "nearly identical" use case while proving to be more accessible and packing a larger audience, Nomura analyst Anthony DiClemente said.

"Instagram just appears to be really, really stealing those users that are looking for that use case of sharing stories," Mothner added. "We're heavily growing [reach] in Instagram." 


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