Instagram unveiled Instagram Stories in the summer of 2016. By the start of 2017, the new feature had attracted more users than Snapchat -- the obvious source of inspiration. It was also abundantly clear Instagram's Stories was curbing Snapchat's user growth after Snap (NYSE: SNAP) released its user growth details in its IPO filing.
What's undeniable is that Instagram Stories is cutting into Snapchat's advertising base. Since opening advertisements in Stories to all businesses in March last year, Instagram's advertiser base has doubled to two million. Meanwhile, Snap is struggling to attract enough advertisers to make the bidding on Snapchat's self-serve ad platform competitive.
Ninety-six percent of advertisers would rather buy ads on Instagram Stories over Snapchat Stories, according to a recent survey from Cowen & Co. analyst John Blackledge. Instagram Stories has a faster-growing user base, room to increase its ad load, and the backing of Facebook (NASDAQ: FB). That presents a huge challenge for Snap to overcome.
Image source: Instagram.
Instagram has three big advantages over Snapchat
It didn't take long for Instagram Stories to surpass Snapchat's user count. As of November, Instagram has 300 million daily users for its Stories feature, while Snap ended the third quarter with 178 million. On top of that, another 200 million use Instagram's other features (500 million daily users total), and 800 million users open the app at least once a month.
The sheer breadth of Instagram's audience makes it a much more attractive platform than Snapchat, especially for reaching people outside of Snapchat's core user group. Forty-three percent of Snapchat's users are from North America, and it primarily attracts users under 35. While that's a valuable demographic, many advertisers would prefer to reach a broader or different audience.
Instagram also benefits from superior ad targeting. Snapchat's ad targeting data is minimal compared to the data Facebook provides advertisers. What's more, the capabilities Snap gives advertisers to use that data for targeting advertisements are significantly curbed compared to the tools provided by Facebook and Instagram. So, not only do advertisers have a chance to reach a broader audience, they can also find the specific group of people that will respond best to their message. That's why Facebook advertisers are willing to spend more per ad impression on Facebook while Snap has seen its ad prices decline since opening its self-serve ad platform.