Fidelity wrote down the value of its large investment in Snapchat two weeks ago. This represents, among other things, a lack of trust in Snapchat's ability to advertise successfully on its app.
Snapchat has recently begun displaying ads on its app. They largely consist of short videos not unlike the ones that people send to each other. There are short clips from television shows, news headlines from online and television shows and other non-media ads. They are displayed in an array that allows consumers to select which ads they want to view. They tend to have some entertainment value themselves, which offers at least some encouragement for people to watch them.
Fidelity's write down can be viewed as a strong indication that this model of displaying ads is not as strong as was once thought. As we have learned, ads are valued at their ability to actually convert to consumer behavior. One question that comes to mind is that if people are selecting ads on the basis of their personal preferences, are the ads actually incentivizing any new behavior. Instead, maybe consumers are just watching clips of shows they already are watching anyway.
The Snapchat business model is under serious doubt at the moment. Their ads need to prove their value to sustain the value that is the source of their continued funding.
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