Snapchat to Start Showing Ads Between Stories

The new Snap Ad format allows advertisers to show a 10-second vertical video while users are watching a feed of photos and video posted by their friends. The ads will appear between Stories from different users, rather than interrupting a friend's daily update.

Snapchat said people interact with the new ads five times more often than with comparable digital ads, citing internal data from its trials. The Los Angeles social networking company will test ads from about 10 brands, including Procter & Gamble Co., Verizon Communications and Warner Bros. Snapchat also opened its advertising platform to more marketers, making it easier for the app to sell promotions more widely and likely boost revenue.

After raising $1.8 billion in its last funding round, Snapchat must prove it's worth the lofty valuation investors have given the company. The recent cash injection increased Snapchat's valuation to $18 billion, a person familiar with the matter said last month. The company generated $59 million in revenue last year, the person said. Twitter generated about the same amount in just 10 days last year.

But Snapchat has surpassed Twitter by at least one metric. About 150 million people use Snapchat each day, making the four-year-old messaging app more popular than Twitter by daily users, people familiar with the matter said this month. Snapchat said in April that users were watching 10 billion videos a day. More than a third of Snapchat's daily users create Stories, people familiar with the matter said at the time.

With Stories, users can string together snapshots and short video clips throughout their day that can be viewed by friends and followers for 24 hours before the posts disappear. The feature has helped create a new class of celebrities and new-media upstarts, such as DJ Khaled and ArsenicTV. Snapchat has facilitated underground broadcasters while also promoting more highly produced channels from Vice Media Inc., National Geographic, People magazine and other media giants.

Snapchat plans to highlight Snap Ads at the Cannes Lions International Festival of Creativity, the ad industry's biggest annual gathering, which starts on Saturday. The ads are expected to roll out in the next few weeks, and Snapchat will vet each one to maintain quality, according to a report in Adweek. The trade magazine reported that Snapchat hopes to avoid bombarding users with promotions by limiting the number of ads, and it's working with Google's DoubleClick to help measure ad effectiveness.

© 2016 Bloomberg L.P.