Snapchat co-founder Evan Spiegel, pictured left, at TechCrunch Disrupt.
Two-year-old Snapchat is playing a high-stakes game of Blackjack,
betting that its business won't bust with the turn of an unwelcome card.
The company reportedly refused a
$3 billion cash buyout offer from Facebook, a decision that may forever define the future of Snapchat and Evan Spiegel, its 23-year-old CEO.
Venice, Calif.-based Snapchat traffics in disappearing messaging --
350 million
of them per day, to be exact. An unknown number of people, youngsters
in particular, turn to the smartphone application to do what young
people like to do: goof off. Here they send photos and videos, innocent
or otherwise, that they believe will never come back to haunt them.
The startup makes no money, which means that it's worth whatever
someone is willing to pay for it. And apparently investors are so
anxious to get a piece
of the company that they're willing to value it at $4 billion. But
that's just play money -- it's not real like the $3 billion in cash
Facebook CEO Mark Zuckerberg apparently was ready to trade for the
teen-beloved app.
"If you look at it solely from a monetary
perspective, yes, they're absolutely foolish," Altimeter Group principal
analyst Brian Solis told CNET of Snapchat's rumored decision to reject
the Facebook bid. "I don't know who's going to give them more than that
-- or that they're going to generate more than that in terms of
revenue."
Why, then, would Spiegel turn down $3 billion, which is three times
the money Zuckerberg threw at up-and-coming Instagram last year? The
simplest answer is because he can. Spiegel and Co. have been dealt an
incomplete but promising hand.
Snapchat, said Gartner analyst
Brian Blau, is in a position where there isn't much risk to wait for a
bigger, better offer to come along. Indeed, The Wall Street Journal's
scoop
didn't close the door on an acquisition, indicating instead that
Spiegel would wait until 2014 to make a decision about taking more
financing or selling the company.
"What you're talking about
here is the next half-generation of people coming under the Facebook
umbrella," Blau told CNET of the social network's potential reasoning
for bidding big on Snapchat. "But to be honest, I think [Snapchat] would
have the same kind of value for other companies."
The logic goes
that Spiegel can, in a market where the unprofitable Twitter is worth
$25 billion, buy time if he wants to. His app's teenage audience is also
the most-coveted in all of social media, as Blau insinuated.
Snapchat is a new and still unrivaled representation of the social
network. A cross between monstrously popular mobile-messaging
applications such as WhatsApp or WeChat and more traditional social
networks, Snapchat is a hybrid app where people have complete control
over what they share and who they share it with. And because Snapchat
blends messaging, mobile, and social, the proxy comparisons to bigger or
profitable apps are fairly open-ended.
"Instant-messaging
services, such as Snapchat, are growing faster than anyone could have
imagined," Forrester analyst Julie Ask said.
Ask lumps Snapchat
in with other chat apps, a group of apps she said doesn't yet experience
the same level of enthusiasm in the US as they do elsewhere in the
world. But they very well could -- and soon. "The game is going to be:
How big can your audience be? We've seen examples of companies going
from zero to 400 or 500 million users inside of two years."
Clearly, Spiegel values Snapchat's unknown potential far more than
Zuckerberg does, just like Zuckerberg anticipated back in 2006 that
Facebook would be worth more than the
$1 billion
that Yahoo offered him. Interestingly enough, the Facebook of today
looks a lot like the Yahoo of 2006, which was then a company that also
tried to buy its way into the lives of the next generation of Internet
users.
But Snapchat is far from a sure thing.
"If we've
learned one thing, it's that no service is infallible and users are
finicky," Solis said. "Snapchat is the next Snapchat until whatever is
next comes up and starts to displace Snapchat -- just like Snapchat
emerged out of nowhere and rivaled Instagram because it was just a new
and different way to share pictures. At some point that's going to
happen again."
If Snapchat isn't careful, it's now-you-see-it, now-you-don't philosophy may come back to haunt the company.