Snapchat’s ephemeral valuation
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Snapchat is a two-year-old company, with a 23-year-old CEO; no revenue; “no business model” (per the WSJ); which recently turned down $3-4 billion acquisition offers from Facebook and Google; and which lets its users send messages that disappear in less time than it takes to read this sentence.
Snapchat is also now a kind of mirror into how you feel about the social media startup scene – witness these three separate takes from the Washington Post. Sam Biddle, grouping Snapchat with Pinterest ($4 billion valuation), cries, “How is this not a bubble, and why aren’t more people saying this is crazy?” Lydia DePillis thinks this is all about the market, not any real sense of value, and that the market is starting to resemble “the housing bubble of the mid-2000s.” In a nice assessment of the advertising possibilities at Snapchat, Cotton Delo points out that Snapchat is more like a messaging service than a social network, and advertisers haven’t figured out messaging yet.
The official case for Snapchat’s potential is explained here, by Dennis Phelps of Institutional Venture Partners, which holds a stake in the company. Snapchat, he writes, is mobile-first, and mobile is exploding. In Dan Primack’s estimation, Snapchat’s appeal is that it’s a new platform and it’s the anti-Facebook: it won’t track what you do and its messages are inherently ephemeral. Mike Isaac spoke to one investor who has a very specific reason why Snapchat’s valuation makes sense. The app automatically creates a captive audience for ads:
That “press and hold” action, according to this person, is ripe with potential. While social networks like Facebook or Twitter serve ads inside the stream — the place where users spend the most time — there’s no guarantee those ads will capture a user’s attention.
The decision to turn down billions has also become an existential rumination on the Solemn Creed of the Noble Order of Tech Entrepreneur. (Jake Lodwick penned nice piece on this in in April, calling every acquisition a failure and declaring that “a visionary is an implementer of visions, not an acquirer of dollars.”) Matt Yglesias calls acquisitions “boring” and “lame”; Matt McFarland says running your own company is just more fun. Snapchat’s founders, Matt Buchanan says, “do not want to work for Mark Zuckerberg, whose company seems increasingly like any other incumbent: large, inert, uninteresting, and particularly boring to teen-agers.”
University of Toronto professor Joshua Gans, citing some of his own research, argues that Snapchat’s founders should simply consider the odds. “The actual real history of entrepreneurial firms tells us that most of them succeed by cooperating with established firms rather than competing with them,” he writes. — Ryan McCarthy
On to today’s links: