Snapchat’s ephemeral valuation

November 15, 2013

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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:

Your Daily Outrage
Soviet whaling: The most senseless environmental crime of the 20th century – Pacific Standard

Home Ec
Are Americans finally done deleveraging? – Matt Phillips

Long Reads
An awesome profile of David Miranda, Glenn Greenwald’s partner and collaborator – Natasha Vargas-Cooper

Wonks
The winners and losers of globalization – Branko Milanovic

Oxpeckers
The number of pageviews an article in the NYT will get is surprising predictable – Brian Abelson
How the NYT neglects business journalism - Felix

Primary Sources
The GAO’s 100-page report on Too Big To Fail – Government Accounting Office

Talking Your Book
Henry Blodget: BI “would actually be perfect for a merger” – FT

Ugh
The global diabetes epidemic in charts – Ryan McCarthy
America’s problem with productivity — and wages – Ben Walsh

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Comments

How Snapchat can monetize is obvious. It’s already graphical. Set so some type of press will link through, and have a section of the window for that advert graphic. We already know that people click through on pictures way more than links.

Next is video snaps. That’s going really get them.

And FYI – the metadata on Snapchats can tell you nearly as much as metadata from FB. I doubt very much this is unknown to Zuckerberg or Brin. Those guys are CEOs who know their technology inside and out – quite unlike those who comment on them.

But, if I were Zuck or Brin, I wouldn’t buy out Snapchat. I would invest in them with as little fanfare as possible. Buying out Snapchat for either company won’t work nearlyt as well as buying into them will. The world needs to see Snapchat as independent and all that. Snapchat’s founders need to have their run. Buying the golden goose too often kills it.

If anyone should get that, it’s Zuckerberg. FB is successful because his investors let him run with the ball without weighing him down. I’m not sure how well Zuckerberg really does understand that though. I have the same observation about Brin and Page. They were left free to run. Snapchat’s guys need the same at this stage. Back them – don’t buy them out.

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