Evan Spiegel, the 23-year-old CEO of Snapchat, just made news for turning down a $3 billion offer for his company. Last week, the company reportedly rejected Facebook’s offer to purchase the two-year-old startup for $3 billion in cash. According to reports, Google also offered somewhere around $4 billion for the social messaging app.
Snapchat has come a long way from being the app that people use to send naughty pictures. It’s now a desirable company for many suitors.
For Google, whose social network Google+ has struggled to gain momentum, moves to scoop up popular social networks could be the catalyst that grows the rest of its platform. For Facebook, the motivation is clear — the Menlo Park tech giant needs to make a move to court younger teens who, the company admitted last month, are leaving Facebook in droves. It turns out they’re leaving for apps like Snapchat, where it’s more difficult for their parents to see what they’re up to.
Snapchat has staggering numbers. According to Spiegel, the app delivers 400 million snaps every day, up from just 200 million in July. For comparison, a mere 350 million photos are shared daily on Facebook and a lowly 55 million on Instagram, which Facebook bought for $1 billion just over a year ago. All things considered, the number that makes the company’s astronomical valuation somewhat surprising is zero — the amount of revenue Snapchat has generated in its two-year history. Investors are betting that people will still find Snapchat fun and cool when it begins its journey toward monetization, which history would indicate is far from a given.
Snapchat should look to monetize carefully. The obscene growth Snapchat is experiencing is difficult to sustain, difficult to predict and — most importantly — difficult to ignore. But it is not unprecedented. Snapchat is not the first tech company to turn its nose up at big-time offers from larger companies. The most obvious is Groupon, which turned down a $6 billion takeover bid from Google in 2010. Groupon’s large super-active user base ultimately fizzled. Tech companies are subject to the whims of fads, and many argue that Snapchat’s mostly teenage clientele make it even more susceptible to this possibility.
Bubbles are a part of any industry, but because of the rapid growth technology lends itself to, it also, more frequently, sets itself up for these bubbles. Between Twitter’s wildly successful IPO, Bitcoin’s insane rise and rapid falls and the feverish pursuit of apps like Snapchat, it may be time for those in the tech community to take a step back and ask if this growth is truly sustainable.