In the Steve Blank sense I don't think it's even right to call Snapchat or any of these "growth looking for a home" things "startup"s. They aren't actually searching for a business model. Their plan is to grow until they dock with the Deathstar.
The only way I could look at SnapChat as a startup is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook. We know that Facebook is willing to buy things perceived as threats to their business model, or perhaps to buy large sets of users they've failed to capture.
It's a stupid business to go into, in that the odds of success are really bad: low barrier to entry, lots of interest, lots of competitors, a winner-take-all game. But if you win the lottery you can get zillion-dollar offers from Zuck and feel like a genius.
Bubble 1.0 was filled with built-to-flip companies, and one of the things I like best about the Lean Startup movement is that it demands building an actual business. Sad to see that the pendulum might be swinging back some.
Facebook is a mature advertising platform with far more to offer advertisers than Snapchat is ever likely to, and earns revenues of less than $7 per active user per year. If Snapchat is as effective at monetising at Facebook, which sounds optimistic, it would take them 17 years to make $3billion in revenue off ~25million active users. I don't doubt that Snapchat's user base will continue to rise in the short term, but I also don't think it'll be around in 17 years...
If you compare Snapchat not with the internet's leading repository of user metadata, and more with similarly popular locations for ephemeral meme-sharing amongst teenagers, its current user base more closely resembles that of the Cheezburger Network, whose decision to lay off a third of their workforce earlier this year hardly points towards stratospheric advertising revenues from their own ~25 million users
I don't know what they're worth, what they will be worth, or whether or not it'll ever end up being super profitable. Apparently, the naysayers were wrong about Groupon, as they're now doing pretty well, and it seems that turning down the acquisition offer wasn't entirely stupid.
That said, $3 billion dollars is a lot of money, and I would pretty much always take it, and move on to executing the next idea.
I wouldn't be so quick to dismiss the Instagram acquisition as crazy. Isn't Instagram now used by most teenagers, and sometimes preferred over fb?
That's a very similar sentiment.
That is precisely the opposite of the Lean Startup approach. So I believe the sentiment is, as I said, similar. If you aren't seeing that, I'm happy to disagree.
This.
My take is that SnapChat's valuation is driven mostly by the perception that it's a strong contender for acquisition by Facebook or the like.
Of course it's a separate issue as to whether that buyout makes sense in the long run, because, from what I've heard anyway, a big part of the attraction of SnapChat to teens is that it is NOT part of Facebook (or Twitter or G+). Because they of them not wanting parents/teachers to see stuff, not wanting Facebook intentionally or accidentally exposing their data later, and also just the desire to be "cool" like other cool kids (the temporary fad effect, always churning along with all ages, but at a faster rate with juveniles.), etc. All/most of that gets extinguished immediately, or, eventually after, an acquisition by Facebook.
We think that because we follow the tech news and are savvy about the consequences of an acquisition. However, I'm not sure (anymore) that it necessarily plays out that way for the general public.
For example, I'm not an Instagram user but I do wonder how many of them are aware that it's now a Facebook property. If I look over their website I don't see anything obviously linking it to Facebook so maybe there's a chance that a proportion of their user-base is still treating it as independent (of course, I'm not aware of the in-app experience).
It reminds me of one of those stories I read about an online game (EVE-Online?) where one guy had cornered the entire market for selling a particular power-up/drug but had a number of completely different avatars 'on the ground' so his customers had no-idea they were buying from the same person.
fair point. this is a recurring pattern where there's a kind of profitable arbitrage that occurs between high/early-info groups and low/later-info groups (eg. between Wall Street types and mom-and-pop on Main Street.) This certainly could be partly due to that effect again.
The value to FB/GOOG is the audience -- the users they're trying to reach. It's not as if they couldn't replicate the technology to drive that type of service. The defensibility of Snapchat against competitors is the demographics of the user base.
I don't use Snapchat, nor does my wife. Or any other set of parents I know. But my kids do, as do their kids. Right now, for any teen/tween in our community, it's Snapchat and Instagram.
And if I acquire Snapchat, that gets me.......what? A service with no revenue and a user base that's naturally fickle. The only way I can justify this acquisition for FB or GOOG is if there is some long-term value from the user base. And I don't think the value is there.
If I'm GOOG or FB, I think I sit on Snapchat for as long as possible. I'm betting that Snapchat's value will never be more than it is right now.
It gets you solid 3-7 years of billions of eyeballs to monetize from, and nobody is better at monetizing than Google or Facebook.
There are 2 reasons why GOOG/FB are interested in picking Snapchat up. #1 user base #2 traffic. No other reasons.
#1. When FB strategist comes to Zuckerberg, he tells him: "listen this company is making dent in our traffic. If its continue the kids that abandon FB for Snaptchat will create $XX billions (sum A) of a hole in ads sales. So you need to go out and offer X% of sum A and pray they accept it.
#2. When FB ads vp come to Zuckerberg, he tells him: "listen, here are my ideas how we can serve ads to those billions of eyeballs. This will create $XX billions (sum B) of profits for Facebook. So you need to go out and offer X% of sum B and pray they accept it.
Thats it.
As of whether its a "startup" or not, I say it is exactly for the reasons other says its not: revenue (or lack of it). I don't think you can call a company "startup" only when they have a business model and or revenues. Snapchat through millions of uniques proved to the world they do solve some kind of problem, even if its as silly as flashing photos of a drunk teen for 5 seconds.
Edit: so the wisdom of the day would be: build a service for a huge user base that is important to facebook (youngsters), preferably on mobile (that is a future of computing/socializing).
A startup according to Blank is a group if people in search of a business model. I am making the claim that SnapChat is not searching for a business model, but rather an exit -- by being a juicy component to someone else's model.
And you base that on the fact that they just declined $3B from FB, and presumably $4B from Google.
Sure, they built all that service to decline both offers and close down the doors. Sure, Snapchats owners and VC are mentally ill and they declined buyouts because they are not searching for a business model themselves.
/sarcasm.
Also, they have the scale to start testing monetization, but they are not, because they'd rather increase the value of their exit to an acquirer by growing users.
They want a larger exit.
> People build companies to flip all the time.
This doesnt seem to apply to SnapChat as they just decline huge exit offer. I mean what bigger proof you need than $3B ?
> They could just be young, foolish, and arrogant
you mean VCs with hundreds of years of experience (combined) that do VCiing for living? Don't think so.
@wensing
> They want a larger exit.
Most likely not. Did Facebook look for "a larger exit" ?
Note that they don't have to be mentally ill to turn down a big offer. They could just be young, foolish, and arrogant. College-age entrepreneurs are known for many things, but humility and wisdom are not items typically mentioned.
I updated the statement to reflect what I think would be a best-case scenario for any acquisition. I think Google could monetize it the best, but then they would put the Google-plus-kiss-of-death on the service, and that would be that.
The strategy of rolling yet another billion-dollar-picture-based-app into the fold at FB would be a tired story. They've been ineffective in monetizing FB, they haven't yet monetized Instagram, but they'll be good at monetizing Snapchat? I don't think that's a good bet.
If that was their plan, then I would think that $3B would be enough for them to drop anchor.
As a zero-revenue company, I would only deny that payday if either:
1) I believed that my company had the potential to be its own Deathstar. 2) I disliked the company that made the offer so much that I had nightmares about them owning my company. 3) I cared more about my company than the money.
4) I'm already so wealthy as a founder that's sold stock through multiple rounds of funding that I might as well wait for the $5B offer.
> It's not particularly strange if you break down the business models that dominate the SV ecosystem. These companies you speak of are merely procurement channels. Think of them as oil drills that suck up as many attention spans as physically possible. And largely they are all competing with each other to strike the next big oil well. Not unlike the oil industry they put massive amounts of capital into the discovery and refinement of such oil wells. The likes of Facebook, Google, etc are simply refineries who sell this attention (refined by analytics and insight) off to the Fords, Coca-Colas, etc of the world.[1]
many chased that model in 2002-2007, with google in mind