Snapchat, a two year old company that makes no revenue recently turned down the incredulous offer of US$3 BILLION from Facebook. This potential acquisition acquired great amount of interest from various segments of people – first of all, why did Snapchat turn down the offer, and secondly, more importantly, why did Facebook even offer $3 billion for it in the first place? What did Mark Zuckerberg find so valuable in a social media platform that, until recently, was known for its use of sending sexually provocative images? Facebook bought over Instagram last year for $1 billion, but apparently Zuckerberg deems Snapchat three times as worthy.
Let us first look at why Zuckerberg could have offered such an atrociously high offer for Snapchat. One of the main reasons that seems the most obvious and rational amongst the rest is actually a really simple and comprehendible reason. Perhaps Mark Zuckerberg is simply buying any social media platform that it is able to which is deemed as a potential threat to Facebook. Afterall, Zuckerberg himself admitted that Facebook is losing a significant portion of its ‘younger team’ segment as newer generations are constantly looking for new technological updates in parallel to the old ones. If you can’t beat them, might as well buy them, right? Forget trying to gather competitive intelligence, Zuckerberg goes straight for the kill. Competition is just something he doesn’t want to deal with.
So why would Snapchat, a company that makes no revenue otherwise, give up such an incredible offer? Evan Spiegel, the co-founder of Snapchat stated that in June 200 million photos were being shared in a single day, and from then, that number has grown to 350 million photos. Snapchat differentiates itself by allowing supreme privacy and doesn’t save records of any of your photos you share with your friends. Spiegel believes that the value of his company will grow and exceed $3 billion – just look at twitter! From an unprofitable company that was valued at just $3 million, after its IPO it is now worth $29 million – more than 9 times worth its original. Turning down Zuckerberg’s offer was definitely a risky decision, who knows whether they’ll be able to attract advertisers in order to become profitable. Will advertisers really pay large sums of money for advertising on a social media platform that only allows a maximum of 10 seconds worth of visual exposure? Will something better than Snapchat arise and completely shut down the company before it launches its IPO? These questions will only be answered in time, all we can deduce for now is that Evan Spiegel is one fearless human being.