Snapchat rejects $3 billion offer from Facebook

Evan Spiegel, Snapchat CEO

Snapchat

It has become clear that tech startup Snapchat has rejected not $1 billion, but $3 billion from Facebook. That is thrice the amount the social media giant offered Instagram, which the photo-sharing app gladly accepted.

Why turn down such a huge amount for a two-year-old company that has yet to make a dime from its mobile app? We could only suspect that Snapchat’s CEO and co-founder Evan Spiegel thinks their technology costs more than $3 billion.

The bigger question now is: will Snapchat find a better offer? We may not know it yet, but Snapchat’s rise or fall will depend on its audience, which are mostly young teenagers.

This young demographic is the holy grail of social media and everyone is scrambling for their loyalty and active usage. Facebook’s CFO David Ebersman recently told Wall Street Journal they have seen “a decrease in daily users specifically among younger teens”. Although he stopped short on pointing out the reasons, we can say that younger people are veering towards other social media apps, especially Snapchat.

The 23-year-old Spiegel claims that Snapchat users “are sharing 350 million photos per day”, which is up from 200 million back in June. The app allows users to share with friends images and text messages that disappear after 10 seconds, thereby eliminating the embarrassment seeing their silly/ stupid/ sexting photos being spread around the Internet (unless if the recipient has the means to save it).

Evan Spiegel, Snapchat CEO

The guys behind Snapchat hope its younger audience grow bigger and more valuable, enough that the service would either receive a larger offer from other companies or profit through IPO.

Twitter has taken the latter route and it took them quite a while to get there. After launching in March 2006, the microblogging service has able to stay afloat through promoted tweets. The company remained unprofitable until it went public earlier this month and it is now valued at $29 billion, which is a lot compared to $3 billion.

But going public has its risks. Investors have long been warned that tech companies in the IPO market may go southward, just like the last dot-com bubble when big-time investors chased startups with little or no profits. It took more than seven years before Twitter went public, while Facebook took close to eight years before filing for IPO, long enough for investors to believe that these apps would profit.

If Snapchat would not be able to profit soon, it might travel the path Digg took. Back in the day, this news aggregator turned down a $160-million offer, only to settle for a measly $500,000 after users left en masse due to site-wide bugs and glitches, along with abuses from so-called “power users” who manipulate Digg’s article recommendation feature in their favor.

Wall Street Journal reports that Snapchat may have a $4 billion offer from another group of investors. Will Spiegel and company turn it down again? We will see.

Source: Christian Science Monitor

Image source: (Spiegel) Jae C. Hong/ Associated Press

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