I loved this piece, but perhaps not for the reason Roy wrote it.
One of the common themes in investing is "what am I missing?" and this piece is a great walk through through a reasoned set of parameters that might make a company or project more or less valuable. The assertion that SnapChat is 'Intrinsicially' worthless is of course false. For something to actually be "worthless" in a free market would require that either no one would offer any value in exchange for partial ownership, or there would have to be outright fraud. We say a 'fake' Van Gough is worthless because it is worth much less than an original, but someone might buy it because they like the painting and they can't afford an original. As a painting it would probably be worth more than a print. But not actually "worthless."
So what is he saying? He says that Snapchat's recent valuation was much higher than he would have put it. And we can ascertain that like the forgery vs. actual painting the difference in the two numbers is large.
So what is the basis for this disconnect? It is this:
" $4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? A service that voluntarily throws away its own data in the golden age of data hoarding? A service devoid of the nature of competition that is the driving behind every other profitable company in the world?"
The focus here is on the tech and not the market. A pet rock was 'worthless' (the rock was just a rock) but the connection with a generation was valuable. So often in our business we look at something that we feel like we could build (or could be easily built) and a valuation, and focus on those two things. The parts we don't see we give little value to (350M snaps? Seriously? That is a boat load of engagement). Making anything that get 350M 13-23 yr olds engaged is a pretty huge deal. That is what is valuable with Snapchat, not the tech.
Agreed. This is why Snapchat is attractive, and the model of "get users and content now, monetize later" has worked in the past. So this is simply a scaled-up challenge. I'm curious to see how Snapchat makes its money.
Here's some of my ideas and they all involve in-app purchases:
* Corporate deals that allow you to place products in your snaps, kinda like Photoshop. Example: you pay $0.99 to be able to place a character from South Park in your Snap.
* High-quality snaps, that take advantage of your camera's full resolution
* Sound snaps, so you can record 30 seconds of audio and send it to a friend. Great for sharing tracks you make or music you're hearing, or just to record some idiot yelling on the bus.
There are many more possibilities. Snapchat can almost be thought of as a "social game", a sort-of cross between FarmVille, Instagram and Twitter. You can still share basic things to your friends, but you can pay to send even better things. My ideas may or may not be shitty, but they still prove that the service probably can monetize, in my opinion.
Thanks for the comment ChuckMcM, I'm glad you enjoyed the article.
I tried to stay away from poking fun at the simplicity of the technical aspects of the service as much as possible, and I didn't mean for the article to come across as tech-focused.
All I meant with the MS Paint/duct tape comment was that it wouldn't be hard for a competitor to recreate the service - in fact Facebook Poke has already tried and failed due to your observation that it takes a certain "connection with a generation" to make a seemingly silly product successful. That, and Snapchat was the first to move to the market, giving it a huge inertial advantage over Poke.
The main point I wanted to make was most definitely market focused: Snapchat has built itself a user base in a market that it can't monetize by itself. It can continue to gather users 'til the end of time, but it will never be able to get any revenue from them without altering its service and driving users away. Therefore Snapchat is intrinsically worthless.
This is distinct from the statement that "Snapchat is worthless" - clearly it isn't extrinsically worthless because it can be used as a funnel to get users to other parts of the internet that might generate revenue. So there is some basis for valuing the company.
The question then becomes how much is it actually worth? I'd love for someone to help me out and stake a valuation for what they think Snapchat is actually worth.
Less than $4bn is my estimate. How much less? Not so sure.
We need to get away from the idea of intrinsic worth. There are somethings that are worth a lot that you wouldn't pay money for, such as honesty. Converse applies too.
Furthermore, even money itself has no intrinsic worth. The old Indian adage of "when all the trees are gone, ... try to eat money" reminds us of the mania of collecting things that have little value on its own.
What does this mean in the context of Snapchat? Firstly, snapchat trades in the attention of a particular demographic. The market has shown that it is willing to pay for the attention of this group - witness how much advertisers spend on tv. However, the younger set are watching less TV than their predecessors. Ergo, the advertising spend will have to follow where the youth are. When young people were in cars, billboards were real estate. Bill boards themselves have no intrinsic value, but it didn't stop people from making money (Ted Turner's dad ran a billboard business).
The real question is whether Snapchat will endure past a couple of seasons in its present format. There was a time when Twitter was cool, but now it has repositioned itself as a real time news feed. I think Snapchat has creates real value. Kids get the validation they crave for in a social network, but not have to worry about a permanent record of their activities being archived somewhere. Even if this is not worth money to kids, it generated value to a concerned parent.
Here was my "valuation model" when they raised at 800M:
5 Years From When they raised :
100M Users X $4 worth of advertising per user X 50% margin = $200M Cash Flow X 20 Times earnings = $4BN - solving for a 50% IRR over 5 years gives you $800M
But that is presupposing that a) data is undeniably king as a competitive edge, (it might be, but we don't know this for sure, we might be in for a surprise), and b) that Snapchat is simply unable to make any significant change in its operations.
The Snapchat team is ostensibly pretty talented, and apparently on fire right now, so who knows, they might start something new on the side and link it to Snapchat which may really take off.
Imagine a beach. People come to the beach, play, build sand castles they later destroy. It's one beach on a long stretch of coastline. But this particular beach is incredibly popular, where lots of young people go to hang out with each other.
How much would you pay to own that beach? How would you justify that investment -- would you plan to charge an admission fee? Would you wrap the beach in ads and sponsors? Would you charge to build sandcastles? Would you sell concessions?
I think it's helpful to think of SnapChat and many other businesses with this metaphor.
That's actually a really interesting analogy. I'm sure it's incomplete, but it instructs analysis.
Ownership of the beach is clearly valuable, even if it's unclear exactly how you will extract that value. And beach popularity can be subject to trends and other outside factors.
It's also easy to ruin a beach, and therefore its value by too aggressively trying to get the value out of it. For instance, I'd rather keep the beach free of ads and aggressive tourist sales people to make my money on hotels, condos, and restaurants near to the beach.
I'd say the biggest problem with the analogy is that only part of a beach's value is derived from the other beachgoers - there is some intrinsic value to the combination of sand, sun, and waves. For snapchat, if there are no other users, there is no value at all.
It's simple, you buy the beach next door, and wait for the popular beach to implement any of the above changes. Then you advertise as the beach without ads, the beach without admission fees, or the beach where you can build free sand castles. Then when the people come, you sell your newly successful beach, and run.
This metaphor is helpful in terms of thinking about how users interact with the service and how advertisers and vendors might try to get at these users.
The very large problem with this metaphor is that you are not taking into barriers to entry. Beaches are valuable in the real world because it's impossible to change the ocean and extremely costly to remove rocks, import sand, bring in wildlife, build access points and accommodations, etc. to suit the needs of the beachgoers.
The digital beach market has low barriers to entry. If Snapchat ruins its beach with advertisements, pollution, and annoying fruit vendors, then users can very easily and very quickly move to another beach of similar or higher quality that can be built in a matter of days.
I thought I was taking crazy pills when Zynga got valued more than Electronic Arts. Yeah, a company with games that practically aren't even games which makes money via spammy offers, is worth more than a multi-decade-old company with a gigantic catalog of games, which people actually pay cash for, spread out over every continent and every console, handheld, and PC. When I saw that story, I was like "do any of the journalists on the story actually stop and think for a second?"
It turns out smart people do dumb things all the time. The trick isn't being smart all the time, which is difficult.
Rather, you want to be smart at the right time and convince other incredibly smart people to do something incredibly dumb in that fleeting moment.
Last I checked, most of us have never created a messaging app that grew to 350M messages in two years. More importantly, most of us didn't also then convince smart investors to let us cash out at some ridiculous valuation.
Props to the Snapchat guys and I hope they figure out monetization but at the end of the day, they got their FU money and built something huge. That's a win in my book.
Zynga was/is just a glorified spamming enterprise built atop Facebook's platform to get cheap and massive volumes of traffic. They've never created anything even remotely original (have basically ripped every single Maxis title since Sim Farm) and their ex-CEO was/is a complete scumbag who defrauded the public markets and early employees from everything under the sun.
SnapChat isn't much different. Just another "trendy app" that VC's love to throw money at since their partners invested in a previous competitors.
I don't know if you know much about Victorian farming techniques, but it was around then that bat guano was discovered to be an excellent fertilizer. This started what amounted to a gold rush, as people set off to make their fortunes from harvesting it. That is the origin of the modern term "batshit crazy".
My favorite piece of trivia about this time period was the passage of the Guano Island Act in 1865. It allowed US citizens to claim islands with guano deposits to be US territories. Islands claimed under the act were even afforded protection by the US military.
The US is still in possession of a handful of islands claimed under the Act. A few are even still in diplomatic dispute.
Perhaps their endgame is to use a vast collection of compromising images collected under the pretence of privacy to extort protection fees from their users.
$4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera?
Oh please!
Sure you can recreate the app pretty easily which, you can also do for most services (this does not mean scaling to the users they serve) but that is not the value of the service.
Haha you caught me. Had to poke a little fun at Snapchat after a long day of writing about such a simple little service :)
Snapchat is firmly entrenched in its spot due to its first-to-move position (see Facebook's failed "Poke" project) but the point is that if it tries to change the service in an annoying manner then there is nothing to stop people from moving to an identical (or better) service that does not annoy them.
Irrespective of present revenue, the acquisition value of Snapchat to Facebook, Google, Yahoo and co basically puts a floor on the valuation. E.g. if I am an investor and I think Google would pay $5B for Snapchat, it makes sense to buy it at $4B. So I guess the trick is not to figure out how much revenue Snapchat will generate on its own, but rather how additional revenue Google could generate if it owned Snapchat (which will drive the acquisition price).
I address this in the article: Snapchat doesn't want to be acquired because it thinks its creating its own new market where it has 100% market share.
I agree with you that Snapchat is intrinsically worthless, hence the title of the article.
Even if it was eventually acquired, how could the service be augmented to funnel users into a parent company (Google, Facebook) when the very nature of the application is to create media, then delete it. This builds no links or references to outside sources, no galleries of images, no way to generate ad revenue.
Why would you buy it? It's probably going to die, if a big player doesn't buy it. They need to get acquired if they want to be alive and get time in order to find a way to generate revenues.
* 350m snaps per day + potential growth
- At least 3 interaction screens per snap (pre-view/view/post-view): that's over 1bn places you could put, say, ads per day. Do the CPI/conversion math on that.
* User data for 200m+ users + the ability to extend and refine
* A direct line to 200m+ home screens via push notifications
* Enough inertia to mitigate the threat of competition (Facebook challenged with the Poke app, that failed)
* The potential to change/extend the feature set to more revenue oriented streams
* All other possible things you could do with an enormous and massively engaged captive audience...e.g. walking past Starbucks - they're having a slow day. Receive Snapchat from Starbucks with scannable special offer code and super quick expiry. We've just made Groupon for the high street.
* Rights to all the above until the end of time
I published an article about Snapchat a couple of days ago. Yes, it is. Snapchat is not a "sustainable business", it's a trend or a bubble. People are using it now, because it's cool; but in a couple of years, there will be another trend and so on. Even if they are still alive after 5 years, the valuation is ridiculous. Entrepreneurship is not about money, but at some point you need to face this problem and have a solution in your pocket. They are worth $4B and they don't have a clue. I guess this is just another groupon. (http://greatpreneurs.com/startups-dilemma-trends-businesses/)
It's how the wind blows these days in "tech". It's reminiscent of a bubble with all of these mobile apps calling themselves "companies" when most aren't even profitable. It reminds of the early 2000s when "how many eyeballs do you get monthly" was the question of the day.
Does Pinterest really need $400M+ in venture to operate? What are they doing over there? Advanced robotics with neural implants? Burn rate of $30M a month?
Utter bullshit.
Like I said before, VC's aren't dumb but they're also not very smart, most at least - they don't need to be. They flock to whatever's hot and popular (trendy) and invest. Their exit strategy is simple: a highly overvalued IPO where the public market will buy based on hype or an acquisition.
These unsustainable trends in extremely overvalued companies/apps will continue for a while, unfortunately.
Until the shit hits the fan and one of these giants of venture capital infusion tank.
Unfortunately, it's so much more than an issue of Snapchat being worthless, it's a large chunk of the tech community today being generally worthless by looking for the EASY WAY OUT - building some stupid app, getting 5M+ users for a few years of engagement and raising large rounds and cashing out. There's no intrinsic value of any kind in this.
It wasn't like this before the App Store.
There is still great technology being developed out there, but most people (and human nature in general) flocks to the easy way out, the replication factor, globalization, the art of copying something, or as Peter Thiel would say" "the 1 to n of globalization."
People said the same about Facebook & Twitter. People thought Google overpaid for YouTube – now it's clear it would have been a steal at twice the price.
You mention Groupon. I've knocked Groupon a lot, but it's still got a public-market-cap of $7B, more than the Google buyout offer people said they were insane to reject.
Am I missing something but I always assumed that valuations at this stage of a company is to do with huge/vast sums of money being removed from the table by the founders and they've done this by selling a good stake of their equity/voting rights in their company.
The founders are now rich.. but the company isn't.. and if they raise a next round, their true valuation will shine through...
Anytime stock changes hands in exchange for money it's reasonable to use that transaction to value the company. It doesn't matter if it's the company selling a piece of itself or employees selling stock to an investor. Someone is still paying money for ownership.
If anything, employees selling shares probably makes it easier because it's common instead of preferred shares being sold.
What Snapchat has is millions of users who have formed the habit of opening the app every day and using it to communicate, sending 350 million* snaps a day. You can go ahead and make clones of Snapchat (or Facebook or Twitter), but building a clone does not guarantee that you will get the number users that Snapchat (or Facebook or Twitter) have. The investors are betting that the folks at Snapchat will experiment to find ways to extract money from some small subset of Snapchat's users (e.g. let's say Snapchat has 350 million users and they find a way to extract $10 a year from 1% of their users, then that's $35 million a year). This is the bet that the investors of Snapchat are making. It's a risky bet, but they're OK with that. They're used to making risky bets. Most of their bets don't pan out, but the ones that do...well, you're smart, you get the picture.
Can someone who understands the strategy behind fundraising explain why they would want to raise at such a high valuation? To be clear, one point left out of the article is that the $3.5B - $4B valuation is a rumored valuation being "considered" by the startup (Their most recent round of funding valued them at $800MM). When I read about the "rumor" my immediate thought was: Snapchat leaked that to the press to gauge the response from potential investors / acquirers. The thing I don't understand is: what is their goal here? It seems like raising at a 3B+ valuation limits their options for an exit to either an IPO or an acquisition by one of maybe 3 companies. Raising at such a crazy valuation also seems extremely risky considering the volatility of apps in their space and the fact that they haven't even begun to explore monetization. What am I missing?
I'll suggest a simpler framework for valuing Snapchat: probability of becoming another Facebook. If you think it has a 5% chance, then it should be valued at around 5 billion (relative to Facebook's 100 billion).
I think there is literally 0 chance for another Facebook. Google tried with Google+ - billions of dollars, millions of man hours by brilliant engineers, crazy bundling strategies by Google. Is Google+ another Facebook yet? Nope, not yet, maybe not ever.
Your strategy has merit, but simply making another Facebook is not going to work now (It would have back in Myspace days). Now there is not an untapped market of people - almost everyone has things vested in social media companies.
1. Companies need either to do better then Facebook (Once again Google tried. Do not get me wrong, there is a fair chance that eventually Google+ will prevail, but very few projects have full might of Google paving their success.) 2. Or have different punchline than Facebook does to attract users (This is what Snapchat did). *typoed
Electronics/handset manufacturers have a 95% chance of becoming the next Apple and given that their execution/marketing/technology/etc is 5% behind/off doesn't value them at $450bn, i.e. the market doesn't expand with new players, and FBs network effect is too large to ignore.
I think its important to point out that tech blogs always want a breathlessly huge top line number, and that investors play along (The same thing seems to happen with sports contracts). But the details are often vastly more complex and full of earnouts, triggers, board seats, etc, etc. And according to the allthingsd article linked to, the deal hasn't been closed yet:
"Sources said the round being raised — up to $200 million — will come in part from China’s Internet giant Tencent and value the self-destructing mobile messaging startup from $3.6 billion to $4 billion."
I think Snapchat are crazy if they don't put ads in there soon.
I see Snapchat as a faster Youtube. It's basically content that you want to see - Youtube from the masses, Snapchat from your friends.
The Youtube advertising model is clearly fantastic. From things I've read some time in the past I know they kill it on a $/user basis vs pretty much every social site on the web.
Putting a 2 second static 'brand flash' in front of every snap would probably not put people off using the service (in the same way that people still use Youtube - even though video hosting is a highly replicable thing). And from a brands point of view 2 seconds is probably all you need to get into someone's subconscious.
Bonuses for being an app:
1) Full screen take over.
2) No distractions from other tabs.
3) I'm sure they could find out age and sex quite easily if they wanted to. So they would have - age, sex and location. POWERFUL.
The sooner the better. Explain that the app needs to make money to it's users. People get used to things.
The comment about stickers makes me think you don't understand how much money they make and how much people use them. It's massive. Look at Line made 17 million from stickers in Q1 this year, Kakao made 311 million in revenue and I'm not sure the breakdown but stickers is significant enough that it's mentioned in with gaming as the main source of revenue.
Stickers, whether it's reasonable or not, are a great way to monetize on messaging.
Snapchat also allows you to find someone to talk to that no other service does as seamlessly. From my understanding anyway, people will send out snaps to a group of people, many time everyone they're connected to and after a few snaps back and forth with one or two of the responders, they'll switch to another channel and chat. One could argue adding messaging here would increase the stickiness, but I think snapchat is right in that adding it in would just be distracting.
Competition could be a good way, once you figure out how to gameify self-destructing photos. Some sort of scavenger hunt model, perhaps? Giving out clues? Maybe adding a Snapchat Games section for companies to host these treasure hunt promotions? Or some sort of art contest?
I'm particularly surprised about seeing Snapchat with twice the valuation of Whatsapp. Here in Amsterdam, Whatsapp seems to have close to 100% market penetration (i.e. almost all smartphone users use whatsapp), yet I've never heard anyone about snapchat here.
As you correctly analyzed, snapchats value is majority in user-base. I believe it is specifically the attention of users that gives it value. We measure that with metrics like reach, views, clicks, messages sent etc. The attention comes from the novelty of it, as you adequately put, it has a low barrier to entry due to it's 'low pressure'. It must maintain that attention through low pressure to maintain value.
FB went the ad route a la google and then moved towards analytics. Twitter is doing the same. If snapchat went down that route they would have to analyze the photos taken, pictures drawn etc. to provide data to customers in the same way.
Not to get too meta, but there is always value in self-expression.
[+] [-] ChuckMcM|12 years ago|reply
One of the common themes in investing is "what am I missing?" and this piece is a great walk through through a reasoned set of parameters that might make a company or project more or less valuable. The assertion that SnapChat is 'Intrinsicially' worthless is of course false. For something to actually be "worthless" in a free market would require that either no one would offer any value in exchange for partial ownership, or there would have to be outright fraud. We say a 'fake' Van Gough is worthless because it is worth much less than an original, but someone might buy it because they like the painting and they can't afford an original. As a painting it would probably be worth more than a print. But not actually "worthless."
So what is he saying? He says that Snapchat's recent valuation was much higher than he would have put it. And we can ascertain that like the forgery vs. actual painting the difference in the two numbers is large.
So what is the basis for this disconnect? It is this:
" $4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? A service that voluntarily throws away its own data in the golden age of data hoarding? A service devoid of the nature of competition that is the driving behind every other profitable company in the world?"
The focus here is on the tech and not the market. A pet rock was 'worthless' (the rock was just a rock) but the connection with a generation was valuable. So often in our business we look at something that we feel like we could build (or could be easily built) and a valuation, and focus on those two things. The parts we don't see we give little value to (350M snaps? Seriously? That is a boat load of engagement). Making anything that get 350M 13-23 yr olds engaged is a pretty huge deal. That is what is valuable with Snapchat, not the tech.
[+] [-] tomphoolery|12 years ago|reply
Here's some of my ideas and they all involve in-app purchases:
* Corporate deals that allow you to place products in your snaps, kinda like Photoshop. Example: you pay $0.99 to be able to place a character from South Park in your Snap.
* High-quality snaps, that take advantage of your camera's full resolution
* Sound snaps, so you can record 30 seconds of audio and send it to a friend. Great for sharing tracks you make or music you're hearing, or just to record some idiot yelling on the bus.
There are many more possibilities. Snapchat can almost be thought of as a "social game", a sort-of cross between FarmVille, Instagram and Twitter. You can still share basic things to your friends, but you can pay to send even better things. My ideas may or may not be shitty, but they still prove that the service probably can monetize, in my opinion.
[+] [-] roymurdock|12 years ago|reply
I tried to stay away from poking fun at the simplicity of the technical aspects of the service as much as possible, and I didn't mean for the article to come across as tech-focused.
All I meant with the MS Paint/duct tape comment was that it wouldn't be hard for a competitor to recreate the service - in fact Facebook Poke has already tried and failed due to your observation that it takes a certain "connection with a generation" to make a seemingly silly product successful. That, and Snapchat was the first to move to the market, giving it a huge inertial advantage over Poke.
The main point I wanted to make was most definitely market focused: Snapchat has built itself a user base in a market that it can't monetize by itself. It can continue to gather users 'til the end of time, but it will never be able to get any revenue from them without altering its service and driving users away. Therefore Snapchat is intrinsically worthless.
This is distinct from the statement that "Snapchat is worthless" - clearly it isn't extrinsically worthless because it can be used as a funnel to get users to other parts of the internet that might generate revenue. So there is some basis for valuing the company.
The question then becomes how much is it actually worth? I'd love for someone to help me out and stake a valuation for what they think Snapchat is actually worth.
Less than $4bn is my estimate. How much less? Not so sure.
[+] [-] teyc|12 years ago|reply
Furthermore, even money itself has no intrinsic worth. The old Indian adage of "when all the trees are gone, ... try to eat money" reminds us of the mania of collecting things that have little value on its own.
What does this mean in the context of Snapchat? Firstly, snapchat trades in the attention of a particular demographic. The market has shown that it is willing to pay for the attention of this group - witness how much advertisers spend on tv. However, the younger set are watching less TV than their predecessors. Ergo, the advertising spend will have to follow where the youth are. When young people were in cars, billboards were real estate. Bill boards themselves have no intrinsic value, but it didn't stop people from making money (Ted Turner's dad ran a billboard business).
The real question is whether Snapchat will endure past a couple of seasons in its present format. There was a time when Twitter was cool, but now it has repositioned itself as a real time news feed. I think Snapchat has creates real value. Kids get the validation they crave for in a social network, but not have to worry about a permanent record of their activities being archived somewhere. Even if this is not worth money to kids, it generated value to a concerned parent.
[+] [-] nrao123|12 years ago|reply
The $4/user comes from here: http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-...
[+] [-] selmnoo|12 years ago|reply
The Snapchat team is ostensibly pretty talented, and apparently on fire right now, so who knows, they might start something new on the side and link it to Snapchat which may really take off.
[+] [-] cylinder|12 years ago|reply
How much would you pay to own that beach? How would you justify that investment -- would you plan to charge an admission fee? Would you wrap the beach in ads and sponsors? Would you charge to build sandcastles? Would you sell concessions?
I think it's helpful to think of SnapChat and many other businesses with this metaphor.
[+] [-] tg3|12 years ago|reply
Ownership of the beach is clearly valuable, even if it's unclear exactly how you will extract that value. And beach popularity can be subject to trends and other outside factors.
It's also easy to ruin a beach, and therefore its value by too aggressively trying to get the value out of it. For instance, I'd rather keep the beach free of ads and aggressive tourist sales people to make my money on hotels, condos, and restaurants near to the beach.
I'd say the biggest problem with the analogy is that only part of a beach's value is derived from the other beachgoers - there is some intrinsic value to the combination of sand, sun, and waves. For snapchat, if there are no other users, there is no value at all.
[+] [-] Guest98130|12 years ago|reply
[+] [-] roymurdock|12 years ago|reply
The very large problem with this metaphor is that you are not taking into barriers to entry. Beaches are valuable in the real world because it's impossible to change the ocean and extremely costly to remove rocks, import sand, bring in wildlife, build access points and accommodations, etc. to suit the needs of the beachgoers.
The digital beach market has low barriers to entry. If Snapchat ruins its beach with advertisements, pollution, and annoying fruit vendors, then users can very easily and very quickly move to another beach of similar or higher quality that can be built in a matter of days.
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] dakrisht|12 years ago|reply
End game.
[+] [-] deanblacc|12 years ago|reply
I don't know, the article came across as missing the point in my opinion.
[+] [-] cromwellian|12 years ago|reply
[+] [-] dpcheng2003|12 years ago|reply
Rather, you want to be smart at the right time and convince other incredibly smart people to do something incredibly dumb in that fleeting moment.
Last I checked, most of us have never created a messaging app that grew to 350M messages in two years. More importantly, most of us didn't also then convince smart investors to let us cash out at some ridiculous valuation.
Props to the Snapchat guys and I hope they figure out monetization but at the end of the day, they got their FU money and built something huge. That's a win in my book.
[+] [-] dakrisht|12 years ago|reply
SnapChat isn't much different. Just another "trendy app" that VC's love to throw money at since their partners invested in a previous competitors.
[+] [-] nashequilibrium|12 years ago|reply
[+] [-] kin|12 years ago|reply
[+] [-] gaius|12 years ago|reply
I just mention this apropos of nothing.
[+] [-] adestefan|12 years ago|reply
The US is still in possession of a handful of islands claimed under the Act. A few are even still in diplomatic dispute.
[+] [-] morsch|12 years ago|reply
[+] [-] polemic|12 years ago|reply
[+] [-] tedunangst|12 years ago|reply
[+] [-] itsprofitbaron|12 years ago|reply
Oh please!
Sure you can recreate the app pretty easily which, you can also do for most services (this does not mean scaling to the users they serve) but that is not the value of the service.
It's also why 'hackers' typically don't make great investors see: https://news.ycombinator.com/item?id=8863
[+] [-] roymurdock|12 years ago|reply
Snapchat is firmly entrenched in its spot due to its first-to-move position (see Facebook's failed "Poke" project) but the point is that if it tries to change the service in an annoying manner then there is nothing to stop people from moving to an identical (or better) service that does not annoy them.
[+] [-] _j5l3|12 years ago|reply
[+] [-] minimax|12 years ago|reply
[+] [-] roymurdock|12 years ago|reply
I agree with you that Snapchat is intrinsically worthless, hence the title of the article.
Even if it was eventually acquired, how could the service be augmented to funnel users into a parent company (Google, Facebook) when the very nature of the application is to create media, then delete it. This builds no links or references to outside sources, no galleries of images, no way to generate ad revenue.
[+] [-] edoardo|12 years ago|reply
[+] [-] clienthunter|12 years ago|reply
* 350m snaps per day + potential growth - At least 3 interaction screens per snap (pre-view/view/post-view): that's over 1bn places you could put, say, ads per day. Do the CPI/conversion math on that. * User data for 200m+ users + the ability to extend and refine * A direct line to 200m+ home screens via push notifications * Enough inertia to mitigate the threat of competition (Facebook challenged with the Poke app, that failed) * The potential to change/extend the feature set to more revenue oriented streams * All other possible things you could do with an enormous and massively engaged captive audience...e.g. walking past Starbucks - they're having a slow day. Receive Snapchat from Starbucks with scannable special offer code and super quick expiry. We've just made Groupon for the high street. * Rights to all the above until the end of time
Total: $4bn
Doesn't seem so crazy to me.
[+] [-] edoardo|12 years ago|reply
[+] [-] dakrisht|12 years ago|reply
It's how the wind blows these days in "tech". It's reminiscent of a bubble with all of these mobile apps calling themselves "companies" when most aren't even profitable. It reminds of the early 2000s when "how many eyeballs do you get monthly" was the question of the day.
Does Pinterest really need $400M+ in venture to operate? What are they doing over there? Advanced robotics with neural implants? Burn rate of $30M a month?
Utter bullshit.
Like I said before, VC's aren't dumb but they're also not very smart, most at least - they don't need to be. They flock to whatever's hot and popular (trendy) and invest. Their exit strategy is simple: a highly overvalued IPO where the public market will buy based on hype or an acquisition.
These unsustainable trends in extremely overvalued companies/apps will continue for a while, unfortunately.
Until the shit hits the fan and one of these giants of venture capital infusion tank.
Unfortunately, it's so much more than an issue of Snapchat being worthless, it's a large chunk of the tech community today being generally worthless by looking for the EASY WAY OUT - building some stupid app, getting 5M+ users for a few years of engagement and raising large rounds and cashing out. There's no intrinsic value of any kind in this.
It wasn't like this before the App Store.
There is still great technology being developed out there, but most people (and human nature in general) flocks to the easy way out, the replication factor, globalization, the art of copying something, or as Peter Thiel would say" "the 1 to n of globalization."
[+] [-] gojomo|12 years ago|reply
You mention Groupon. I've knocked Groupon a lot, but it's still got a public-market-cap of $7B, more than the Google buyout offer people said they were insane to reject.
[+] [-] richardv|12 years ago|reply
The founders are now rich.. but the company isn't.. and if they raise a next round, their true valuation will shine through...
[+] [-] harryh|12 years ago|reply
If anything, employees selling shares probably makes it easier because it's common instead of preferred shares being sold.
[+] [-] babakian|12 years ago|reply
* This number was taken from the article.
[Edited to fix typos.]
[+] [-] Guest98130|12 years ago|reply
[+] [-] thesash|12 years ago|reply
[+] [-] gcatalfamo|12 years ago|reply
[+] [-] dakrisht|12 years ago|reply
They might be valued higher than Genentech at this point.
[+] [-] johnrob|12 years ago|reply
[+] [-] TrainedMonkey|12 years ago|reply
Your strategy has merit, but simply making another Facebook is not going to work now (It would have back in Myspace days). Now there is not an untapped market of people - almost everyone has things vested in social media companies. 1. Companies need either to do better then Facebook (Once again Google tried. Do not get me wrong, there is a fair chance that eventually Google+ will prevail, but very few projects have full might of Google paving their success.) 2. Or have different punchline than Facebook does to attract users (This is what Snapchat did). *typoed
[+] [-] antr|12 years ago|reply
[+] [-] yoloswag|12 years ago|reply
[+] [-] ojbyrne|12 years ago|reply
"Sources said the round being raised — up to $200 million — will come in part from China’s Internet giant Tencent and value the self-destructing mobile messaging startup from $3.6 billion to $4 billion."
[+] [-] FailMore|12 years ago|reply
I see Snapchat as a faster Youtube. It's basically content that you want to see - Youtube from the masses, Snapchat from your friends.
The Youtube advertising model is clearly fantastic. From things I've read some time in the past I know they kill it on a $/user basis vs pretty much every social site on the web.
Putting a 2 second static 'brand flash' in front of every snap would probably not put people off using the service (in the same way that people still use Youtube - even though video hosting is a highly replicable thing). And from a brands point of view 2 seconds is probably all you need to get into someone's subconscious.
Bonuses for being an app:
1) Full screen take over. 2) No distractions from other tabs. 3) I'm sure they could find out age and sex quite easily if they wanted to. So they would have - age, sex and location. POWERFUL.
The sooner the better. Explain that the app needs to make money to it's users. People get used to things.
[+] [-] ramirez60|12 years ago|reply
Stickers, whether it's reasonable or not, are a great way to monetize on messaging.
Snapchat also allows you to find someone to talk to that no other service does as seamlessly. From my understanding anyway, people will send out snaps to a group of people, many time everyone they're connected to and after a few snaps back and forth with one or two of the responders, they'll switch to another channel and chat. One could argue adding messaging here would increase the stickiness, but I think snapchat is right in that adding it in would just be distracting.
[+] [-] Apocryphon|12 years ago|reply
[+] [-] namenotrequired|12 years ago|reply
[+] [-] joyeuse6701|12 years ago|reply
FB went the ad route a la google and then moved towards analytics. Twitter is doing the same. If snapchat went down that route they would have to analyze the photos taken, pictures drawn etc. to provide data to customers in the same way.
Not to get too meta, but there is always value in self-expression.