The news has spread like wildfire all over the world in the past couple days: Facebook, the goliath of the social media world, recently proposed a $3 billion dollar cash offer to buy Snapchat. And Snapchat turned it down.
Now, for those of you who are not sure what Snapchat is or why people use it, here is the answer in a nutshell: Snapchat is a social media platform for mobile devices. Users have the ability to send photos to friends, but the photos can only be viewed for up to 10 seconds. So why is this so popular? It is all about the privacy issue. Users will send photos that they would not normally post to Facebook, because they might be to embarrassing or inappropriate.
Snapchat was started in 2011 by two fraternity brothers at Stanford: Evan Spiegel and Bobby Murphy (photo below). Both founders are in their 20’s and work out of their home in California. Currently Snapchat has around 26 million users in the U.S. They currently process more than 350 million messages per day, which is fairly rapid growth considering Snapchat was only processing 60 million messages per day in February of this year. It should also be mentioned that Snapcchat currently has no revenue streams.
On the other hand, we have Facebook. Facebook does not need much introduction. However, one thing is slowly changing for Facebook: at Facebook’s most recent earnings meeting they announced that their youngest users (those in their early-to-mid teens) are using Facebook less. Facebook has also been called the “owners” of photos for the desktop. This was especially true after purchasing Instagram for $1 billion.
Now let’s look at the issue at hand from both sides: Facebook wants to grow its mobile market share in social media. Currently, Snapchat is one of the giants in photos for mobile social media, and photos are Facebook’s claim to fame. Snapchat also has a great share of the teenage market right now. This would be a clever purchase for Facebook, because as we mentioned earlier they are losing ground in the teenage segment.
Why did Snapchat reject the offer? Well, the leaders of Snapchat believe that Snapchat will be able to be one of the first social media companies to build its business through revenue that is generated beyond advertising. They believe that by holding out until 2014 they will be able to achieve a much higher valuation. It should also be said that one of their main investors did not want to see the company sell out, but instead attempt to establish itself as a standalone.
So here is our question to you…who really failed here? Did Facebook fail by not acquiring what is becoming a competitor in the mobile device market? Did Snapchat fail by not selling the company? Could Snapchat run the risk of being worth less in the future? Will Facebook come back with a counter offer? We want to hear your opinions on this issue!