Would you turn down billions of dollars – twice? Well for Evan Spiegel and Robert Murphy, the founders of Snapchat, the answer was simple – of course. In November of 2013, Spiegel and Murphy were offered $3 billion from Facebook and they turned it down. A short while later, they were offered $4 billion from Google and turned that down as well.
Here’s a quick timeline for you. In October of 2012, Snapchat did not record a dollar of revenue. Nine months later, the company had an estimated value of over $800 million. Between October 2012 and July 2013, Snapchat had attracted willing investors, who supplied the company with millions in funding. Before the end of 2013, the two famous offers were turned down, and Snapchat puzzled technophile business insiders around the world. In January 2014, Snapchat was hacked, and over four million users had their information stolen. Today, Snapchat is worth approximately $2 billion.
Snapchat is one of those apps that makes you think “why didn’t I think of that?” It is a photo messaging app that was originally created by Spiegel and Reggie Brown for a school project at Stanford University. Brown and Spiegel eventually added Robert Murphy to the mix, bringing him on to code the application. Its most unique feature is its automatic deletion of photos, putting a time limit of a few seconds on the viewing of photos sent with the service (the sender can decide on the exact time limit). The very notion of having photos deleted is enticing for many reasons, including how it facilitates the exchange of provocative messages and photos. Snapchat’s user base is set to be north of 30 million, but an exact number has not been released.
In the first week of January, Snapchat was hacked, resulting in over 4 million users’ personal information being stolen. It’s too early to tell what the fallout will be, though Snapchat has since apologized in an effort to mitigate the damage. The road ahead will be one filled with broken glass, as every move they make will be scrutinized given their reluctance to sell, and perceived over-confidence in building an online user base larger than Facebook’s.
So why would a pair of young men turn down such a lucrative offer? Not many of us can answer this question, as most would have jumped at the first offer. But maybe not. Founders of start-ups all believe that what they have is something bigger than what’s already out there. Spiegel may be of the belief that Snapchat will eventually be bigger than Facebook, and so why should he sellout to the competition when he believes he can beat it. Come to think of it – it’s quite admirable. It might be too late for Snapchat to go back on the offer. Nonetheless, here are the top 5 reasons Snapchat should have sold.
5. Getting That Rich, That Fast, Is Like Winning The Lottery
Real estate, the stock market, and even bitcoins can make you rich (if investments are done right), but in the absence of patience and time, there’s little chance you will make it rich in a short span of time. There are very few investments with returns as high as these, and the odds of building a successful business are already low enough. The odds of someone wanting to pay top dollar for it are even lower. When it comes to offers such as these – the odds are the same as winning the lottery. Would you turn that down? After Facebook and Google, there’s a very short list of players who would – or could – pay for Snapchat.
4. The Competition Is Powerful
When it comes to Facebook and Google, only one thing is clear – they are vicious competitors. They have both flexed their competitive muscle in many ways in the past – including legal action. They are very advanced technologically and have the necessary infrastructure to crush the competition. These are not organizations that just anyone can go up against. That does not mean no one should try; it just means that the new competitor will need to be well-prepared. This is not the barber shop across the street. This competition is as stiff as it gets.
3. It Will Be Copied
Unfortunately for Snapchat, technology is too easy to copy. The very benefit of technology is that it can be replicated with relatively little effort. Granted, building the user base is tough but it’s only a matter of time before others make a move on copying Snapchat’s auto-delete photo message.
Already, Facebook’s Instagram is introducing direct photo-messaging into its app, and other competitors, like Wire, are coming into being all the time. They might not be an exact replica, which will help the newcomers to avoid patent infringement and subsequent legal action, but even a slight variation can be enough to knock Snapchat off their feet, or at least steal some users away.
2. It Might Eventually Implode
Snapchat is now bigger than just two Stanford University students. The involvement of more people, including developers, friends, and investors (both new and old), means that decision-making is now a longer process that can lead to conflict, distrust, and questions of accountability, and transparency. Throw in billions of dollars, and the stakes become dangerously high.
If the outside world doesn’t get to Snapchat, maybe someone on the inside will. After all, the remnants of Reggie Brown, one of the original founders, are still present in the form of lawsuits, bad press, and bad blood. Reggie Brown claims it was his idea to have photos automatically deleted. Unfortunately for him, he does not have any equity in the company. The details of Reggie Brown’s departure from Snapchat are still unclear, remaining under legal wrap for the time being. The story sounds all too familiar, and the bad news is that there might be more to come.
1. Snapchat Won’t Solve World Hunger
The conviction and commitment to building Snapchat into a multi-billion dollar business is admirable. Spiegel’s pride and reluctance to sell out now is commendable and gutsy, to say the least. But let’s face it – Snapchat isn’t going to win anyone the Nobel Peace Prize. It’s an app that lets people take silly or salacious pictures, and if Spiegel is holding onto Snapchat for any reason other than money, it’s puzzling. You can feel a sense of pride and passion for creating a cool app that millions around the world use, but cool does not trump purpose – especially years from now. What’s the end game for Snapchat? Is there a greater goal or a greater purpose at the end of all this? Only time will tell, but the fact remains that, for now, there doesn’t seem to be a great reason to hold on.
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