After meeting with Snapchat’s founders in December last year, Mark Zuckerberg tried to clone the self-destructing photo app with a Facebook-powered app called Poke. It was a total flop.
So, Facebook did what any smart company with deep pockets would do — it tried to buy Snapchat, for a reported $3 billion according to the Wall Street Journal, which broke the news of the offer. But the team at Snapchat rebuffed the all-cash offer, according to the WSJ’s report.
It’s reminiscent of what Facebook did after it saw its growth potential threatened by Instagram, a photo-sharing app that the company bought for what was $1 billion at the time. Facebook had also been working on its own photo-taking app, which actually launched shortly after it bought Instagram. That app, too, was a dud.
Snapchat is seen to be particularly popular among younger users, who basically use it to send funny faces with pictures drawn on them that self-destruct in a few seconds. Young users are an area where Facebook has seen its growth not quite keep pace, CFO David Ebersman said on the company’s more recent earnings call. In reality, the “teens don’t like Facebook” meme has been flowing through tech circles for several quarters.
But, the teen audience is important for Facebook, because it does not plan to increase the number of ads shown in News Feed — which is seen to be its most important advertising product. In lieu of more ads, the other way to grow revenue is to grow its user base.
Facebook gave up a nearly 15% gain in its stock price as soon as it said it was not going to increase the number of News Feed ads shown, which is probably why it decided to make its offer for Snapchat all cash. Companies selling to Facebook might not want another repeat of Instagram, which saw the value of its sale decline along with Facebook’s stock after it went public.
Snapchat, for its part, is growing quickly and says its users send 350 million photos every day. With its rapid growth and highly engaged user base, there are a lot of obvious monetization prospects for the app (think promoted tweets, but in Snapchat form). It is also reportedly raising money at a $4 billion valuation from Tencent.
So, it’s now on 23-year-old Snapchat CEO Evan Spiegel to keep up the pace and not get overtaken by other quick-fire messaging apps like WhatsApp, which has hundreds of millions of users, and Line.
Also worth noting: Spiegel said he would like to sell stock if the company raises money, according to the WSJ report. That’s pretty common nowadays in the startup world, as it’s a way to mitigate risk for a founder, but read into that as you will.
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