What is Snapchat?
Snapchat is a photo messaging app developed by Stanford University students. Using the app, users can take photos, record videos, add text and drawings, and send them to a selected list of recipients. These photos and videos are known as "Snaps". Users set a time limit for how long recipient can view their Snaps, after which they will be hidden from the recipient's device and deleted.
The company has turned into one of the world’s most dominant photo-sharing services, The company has not generated any revenue, but is becoming very popular, particularly among people who are starting to be concerned about how much privacy they have online and on their phones. It has joined the long list of tech companies like Instagram and Tumbler that have not made any profits but have been given multiple takeover offers.
What was the offer?
Snapchat was offered 3.2 billion dollars from Facebook, which the Snapchat founders have turned down. There is a lot of controversy over this, as Snapchat is a California-based online service that has yet to make a profit. Some people think this a really big mistake, but others believe it was a smart decision.
Facebook is interested in Snapchat because more of its users are tapping the service from their smartphones, where messaging is a central part. Facebook has rapidly increased the share of its revenue coming from mobile advertising, but said last month that fewer young teens were using the service on a daily basis.
Why would they refuse?
There are a few reasons that Snapchat may have refused Facebook’s large offer:
- Evan Spiegel, Snapchat’s 23-year-old co-founder and CEO, will not likely consider an acquisition or an investment at least until early next year. Spiegel is hoping Snapchat’s numbers of users and messages will grow enough by then to justify an even larger valuation.
- They are expecting an even larger offer as the company grows
- The founders of Snapchat have big plans for the company, and have made the decision that the $3 billion isn’t going to be enough to fund the improvements they will work on.
Does this represent a new trend in start-ups holding out for the highest bidder?
In the world of start-ups, common sense is replaced by an irrational desire to create an amazing company like Google or Facebook. For 99.99% of entrepreneurs, that mentality is dangerous and the pursuit of a billion-dollar company has cost many founders life-changing fortunes, but in some have been a massive success. Sometimes they feel the acquirer isn’t a good fit, or they aren’t ready to give up control.
Some companies that have achieved this success, and in the beginning refused generous offers, like Twitter, an unprofitable short-messaging service, valued at $US25 billion following its initial public offering in recent months.
Facebook reportedly turned down a $750 million offer from Viacom in 2006, and that same year, Yahoo! attempted to buy the company for $1 billion but founder Mark Zuckerberg refused.
Other companies, however, haven’t had the same success. Last year, a video app called Viddy walked away from a $100 million offer, then lost all of its footing. Viddy has since let go of half its staff and its CEO has been sacked.
The decision to sell a company is a difficult decision to make. There’s fear that investors and the technology community will think a founder is taking an easy way out. But the most innovative entrepreneurs don’t let that get to them, they know when it’s time to get out.
While it’s hard to sell a company and wonder what you could have done if you didn’t sell, it’s painful to know you and your employees could have been rich, and you missed out.
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