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Does anyone else find this valuation incredibly ironic given that in 1999 Yahoo! bought Geocities for $3.57 billion? I mean, does anyone believe that Snapchat

Does anyone else find this valuation incredibly ironic given that in 1999 Yahoo! bought Geocities for $3.57 billion? I mean, does anyone believe that Snapchat is going to ever be a service that brings in billions of dollars in revenue?

potatolicious 13y ago
This is IMO the wrong way to look at it. Look at this more like Instagram. Neither Snapchat nor Instagram are creating new traffic. What they are doing is essentially stealing marketshare and user engagement from competing services like Facebook and Twitter. Their valuation isn't their revenue potential, it's the opportunity cost to Facebook, Twitter, et al for letting them survive. If Snapchat is stealing $1bn of monetizable traffic from Facebook, Facebook would be wised to pay some amount of money (<$1bn) to either shut it down or bring them into the fold. There is some extra valuation here in fucking your competitor over. Acquisition of hot social media companies like this is equal parts adding monetizable traffic to your network (traffic they may have taken from you in the first place...), as well as denying your competitors the ability to do the same. So, say if Twitter acquires Snapchat, their valuation will be some combination of ${traffic_twitter_loses_to_snapchat} + ${traffic_facebook_loses_to_snapchat} + ${value_in_denying_facebook_access_to_this_traffic} Whether or not that's worth $3.5bn is questionable, but there is some reason behind valuing non-revenue-generating products with a positive valuation. The main "bubble" part here is whether or not this is at all sustainable (IMO, probably not). It's pretty easy to create something that steals an appreciable amount of traffic from the incumbent social network behemoths. At these valuations the cost to "recover" these eyeballs far exceeds how much the traffic is actually worth in ad revenue.
- rexreed 13y ago
  Even in the rarified atmosphere that is Silicon Valley, the Instagram acquisition was unusual. Very much so. Acquired by Facebook just prior to their IPO. Lots of motivations for that, but by no means is Instagram an exemplar of anything. It's probably an outlier among outliers.
  - vidar 13y ago
    They were not about to ipo
    - brimanning 13y ago
      Not sure if you meant Instagram was not about to IPO, but rexreed meant Facebook was about to IPO (acquisition: April 14th, 2012, IPO: May 18th, 2012).
      - rexreed 13y ago
        Exactly - Facebook was about to IPO and acquired Instagram pretty much right before it. Thanks for posting the dates to clarify.
andrewhillman 13y ago
Nobody believed Twitter would make massive $ two years in. There's never been a startup who achieved serious traction but wasn't able to monetize itself.
- jimboyoungblood 13y ago
  There's never been a startup who achieved serious traction but wasn't able to monetize itself. You're joking, right?
  - andrewhillman 13y ago
    Not joking. If you know of any please share. To clarify, I am talking about consumer plays here.
    - jhickson 13y ago
      Keek. 65 Million active users and they just laid everyone off due to lack of funding, including all the senior staff. Zero revenue and no clear path to it. The site is still up and running but no one is steering it. http://www.theglobeandmail.com/report-on-business/streetwise%2Ffrom-darling-to-struggling-keek-grapples-with-cash-crunch/article15065425%2F&ei=O-xqUt3VOMKSyAHw44GwAg&usg=AFQjCNEe4TUoo94tJc96yTPPQe7sthLYRw&bvm=bv.55123115,d.aWc http://www.theglobeandmail.com/report-on-business/streetwise...
    - mh- 13y ago
      I'll +1 this if I can add the stipulation that it's a US-focused b2c play, mostly because I don't know the international space well.
    - loganfrederick 13y ago
      Digg, Friendster, MySpace just off the top of my head.
    - _delirium 13y ago
      It's a bit of a counterfactual, because startups with large traction having difficulty monetizing don't typically go bankrupt, but sell. But that doesn't prove they wouldn't have been able to monetize at some point, and leaves us guessing. One example is YouTube; they lost huge buckets of money in their entire independent existence, until Google's acquisition completely changed the economics of their bandwidth costs. Would they have been able to become profitable if they stayed independent? Maybe! Another one (perhaps clearer) is Broadcast.com. Never turned a profit in their independent existence; never turned a profit for Yahoo after acquisition, either.

potatolicious 13y ago

This is IMO the wrong way to look at it. Look at this more like Instagram. Neither Snapchat nor Instagram are creating new traffic. What they are doing is essentially stealing marketshare and user engagement from competing services like Facebook and Twitter. Their valuation isn't their revenue potential, it's the opportunity cost to Facebook, Twitter, et al for letting them survive. If Snapchat is stealing $1bn of monetizable traffic from Facebook, Facebook would be wised to pay some amount of money (<$1bn) to either shut it down or bring them into the fold. There is some extra valuation here in fucking your competitor over. Acquisition of hot social media companies like this is equal parts adding monetizable traffic to your network (traffic they may have taken from you in the first place...), as well as denying your competitors the ability to do the same. So, say if Twitter acquires Snapchat, their valuation will be some combination of ${traffic_twitter_loses_to_snapchat} + ${traffic_facebook_loses_to_snapchat} + ${value_in_denying_facebook_access_to_this_traffic} Whether or not that's worth $3.5bn is questionable, but there is some reason behind valuing non-revenue-generating products with a positive valuation. The main "bubble" part here is whether or not this is at all sustainable (IMO, probably not). It's pretty easy to create something that steals an appreciable amount of traffic from the incumbent social network behemoths. At these valuations the cost to "recover" these eyeballs far exceeds how much the traffic is actually worth in ad revenue.

rexreed 13y ago
Even in the rarified atmosphere that is Silicon Valley, the Instagram acquisition was unusual. Very much so. Acquired by Facebook just prior to their IPO. Lots of motivations for that, but by no means is Instagram an exemplar of anything. It's probably an outlier among outliers.
- vidar 13y ago
  They were not about to ipo
  - brimanning 13y ago
    Not sure if you meant Instagram was not about to IPO, but rexreed meant Facebook was about to IPO (acquisition: April 14th, 2012, IPO: May 18th, 2012).
    - rexreed 13y ago
      Exactly - Facebook was about to IPO and acquired Instagram pretty much right before it. Thanks for posting the dates to clarify.

andrewhillman 13y ago

Nobody believed Twitter would make massive $ two years in. There's never been a startup who achieved serious traction but wasn't able to monetize itself.

jimboyoungblood 13y ago
There's never been a startup who achieved serious traction but wasn't able to monetize itself. You're joking, right?
- andrewhillman 13y ago
  Not joking. If you know of any please share. To clarify, I am talking about consumer plays here.
  - jhickson 13y ago
    Keek. 65 Million active users and they just laid everyone off due to lack of funding, including all the senior staff. Zero revenue and no clear path to it. The site is still up and running but no one is steering it. http://www.theglobeandmail.com/report-on-business/streetwise%2Ffrom-darling-to-struggling-keek-grapples-with-cash-crunch/article15065425%2F&ei=O-xqUt3VOMKSyAHw44GwAg&usg=AFQjCNEe4TUoo94tJc96yTPPQe7sthLYRw&bvm=bv.55123115,d.aWc http://www.theglobeandmail.com/report-on-business/streetwise...
  - mh- 13y ago
    I'll +1 this if I can add the stipulation that it's a US-focused b2c play, mostly because I don't know the international space well.
  - loganfrederick 13y ago
    Digg, Friendster, MySpace just off the top of my head.
  - _delirium 13y ago
    It's a bit of a counterfactual, because startups with large traction having difficulty monetizing don't typically go bankrupt, but sell. But that doesn't prove they wouldn't have been able to monetize at some point, and leaves us guessing. One example is YouTube; they lost huge buckets of money in their entire independent existence, until Google's acquisition completely changed the economics of their bandwidth costs. Would they have been able to become profitable if they stayed independent? Maybe! Another one (perhaps clearer) is Broadcast.com. Never turned a profit in their independent existence; never turned a profit for Yahoo after acquisition, either.