10 ms·

Snapchat is Intrinsically Worthless

108 points by roymurdock 13y ago

sp332 13y ago
People are outraged over being spied on, but can't see the value in an private chat tool? Edit I meant private, not anonymous.
- tlrobinson 13y ago
  You think Snapchat is in any way anonymous or private?
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  - skrebbel 13y ago
    Yes, in every way that matters to most people.
    - gcatalfamo 13y ago
      "in every way that matters to most people" It makes you think, doesn't it?
    - tlrobinson 13y ago
      Except for the ways in which people are outraged over being spied upon.
      - skrebbel 13y ago
        I feel you, but you're conflating "angry, principled nerds" with "most people". If you really think people outside your filter bubble are "outraged", look further.
        tlrobinson 13y ago
        I mostly agree, but I was responding to sp332's suggestion that Snapchat does anything to solve the NSA "problem".
        skrebbel 13y ago
        Ah, I must've read your comment out of context. My bad!
  - Apocryphon 13y ago
    Maybe the NSA is funneling investment to get their hooks into Snapchat, preventing it from being used as a means for enemy spies and agents to send each other temporary messages.
- deleted 13y ago
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- objclxt 13y ago
  Snapchat is not only not anonymous, but it's a pretty poor platform with a significant number of past security flaws. About six months ago their API was exposing cellphone numbers for any username (to their credit, when I pointed this out to them they did patch it pretty quickly). Hardly private.
  - sp332 13y ago
    Even if they're not good at it, at least their point is privacy. That's already better than most chat tools.
    - hbags 13y ago
      Ephemeral messages is not the same as privacy. A service based on privacy wouldn't publicly show who you communicate with most often.
- yoloswag 13y ago
  My jailbroken iPhone saves every snapchat that I get without notifying the other party. It also makes all snaps viewable for unlimited time and I can even send snaps of pictures in my camera roll to make it seem as if I took the picture in the moment. Look up "Phantom". It's a jailbreak tweak for iOS available in Cydia.
  - ubi 13y ago
    Trust matters.
    - yoloswag 13y ago
      Don't trust the whims of human nature.
    - dingaling 13y ago
      An interesting statement, given that the problem that Snapchat addresses is that its users don't trust each other. Otherwise they could send their embarrassing pictures by plain old e-mail with a request 'please do not forward'. Instead they place proxy-trust in Snapchat to enforce that restriction; if that trust falters, so does Snapchat.
      - quantumpotato_ 13y ago
        "But it's probably not worth the effort, they wouldn't do it"
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polemic 13y ago
Perhaps their endgame is to use a vast collection of compromising images collected under the pretence of privacy to extort protection fees from their users.
- special 13y ago
  I thought this when I first heard of snapchat. How could you not archive away the pictures somewhere?
- tedunangst 13y ago
  Slight possibility of a lawsuit there.
  - quantumpotato_ 13y ago
    Unless the extorter was a "third party" "hacker"
gaius 13y ago
I don't know if you know much about Victorian farming techniques, but it was around then that bat guano was discovered to be an excellent fertilizer. This started what amounted to a gold rush, as people set off to make their fortunes from harvesting it. That is the origin of the modern term "batshit crazy". I just mention this apropos of nothing.
- morsch 13y ago
  Not really: http://english.stackexchange.com/questions/38354/where-did-the-phrase-batsht-crazy-come-from http://english.stackexchange.com/questions/38354/where-did-t...
  - gaius 13y ago
    I think you may be missing the point I am making. See other recent threads about bubbles.
- adestefan 13y ago
  My favorite piece of trivia about this time period was the passage of the Guano Island Act in 1865. It allowed US citizens to claim islands with guano deposits to be US territories. Islands claimed under the act were even afforded protection by the US military. The US is still in possession of a handful of islands claimed under the Act. A few are even still in diplomatic dispute.
Segmentation 13y ago
With WebRTC, can someone make a ephemeral peer-to-peer, one-to-one or one-to-many messenger? I think that would be more private. Sever the 3rd party.
- eli 13y ago
  I'm not sure most people would grasp the difference between a company that says it doesn't keep your data and a company that says it can't keep your data.
  - Segmentation 13y ago
    Probably not, but it could still be useful for privacy minded individuals. Especially if it was open sourced on GitHub.
    - vidarh 13y ago
      Part of the problem here is that the privacy users care about here is not from a third party, but from whomever the recipient might otherwise choose to share the content with. And that pretty much requires a party other than the recipient whose interest it is to lock down the client as much as possible to at least increase the hassle-factor in violating the senders trust. Otherwise, if the recipient had the "EvilReplicatingToFacebook" fork of the app readily available, it'd quickly destroy any value in the app.
- zwegner 13y ago
  You can't really make anything "ephemeral" with data. The closest you can get is probably a neutral third party that promises to delete the data at a future point, and locks down all endpoints where users can see the data. Of course this is still quite imperfect. With a distributed version, you'd just have to trust all the people you're sending data to to delete it.
gcatalfamo 13y ago
If somebody would be looking for "bubbles", Snapchat at 4B is a clear sign of one.
- dakrisht 13y ago
  Please be sure to include Pinterest in this one. They might be valued higher than Genentech at this point.
Apocryphon 13y ago
Competition could be a good way, once you figure out how to gameify self-destructing photos. Some sort of scavenger hunt model, perhaps? Giving out clues? Maybe adding a Snapchat Games section for companies to host these treasure hunt promotions? Or some sort of art contest?
richardv 13y ago
Am I missing something but I always assumed that valuations at this stage of a company is to do with huge/vast sums of money being removed from the table by the founders and they've done this by selling a good stake of their equity/voting rights in their company. The founders are now rich.. but the company isn't.. and if they raise a next round, their true valuation will shine through...
- harryh 13y ago
  Anytime stock changes hands in exchange for money it's reasonable to use that transaction to value the company. It doesn't matter if it's the company selling a piece of itself or employees selling stock to an investor. Someone is still paying money for ownership. If anything, employees selling shares probably makes it easier because it's common instead of preferred shares being sold.
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johnrob 13y ago
I'll suggest a simpler framework for valuing Snapchat: probability of becoming another Facebook. If you think it has a 5% chance, then it should be valued at around 5 billion (relative to Facebook's 100 billion).
- yoloswag 13y ago
  I think it has a negative chance of becoming the next FB.
  - jonny_eh 13y ago
    Does that mean FB has a chance of becoming the next Snapchat? Now THAT doesn't seem too likely.
- TrainedMonkey 13y ago
  I think there is literally 0 chance for another Facebook. Google tried with Google+ - billions of dollars, millions of man hours by brilliant engineers, crazy bundling strategies by Google. Is Google+ another Facebook yet? Nope, not yet, maybe not ever. Your strategy has merit, but simply making another Facebook is not going to work now (It would have back in Myspace days). Now there is not an untapped market of people - almost everyone has things vested in social media companies. 1. Companies need either to do better then Facebook (Once again Google tried. Do not get me wrong, there is a fair chance that eventually Google+ will prevail, but very few projects have full might of Google paving their success.) 2. Or have different punchline than Facebook does to attract users (This is what Snapchat did). *typoed
  - ramirez60 13y ago
    Isn't the argument about instagram's valuation pretty much solely based on it's potential for usurping facebook? There is no true social network born on mobile, and although facebook might win, I'm not sure that it's "never" going to happen
  - georgemcbay 13y ago
    I agree. For better or for worse Facebook is the World of Warcraft of general purpose social networks, anything trying to go head to head with it will lose. It'll probably die off eventually but what replaces it will probably look nothing like it and will exist in a much different climate.
edoardo 13y ago
I published an article about Snapchat a couple of days ago. Yes, it is. Snapchat is not a "sustainable business", it's a trend or a bubble. People are using it now, because it's cool; but in a couple of years, there will be another trend and so on. Even if they are still alive after 5 years, the valuation is ridiculous. Entrepreneurship is not about money, but at some point you need to face this problem and have a solution in your pocket. They are worth $4B and they don't have a clue. I guess this is just another groupon. (http://greatpreneurs.com/startups-dilemma-trends-businesses/ http://greatpreneurs.com/startups-dilemma-trends-businesses/)
- dakrisht 13y ago
  Totally. It's how the wind blows these days in "tech". It's reminiscent of a bubble with all of these mobile apps calling themselves "companies" when most aren't even profitable. It reminds of the early 2000s when "how many eyeballs do you get monthly" was the question of the day. Does Pinterest really need $400M+ in venture to operate? What are they doing over there? Advanced robotics with neural implants? Burn rate of $30M a month? Utter bullshit. Like I said before, VC's aren't dumb but they're also not very smart, most at least - they don't need to be. They flock to whatever's hot and popular (trendy) and invest. Their exit strategy is simple: a highly overvalued IPO where the public market will buy based on hype or an acquisition. These unsustainable trends in extremely overvalued companies/apps will continue for a while, unfortunately. Until the shit hits the fan and one of these giants of venture capital infusion tank. Unfortunately, it's so much more than an issue of Snapchat being worthless, it's a large chunk of the tech community today being generally worthless by looking for the EASY WAY OUT - building some stupid app, getting 5M+ users for a few years of engagement and raising large rounds and cashing out. There's no intrinsic value of any kind in this. It wasn't like this before the App Store. There is still great technology being developed out there, but most people (and human nature in general) flocks to the easy way out, the replication factor, globalization, the art of copying something, or as Peter Thiel would say" "the 1 to n of globalization."
  - nemothekid 13y ago
    I'm unsure why you chose to pick on Pinterest. It seems to have a very real business model that is powered by very real and powerful engagement metrics. Pinterest could very well be as solid as facebook. Why does Pinterest need $400M in venture to operate? Lets ask ourselves why a glorified status feed, Twitter, needs over 100 engineers. Why does Twitter need to rewrite almost every aspect of real-time stream processing? Because there is huge value there, and at that scale I'm sure the financials look a lot different from your weekend web app. Back to snapchat, this tech doomsday bubble, everyone is parrotting is a single lone horse in what are many successful and sustainable companies such as DropBox, Uber, RocketFuel and Square. And its not like snapchat is an imaginary app. Snapchat shares over 350M photos a day, people aren't lining up and seeing snapchat success overnight. I'm having trouble seeing that the current tech industry is in a "bubble" when the only evidence for it is that SnapChat, with an incredibly huge userbase, is raising ~3B. For whatever reason the other 39 "unicorn" companies don't count.
itsprofitbaron 13y ago
$4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? Oh please! Sure you can recreate the app pretty easily which, you can also do for most services (this does not mean scaling to the users they serve) but that is not the value of the service. It's also why 'hackers' typically don't make great investors see: https://news.ycombinator.com/item?id=8863 https://news.ycombinator.com/item?id=8863
- roymurdock 13y ago
  Haha you caught me. Had to poke a little fun at Snapchat after a long day of writing about such a simple little service :) Snapchat is firmly entrenched in its spot due to its first-to-move position (see Facebook's failed "Poke" project) but the point is that if it tries to change the service in an annoying manner then there is nothing to stop people from moving to an identical (or better) service that does not annoy them.
- darth_aardvark 13y ago
  To be fair, the vast majority of the comments in that link are really positive.
bthornbury 13y ago
A 3.5bn valuation does seem insane for a service like snapchat without any source of revenue. I did read the other day about their extraordinary growth of sent messages however, (up to 350 million a day!)and perhaps it is simply a premium for said growth. Regardless, I feel that the ephemeral nature of snapchat is likely to reduce long-term user retention. You have no tangible investment into the platform because everything is deleted.
minimax 13y ago
Irrespective of present revenue, the acquisition value of Snapchat to Facebook, Google, Yahoo and co basically puts a floor on the valuation. E.g. if I am an investor and I think Google would pay $5B for Snapchat, it makes sense to buy it at $4B. So I guess the trick is not to figure out how much revenue Snapchat will generate on its own, but rather how additional revenue Google could generate if it owned Snapchat (which will drive the acquisition price).
- edoardo 13y ago
  Why would you buy it? It's probably going to die, if a big player doesn't buy it. They need to get acquired if they want to be alive and get time in order to find a way to generate revenues.
  - vidarh 13y ago
    > Why would you buy it? The comment you replied to answered that: Because of the hypothetical situation that Google would want to pay $5bn for it. You'd buy it to shop it around to the big players. To a certain extent, the valuation of some companies can be pumped on the basis of to what extent the big players are likely to be competing for it, and not always on the basis of possible revenue, but strategy too. E.g. denying a competitor a company that is seen as having some percent chance of being a threat if paired with the competitor, or buying a company that is seen as having some percent chance of helping you become a threat. Consider that even if Snapchat on its own was/is worth 0, if SnapChat has even a tiny chance of helping Google propel G+ into the position of a viable contender to Facebook, Snapchat is suddenly worth a huge amount to both Facebook and Google. It might even be worth a lot to Google even if Facebook only thinks that the combination would be a threat, if it'd make Facebook tie up lots of resources trying to "counter the Snapchat threat". (in that vein, I think that one of the ingenious part of the massive Gmail quota was that while it got quite a bit of PR attention that mostly swayed geeks, it terrified large parts of Yahoo - I was at Yahoo when Gmail "hit" - and it tied up hundreds of man-years worth of product manager, engineering managers, developers, marketing people and others radiating out from the Mail team, all trying to figure out how to respond; I can only imagine the same must have been the case in Hotmail and others; as a feature Google could've offered a much smaller increase over the competition and still gotten most of the PR, but that huge bump, which was largely symbolic, triggered massive resource hogging responses from competitors) And a lot of that kind of thinking boils down to guesswork, which can work both for and against them in terms of valuation.
g8oz 13y ago
Their present valuation is a glitch in the Matrix. Enough of them and you will realize the existence of said Matrix.
ramirez60 13y ago
The comment about stickers makes me think you don't understand how much money they make and how much people use them. It's massive. Look at Line made 17 million from stickers in Q1 this year, Kakao made 311 million in revenue and I'm not sure the breakdown but stickers is significant enough that it's mentioned in with gaming as the main source of revenue. Stickers, whether it's reasonable or not, are a great way to monetize on messaging. Snapchat also allows you to find someone to talk to that no other service does as seamlessly. From my understanding anyway, people will send out snaps to a group of people, many time everyone they're connected to and after a few snaps back and forth with one or two of the responders, they'll switch to another channel and chat. One could argue adding messaging here would increase the stickiness, but I think snapchat is right in that adding it in would just be distracting.
- amplification 13y ago
  I think if your main source of income is stickers, that's risky. They will (and already are) become commoditized - with MessageMe, Path, etc... all jumping onboard. I'm guessing that stickers (siloed in each app) are a fad that will eventually go away.
namenotrequired 13y ago
I'm particularly surprised about seeing Snapchat with twice the valuation of Whatsapp. Here in Amsterdam, Whatsapp seems to have close to 100% market penetration (i.e. almost all smartphone users use whatsapp), yet I've never heard anyone about snapchat here.
- 205guy 13y ago
  This too is the future: no apps will be global, but multiple fairly similar apps will carve out geographic niches, some larger than others. I can't really say which app should be valued more, but I would tend to think the one with the American teen audience will have more monetization opportunities (more disposable income and less discernment--or susceptibility to adverts).
- tonypace 13y ago
  Similarly, in Taiwan Line has completely taken over from WhatsApp. Snapchat has no presence at all.
cromwellian 13y ago
I thought I was taking crazy pills when Zynga got valued more than Electronic Arts. Yeah, a company with games that practically aren't even games which makes money via spammy offers, is worth more than a multi-decade-old company with a gigantic catalog of games, which people actually pay cash for, spread out over every continent and every console, handheld, and PC. When I saw that story, I was like "do any of the journalists on the story actually stop and think for a second?"
- dpcheng2003 13y ago
  It turns out smart people do dumb things all the time. The trick isn't being smart all the time, which is difficult. Rather, you want to be smart at the right time and convince other incredibly smart people to do something incredibly dumb in that fleeting moment. Last I checked, most of us have never created a messaging app that grew to 350M messages in two years. More importantly, most of us didn't also then convince smart investors to let us cash out at some ridiculous valuation. Props to the Snapchat guys and I hope they figure out monetization but at the end of the day, they got their FU money and built something huge. That's a win in my book.
  - dakrisht 13y ago
    Yes, yes they do. But like you said, that's fine. Props to the SnapChat guys for cashing out, raising a ton of venture from sheep VCs and getting millions of users? YES, absolutely. Props to the SnapChat guys for creating something of value, substance, technology, IP, etc. None, zero. Just another BS app riding the wave of the top-10 in the appstore. It's not a WIN for society when you create garbage that has some sort of value to it. It's just more clutter. But maybe it doesn't matter, people need entertainment, people need dick picks, bad Hollywood movies, Miley Cyrus - these are all business commodities. And if you're capable of that vs. nothing else, good for you. “You only have to do a very few things right in your life so long as you don't do too many things wrong.” Warren Buffett
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bluedino 13y ago
Is Yelp honestly with TWO BILLION? What about Uber?
- dakrisht 13y ago
  Yelp, no way in hell. Uber, closer for sure. Uber is a valuable service at least in the Top-20 cities.
- nemothekid 13y ago
  Yelp is public and is valued at 4.5B.
ojbyrne 13y ago
I think its important to point out that tech blogs always want a breathlessly huge top line number, and that investors play along (The same thing seems to happen with sports contracts). But the details are often vastly more complex and full of earnouts, triggers, board seats, etc, etc. And according to the allthingsd article linked to, the deal hasn't been closed yet: "Sources said the round being raised — up to $200 million — will come in part from China’s Internet giant Tencent and value the self-destructing mobile messaging startup from $3.6 billion to $4 billion."
babakian 13y ago
What Snapchat has is millions of users who have formed the habit of opening the app every day and using it to communicate, sending 350 million* snaps a day. You can go ahead and make clones of Snapchat (or Facebook or Twitter), but building a clone does not guarantee that you will get the number users that Snapchat (or Facebook or Twitter) have. The investors are betting that the folks at Snapchat will experiment to find ways to extract money from some small subset of Snapchat's users (e.g. let's say Snapchat has 350 million users and they find a way to extract $10 a year from 1% of their users, then that's $35 million a year). This is the bet that the investors of Snapchat are making. It's a risky bet, but they're OK with that. They're used to making risky bets. Most of their bets don't pan out, but the ones that do...well, you're smart, you get the picture. * This number was taken from the article. [Edited to fix typos.]
- Guest98130 13y ago
  That's a steal. Buying at 4bn and earning 35m a year, it'll be paid off in a short 114 years. After then, it'll be smooth sailing.
  - babakian 13y ago
    Ha! I should have used larger made up numbers! How about $100/yr from 5% of their users? Anyhow, you know that the investors are betting that the numbers will grow. My main point is, Snapchat has a lot of users who have formed the habit of opening the app and sending snaps, totaling hundreds of millions of snaps/day. Simply cloning the app in no way means that you can generate those kinds of numbers. The numbers are stellar, and the investors seem to think so as well.
cylinder 13y ago
Imagine a beach. People come to the beach, play, build sand castles they later destroy. It's one beach on a long stretch of coastline. But this particular beach is incredibly popular, where lots of young people go to hang out with each other. How much would you pay to own that beach? How would you justify that investment -- would you plan to charge an admission fee? Would you wrap the beach in ads and sponsors? Would you charge to build sandcastles? Would you sell concessions? I think it's helpful to think of SnapChat and many other businesses with this metaphor.
- dakrisht 13y ago
  Yeah, and then all of the sudden it starts raining and the kids flock to another beach with a newer DJ and fresh faces. End game.
  - cheeyoonlee 13y ago
    I believe FB Poke tried to make it rain but look how that turned out
    - billmalarky 13y ago
      To be fair though, snapchat isn't old enough to be "lame" while facebook is, and snapchat isn't doing anything to piss off users yet (which they will have to in order to monetize most likely). We'll see if snapchat can hold the throne after serious monetization.
- tg3 13y ago
  That's actually a really interesting analogy. I'm sure it's incomplete, but it instructs analysis. Ownership of the beach is clearly valuable, even if it's unclear exactly how you will extract that value. And beach popularity can be subject to trends and other outside factors. It's also easy to ruin a beach, and therefore its value by too aggressively trying to get the value out of it. For instance, I'd rather keep the beach free of ads and aggressive tourist sales people to make my money on hotels, condos, and restaurants near to the beach. I'd say the biggest problem with the analogy is that only part of a beach's value is derived from the other beachgoers - there is some intrinsic value to the combination of sand, sun, and waves. For snapchat, if there are no other users, there is no value at all.
FailMore 13y ago
I think Snapchat are crazy if they don't put ads in there soon. I see Snapchat as a faster Youtube. It's basically content that you want to see - Youtube from the masses, Snapchat from your friends. The Youtube advertising model is clearly fantastic. From things I've read some time in the past I know they kill it on a $/user basis vs pretty much every social site on the web. Putting a 2 second static 'brand flash' in front of every snap would probably not put people off using the service (in the same way that people still use Youtube - even though video hosting is a highly replicable thing). And from a brands point of view 2 seconds is probably all you need to get into someone's subconscious. Bonuses for being an app: 1) Full screen take over. 2) No distractions from other tabs. 3) I'm sure they could find out age and sex quite easily if they wanted to. So they would have - age, sex and location. POWERFUL. The sooner the better. Explain that the app needs to make money to it's users. People get used to things.
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- 205guy 13y ago
  I think you're onto something. Just imagine if the _sender_ gets to pick the snap sponsor from a list of 5-10! Double-monetization. I disagree with the "snapchat is worthless" analysis of the original article. Perhaps from the point of view of the current monetization needs and mechanisms, but my feeling is that snapchat's "ephemeral" model, like it's users, is a young and fresh approach. They will invent something new. Of course, they may also die out like so many others, but it's pointless to say the indusrty shouldn't be that way. The developers may aspire to greater goals, but the consumers still dictate what they want.
FailMore 13y ago
I think Snapchat are crazy if they don't put ads in there soon. I see Snapchat as a faster Youtube. It's basically content that you want to see - Youtube from the masses, Snapchat from your friends. The Youtube advertising model is clearly fantastic. From things I've read some time in the past I know they kill it on a $/user basis vs pretty much every social site on the web. Putting a 2 second static 'brand flash' in front of every snap would probably not put people off using the service (in the same way that people still use Youtube - even though video hosting is a highly replicable thing). And from a brands point of view 2 seconds is probably all you need to get into someone's subconscious. Bonuses for being an app: 1) Full screen take over. 2) No distractions from other tabs. 3) I'm sure they could find out age and sex quite easily if they wanted to. So they would have - age, sex and location. POWERFUL. The sooner the better. Explain that the app needs to make money to it's users. People get used to things.
brianchu 13y ago
Since a lot of people have trouble imagining why Snapchat is popular, I wrote a blog post on it a while ago: http://www.brianchu.com/blog/2013/09/11/photo-embarrassment/ http://www.brianchu.com/blog/2013/09/11/photo-embarrassment/. One thing that bears noting is that Snapchat is closer to mobile messaging apps like WhatsApp than it is to photo sharing / social networking apps like Instagram or Facebook.
joyeuse6701 13y ago
As you correctly analyzed, snapchats value is majority in user-base. I believe it is specifically the attention of users that gives it value. We measure that with metrics like reach, views, clicks, messages sent etc. The attention comes from the novelty of it, as you adequately put, it has a low barrier to entry due to it's 'low pressure'. It must maintain that attention through low pressure to maintain value. FB went the ad route a la google and then moved towards analytics. Twitter is doing the same. If snapchat went down that route they would have to analyze the photos taken, pictures drawn etc. to provide data to customers in the same way. Not to get too meta, but there is always value in self-expression.
- roymurdock 13y ago
  Value for the user and the audience, not so much for the medium of expression. Excuse the lame metaphor, but the canvas Van Gogh painted Starry Night on can't exactly sell itself ;)
samsolomon 13y ago
I think Om Malik said it best "...when you have revenues, you can't get people into giving you mega valuations." https://twitter.com/om/status/394698596320169984 https://twitter.com/om/status/394698596320169984
ChuckMcM 13y ago
I loved this piece, but perhaps not for the reason Roy wrote it. One of the common themes in investing is "what am I missing?" and this piece is a great walk through through a reasoned set of parameters that might make a company or project more or less valuable. The assertion that SnapChat is 'Intrinsicially' worthless is of course false. For something to actually be "worthless" in a free market would require that either no one would offer any value in exchange for partial ownership, or there would have to be outright fraud. We say a 'fake' Van Gough is worthless because it is worth much less than an original, but someone might buy it because they like the painting and they can't afford an original. As a painting it would probably be worth more than a print. But not actually "worthless." So what is he saying? He says that Snapchat's recent valuation was much higher than he would have put it. And we can ascertain that like the forgery vs. actual painting the difference in the two numbers is large. So what is the basis for this disconnect? It is this: " $4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? A service that voluntarily throws away its own data in the golden age of data hoarding? A service devoid of the nature of competition that is the driving behind every other profitable company in the world?" The focus here is on the tech and not the market. A pet rock was 'worthless' (the rock was just a rock) but the connection with a generation was valuable. So often in our business we look at something that we feel like we could build (or could be easily built) and a valuation, and focus on those two things. The parts we don't see we give little value to (350M snaps? Seriously? That is a boat load of engagement). Making anything that get 350M 13-23 yr olds engaged is a pretty huge deal. That is what is valuable with Snapchat, not the tech.
- nrao123 13y ago
  Here was my "valuation model" when they raised at 800M: 5 Years From When they raised : 100M Users X $4 worth of advertising per user X 50% margin = $200M Cash Flow X 20 Times earnings = $4BN - solving for a 50% IRR over 5 years gives you $800M The $4/user comes from here: http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-in-north-america-is-now-3-4x-europe-and-nearly-6x-asia-but-growth-in-its-cash-cow-is-slowing-down/ http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-...
- tomphoolery 13y ago
clienthunter 13y ago
Your Cart: * 350m snaps per day + potential growth - At least 3 interaction screens per snap (pre-view/view/post-view): that's over 1bn places you could put, say, ads per day. Do the CPI/conversion math on that. * User data for 200m+ users + the ability to extend and refine * A direct line to 200m+ home screens via push notifications * Enough inertia to mitigate the threat of competition (Facebook challenged with the Poke app, that failed) * The potential to change/extend the feature set to more revenue oriented streams * All other possible things you could do with an enormous and massively engaged captive audience...e.g. walking past Starbucks - they're having a slow day. Receive Snapchat from Starbucks with scannable special offer code and super quick expiry. We've just made Groupon for the high street. * Rights to all the above until the end of time Total: $4bn Doesn't seem so crazy to me.
OGC 13y ago
This just dances around the issue that snapchat is probably used to take lots of nude pictures. Yes, you can take a screenshot, i bet loads of people don't know / trust the other party to not to take one.
thesash 13y ago
Can someone who understands the strategy behind fundraising explain why they would want to raise at such a high valuation? To be clear, one point left out of the article is that the $3.5B - $4B valuation is a rumored valuation being "considered" by the startup (Their most recent round of funding valued them at $800MM). When I read about the "rumor" my immediate thought was: Snapchat leaked that to the press to gauge the response from potential investors / acquirers. The thing I don't understand is: what is their goal here? It seems like raising at a 3B+ valuation limits their options for an exit to either an IPO or an acquisition by one of maybe 3 companies. Raising at such a crazy valuation also seems extremely risky considering the volatility of apps in their space and the fact that they haven't even begun to explore monetization. What am I missing?
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notduncansmith 13y ago
While I agree with most of the points the author makes in this article, I disagree with the ultimate thesis. Snapchat offers what? Engagement So how do you monetize that? Get users to engage with brands Allow me to elaborate. Twitter's Amplify partnership program is a brilliant example of the amount brands are willing to pay to engage with customers (both existing and potential). Twitter used to be in a unique position to offer that engagement too: with huge penetration, easy integration into existing media (putting a hashtag in the corner of a TV broadcast, for instance), and an incredibly low-friction engagement process. Twitter made it easy for a brand to create a sea of voices engaging with a brand. I believe Snapchat is now in a position to make a similar offer. Before I go on, I'd like to pose a question: how many people read event-centric tweets after an event? Aside from journalists reporting on said event looking for memorable tweets, my guess is not many. Hell, most people barely pay attention to the stream during these events. At most, you have a tweet that's at the top of a feed for a few seconds before being quickly pushed down by a dozen more, never to be read again. I'm sure by now you're connecting the dots: Snapchat offers a similar service in that respect. The thing is, there's a major core difference between these two. Twitter is a public forum, and Snapchat is strictly peer-to-peer communication. This gives Snapchat a unique offering, in that it allows brands to communicate one-on-one with customers. Imagine, if you will, a broadcast of The Walking Dead (I use them as an example for two reasons: 1.) I'm a huge fan, and 2.) They're big on the second-screen experience so this seems plausible). As part of your second-screen experience, one might find a stream of picture responses to various moments in the episode. Major character dies, suddenly the stream is full of shocked faces (maybe some rage faces or big goofy grins, depending on who). Now imagine this stream is powered by Snapchat. This is already possible with Twitter, to a degree, but with Snapchat there's less inhibition which will drive greater participation and greater engagement. Not only that, but Snapchat would also allow TWD to engage back with the user on a personal level- maybe respond with a snap that contains a marketing call-to-action ("Want more scares? Check out the exclusive behind-the-scenes footage online"), or just responds with a zombified version of the image you sent in (how cool would that be?). I'm sure there are many more awesome use cases than what I just stated, but I think this example speaks to the fact that Snapchat can be a real force for engagement without requiring brands to spam the hell out of the platform's users. This is where Snapchat outperforms against any other social product when it comes to driving brand engagement: because the users are so fanatically engaging with the product already, brands don't need to spam. They can just interact with the users in a meaningful or entertaining way - and I don't mean this "Get a coupon that you have 10 seconds to screenshot" bullshit, or "Let brands send snapchats that last forever" or any shit like that. Just give the users a fun way to interact with your brand, and the loyalty (and purchases) will come. So, here's what I would do, if I were to monetize Snapchat: - $20/yr developer program - Free API access for up to 2,000 snaps sent/received per month - Pay-as-you-go model: $XX for every additional 10,000 additional snaps - Hashtag support (maybe) - Analytics - Offer consulting at a premium to help brands effectively leverage Snapchat Notice the generous pricing structure. I think one thing that Snapchat can cash in on is the uniqueness of its platform, and the eagerness of the hacker community at large to build on top of it. I want you to recall the modest success of App.net, which doesn't have nearly the engagement metrics or penetration that Snapchat currently enjoys. I for one have several small projects I'd like to build on the Snapchat platform, and would be more than happy to pay a modest premium for the opportunity. The pay-as-you-go structure keeps your hackers happy (I doubt anyone would pay $100+ for toy projects), and also maximizes revenue from larger brand campaigns. In conclusion, I think the assertion that Snapchat "has no intrinsic value" is complete bollocks.
tonylemesmer 13y ago
Is it because the more people jump on the more valuable it becomes and I just sell my stock and I've just made a whole bunch of money?

108 points by roymurdock 13y ago

sp332 13y ago

People are outraged over being spied on, but can't see the value in an private chat tool? Edit I meant private, not anonymous.

tlrobinson 13y ago
You think Snapchat is in any way anonymous or private?
- deleted 13y ago
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- skrebbel 13y ago
  Yes, in every way that matters to most people.
  - gcatalfamo 13y ago
    "in every way that matters to most people" It makes you think, doesn't it?
  - tlrobinson 13y ago
    Except for the ways in which people are outraged over being spied upon.
    - skrebbel 13y ago
      I feel you, but you're conflating "angry, principled nerds" with "most people". If you really think people outside your filter bubble are "outraged", look further.
      - tlrobinson 13y ago
        I mostly agree, but I was responding to sp332's suggestion that Snapchat does anything to solve the NSA "problem".
        skrebbel 13y ago
        Ah, I must've read your comment out of context. My bad!
- Apocryphon 13y ago
  Maybe the NSA is funneling investment to get their hooks into Snapchat, preventing it from being used as a means for enemy spies and agents to send each other temporary messages.
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objclxt 13y ago
Snapchat is not only not anonymous, but it's a pretty poor platform with a significant number of past security flaws. About six months ago their API was exposing cellphone numbers for any username (to their credit, when I pointed this out to them they did patch it pretty quickly). Hardly private.
- sp332 13y ago
  Even if they're not good at it, at least their point is privacy. That's already better than most chat tools.
  - hbags 13y ago
    Ephemeral messages is not the same as privacy. A service based on privacy wouldn't publicly show who you communicate with most often.
yoloswag 13y ago
My jailbroken iPhone saves every snapchat that I get without notifying the other party. It also makes all snaps viewable for unlimited time and I can even send snaps of pictures in my camera roll to make it seem as if I took the picture in the moment. Look up "Phantom". It's a jailbreak tweak for iOS available in Cydia.
- ubi 13y ago
  Trust matters.
  - yoloswag 13y ago
    Don't trust the whims of human nature.
  - dingaling 13y ago
    An interesting statement, given that the problem that Snapchat addresses is that its users don't trust each other. Otherwise they could send their embarrassing pictures by plain old e-mail with a request 'please do not forward'. Instead they place proxy-trust in Snapchat to enforce that restriction; if that trust falters, so does Snapchat.
    - quantumpotato_ 13y ago
      "But it's probably not worth the effort, they wouldn't do it"

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polemic 13y ago

Perhaps their endgame is to use a vast collection of compromising images collected under the pretence of privacy to extort protection fees from their users.

special 13y ago
I thought this when I first heard of snapchat. How could you not archive away the pictures somewhere?
tedunangst 13y ago
Slight possibility of a lawsuit there.
- quantumpotato_ 13y ago
  Unless the extorter was a "third party" "hacker"

gaius 13y ago

I don't know if you know much about Victorian farming techniques, but it was around then that bat guano was discovered to be an excellent fertilizer. This started what amounted to a gold rush, as people set off to make their fortunes from harvesting it. That is the origin of the modern term "batshit crazy". I just mention this apropos of nothing.

morsch 13y ago
Not really: http://english.stackexchange.com/questions/38354/where-did-the-phrase-batsht-crazy-come-from http://english.stackexchange.com/questions/38354/where-did-t...
- gaius 13y ago
  I think you may be missing the point I am making. See other recent threads about bubbles.
adestefan 13y ago
My favorite piece of trivia about this time period was the passage of the Guano Island Act in 1865. It allowed US citizens to claim islands with guano deposits to be US territories. Islands claimed under the act were even afforded protection by the US military. The US is still in possession of a handful of islands claimed under the Act. A few are even still in diplomatic dispute.

Segmentation 13y ago

With WebRTC, can someone make a ephemeral peer-to-peer, one-to-one or one-to-many messenger? I think that would be more private. Sever the 3rd party.

eli 13y ago
I'm not sure most people would grasp the difference between a company that says it doesn't keep your data and a company that says it can't keep your data.
- Segmentation 13y ago
  Probably not, but it could still be useful for privacy minded individuals. Especially if it was open sourced on GitHub.
  - vidarh 13y ago
    Part of the problem here is that the privacy users care about here is not from a third party, but from whomever the recipient might otherwise choose to share the content with. And that pretty much requires a party other than the recipient whose interest it is to lock down the client as much as possible to at least increase the hassle-factor in violating the senders trust. Otherwise, if the recipient had the "EvilReplicatingToFacebook" fork of the app readily available, it'd quickly destroy any value in the app.
zwegner 13y ago
You can't really make anything "ephemeral" with data. The closest you can get is probably a neutral third party that promises to delete the data at a future point, and locks down all endpoints where users can see the data. Of course this is still quite imperfect. With a distributed version, you'd just have to trust all the people you're sending data to to delete it.

gcatalfamo 13y ago

If somebody would be looking for "bubbles", Snapchat at 4B is a clear sign of one.

dakrisht 13y ago
Please be sure to include Pinterest in this one. They might be valued higher than Genentech at this point.

Apocryphon 13y ago

Competition could be a good way, once you figure out how to gameify self-destructing photos. Some sort of scavenger hunt model, perhaps? Giving out clues? Maybe adding a Snapchat Games section for companies to host these treasure hunt promotions? Or some sort of art contest?

richardv 13y ago

Am I missing something but I always assumed that valuations at this stage of a company is to do with huge/vast sums of money being removed from the table by the founders and they've done this by selling a good stake of their equity/voting rights in their company. The founders are now rich.. but the company isn't.. and if they raise a next round, their true valuation will shine through...

harryh 13y ago
Anytime stock changes hands in exchange for money it's reasonable to use that transaction to value the company. It doesn't matter if it's the company selling a piece of itself or employees selling stock to an investor. Someone is still paying money for ownership. If anything, employees selling shares probably makes it easier because it's common instead of preferred shares being sold.
- deleted 13y ago
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johnrob 13y ago

I'll suggest a simpler framework for valuing Snapchat: probability of becoming another Facebook. If you think it has a 5% chance, then it should be valued at around 5 billion (relative to Facebook's 100 billion).

yoloswag 13y ago
I think it has a negative chance of becoming the next FB.
- jonny_eh 13y ago
  Does that mean FB has a chance of becoming the next Snapchat? Now THAT doesn't seem too likely.
TrainedMonkey 13y ago
I think there is literally 0 chance for another Facebook. Google tried with Google+ - billions of dollars, millions of man hours by brilliant engineers, crazy bundling strategies by Google. Is Google+ another Facebook yet? Nope, not yet, maybe not ever. Your strategy has merit, but simply making another Facebook is not going to work now (It would have back in Myspace days). Now there is not an untapped market of people - almost everyone has things vested in social media companies. 1. Companies need either to do better then Facebook (Once again Google tried. Do not get me wrong, there is a fair chance that eventually Google+ will prevail, but very few projects have full might of Google paving their success.) 2. Or have different punchline than Facebook does to attract users (This is what Snapchat did). *typoed
- ramirez60 13y ago
  Isn't the argument about instagram's valuation pretty much solely based on it's potential for usurping facebook? There is no true social network born on mobile, and although facebook might win, I'm not sure that it's "never" going to happen
- georgemcbay 13y ago
  I agree. For better or for worse Facebook is the World of Warcraft of general purpose social networks, anything trying to go head to head with it will lose. It'll probably die off eventually but what replaces it will probably look nothing like it and will exist in a much different climate.

edoardo 13y ago

I published an article about Snapchat a couple of days ago. Yes, it is. Snapchat is not a "sustainable business", it's a trend or a bubble. People are using it now, because it's cool; but in a couple of years, there will be another trend and so on. Even if they are still alive after 5 years, the valuation is ridiculous. Entrepreneurship is not about money, but at some point you need to face this problem and have a solution in your pocket. They are worth $4B and they don't have a clue. I guess this is just another groupon. (http://greatpreneurs.com/startups-dilemma-trends-businesses/ http://greatpreneurs.com/startups-dilemma-trends-businesses/)

dakrisht 13y ago
Totally. It's how the wind blows these days in "tech". It's reminiscent of a bubble with all of these mobile apps calling themselves "companies" when most aren't even profitable. It reminds of the early 2000s when "how many eyeballs do you get monthly" was the question of the day. Does Pinterest really need $400M+ in venture to operate? What are they doing over there? Advanced robotics with neural implants? Burn rate of $30M a month? Utter bullshit. Like I said before, VC's aren't dumb but they're also not very smart, most at least - they don't need to be. They flock to whatever's hot and popular (trendy) and invest. Their exit strategy is simple: a highly overvalued IPO where the public market will buy based on hype or an acquisition. These unsustainable trends in extremely overvalued companies/apps will continue for a while, unfortunately. Until the shit hits the fan and one of these giants of venture capital infusion tank. Unfortunately, it's so much more than an issue of Snapchat being worthless, it's a large chunk of the tech community today being generally worthless by looking for the EASY WAY OUT - building some stupid app, getting 5M+ users for a few years of engagement and raising large rounds and cashing out. There's no intrinsic value of any kind in this. It wasn't like this before the App Store. There is still great technology being developed out there, but most people (and human nature in general) flocks to the easy way out, the replication factor, globalization, the art of copying something, or as Peter Thiel would say" "the 1 to n of globalization."
- nemothekid 13y ago
  I'm unsure why you chose to pick on Pinterest. It seems to have a very real business model that is powered by very real and powerful engagement metrics. Pinterest could very well be as solid as facebook. Why does Pinterest need $400M in venture to operate? Lets ask ourselves why a glorified status feed, Twitter, needs over 100 engineers. Why does Twitter need to rewrite almost every aspect of real-time stream processing? Because there is huge value there, and at that scale I'm sure the financials look a lot different from your weekend web app. Back to snapchat, this tech doomsday bubble, everyone is parrotting is a single lone horse in what are many successful and sustainable companies such as DropBox, Uber, RocketFuel and Square. And its not like snapchat is an imaginary app. Snapchat shares over 350M photos a day, people aren't lining up and seeing snapchat success overnight. I'm having trouble seeing that the current tech industry is in a "bubble" when the only evidence for it is that SnapChat, with an incredibly huge userbase, is raising ~3B. For whatever reason the other 39 "unicorn" companies don't count.

itsprofitbaron 13y ago

$4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? Oh please! Sure you can recreate the app pretty easily which, you can also do for most services (this does not mean scaling to the users they serve) but that is not the value of the service. It's also why 'hackers' typically don't make great investors see: https://news.ycombinator.com/item?id=8863 https://news.ycombinator.com/item?id=8863

roymurdock 13y ago
Haha you caught me. Had to poke a little fun at Snapchat after a long day of writing about such a simple little service :) Snapchat is firmly entrenched in its spot due to its first-to-move position (see Facebook's failed "Poke" project) but the point is that if it tries to change the service in an annoying manner then there is nothing to stop people from moving to an identical (or better) service that does not annoy them.
darth_aardvark 13y ago
To be fair, the vast majority of the comments in that link are really positive.

bthornbury 13y ago

A 3.5bn valuation does seem insane for a service like snapchat without any source of revenue. I did read the other day about their extraordinary growth of sent messages however, (up to 350 million a day!)and perhaps it is simply a premium for said growth. Regardless, I feel that the ephemeral nature of snapchat is likely to reduce long-term user retention. You have no tangible investment into the platform because everything is deleted.

minimax 13y ago

Irrespective of present revenue, the acquisition value of Snapchat to Facebook, Google, Yahoo and co basically puts a floor on the valuation. E.g. if I am an investor and I think Google would pay $5B for Snapchat, it makes sense to buy it at $4B. So I guess the trick is not to figure out how much revenue Snapchat will generate on its own, but rather how additional revenue Google could generate if it owned Snapchat (which will drive the acquisition price).

edoardo 13y ago
Why would you buy it? It's probably going to die, if a big player doesn't buy it. They need to get acquired if they want to be alive and get time in order to find a way to generate revenues.
- vidarh 13y ago
  > Why would you buy it? The comment you replied to answered that: Because of the hypothetical situation that Google would want to pay $5bn for it. You'd buy it to shop it around to the big players. To a certain extent, the valuation of some companies can be pumped on the basis of to what extent the big players are likely to be competing for it, and not always on the basis of possible revenue, but strategy too. E.g. denying a competitor a company that is seen as having some percent chance of being a threat if paired with the competitor, or buying a company that is seen as having some percent chance of helping you become a threat. Consider that even if Snapchat on its own was/is worth 0, if SnapChat has even a tiny chance of helping Google propel G+ into the position of a viable contender to Facebook, Snapchat is suddenly worth a huge amount to both Facebook and Google. It might even be worth a lot to Google even if Facebook only thinks that the combination would be a threat, if it'd make Facebook tie up lots of resources trying to "counter the Snapchat threat". (in that vein, I think that one of the ingenious part of the massive Gmail quota was that while it got quite a bit of PR attention that mostly swayed geeks, it terrified large parts of Yahoo - I was at Yahoo when Gmail "hit" - and it tied up hundreds of man-years worth of product manager, engineering managers, developers, marketing people and others radiating out from the Mail team, all trying to figure out how to respond; I can only imagine the same must have been the case in Hotmail and others; as a feature Google could've offered a much smaller increase over the competition and still gotten most of the PR, but that huge bump, which was largely symbolic, triggered massive resource hogging responses from competitors) And a lot of that kind of thinking boils down to guesswork, which can work both for and against them in terms of valuation.

g8oz 13y ago

Their present valuation is a glitch in the Matrix. Enough of them and you will realize the existence of said Matrix.

ramirez60 13y ago

The comment about stickers makes me think you don't understand how much money they make and how much people use them. It's massive. Look at Line made 17 million from stickers in Q1 this year, Kakao made 311 million in revenue and I'm not sure the breakdown but stickers is significant enough that it's mentioned in with gaming as the main source of revenue. Stickers, whether it's reasonable or not, are a great way to monetize on messaging. Snapchat also allows you to find someone to talk to that no other service does as seamlessly. From my understanding anyway, people will send out snaps to a group of people, many time everyone they're connected to and after a few snaps back and forth with one or two of the responders, they'll switch to another channel and chat. One could argue adding messaging here would increase the stickiness, but I think snapchat is right in that adding it in would just be distracting.

amplification 13y ago
I think if your main source of income is stickers, that's risky. They will (and already are) become commoditized - with MessageMe, Path, etc... all jumping onboard. I'm guessing that stickers (siloed in each app) are a fad that will eventually go away.

namenotrequired 13y ago

I'm particularly surprised about seeing Snapchat with twice the valuation of Whatsapp. Here in Amsterdam, Whatsapp seems to have close to 100% market penetration (i.e. almost all smartphone users use whatsapp), yet I've never heard anyone about snapchat here.

205guy 13y ago
This too is the future: no apps will be global, but multiple fairly similar apps will carve out geographic niches, some larger than others. I can't really say which app should be valued more, but I would tend to think the one with the American teen audience will have more monetization opportunities (more disposable income and less discernment--or susceptibility to adverts).
tonypace 13y ago
Similarly, in Taiwan Line has completely taken over from WhatsApp. Snapchat has no presence at all.

cromwellian 13y ago

I thought I was taking crazy pills when Zynga got valued more than Electronic Arts. Yeah, a company with games that practically aren't even games which makes money via spammy offers, is worth more than a multi-decade-old company with a gigantic catalog of games, which people actually pay cash for, spread out over every continent and every console, handheld, and PC. When I saw that story, I was like "do any of the journalists on the story actually stop and think for a second?"

dpcheng2003 13y ago
It turns out smart people do dumb things all the time. The trick isn't being smart all the time, which is difficult. Rather, you want to be smart at the right time and convince other incredibly smart people to do something incredibly dumb in that fleeting moment. Last I checked, most of us have never created a messaging app that grew to 350M messages in two years. More importantly, most of us didn't also then convince smart investors to let us cash out at some ridiculous valuation. Props to the Snapchat guys and I hope they figure out monetization but at the end of the day, they got their FU money and built something huge. That's a win in my book.
- dakrisht 13y ago
  Yes, yes they do. But like you said, that's fine. Props to the SnapChat guys for cashing out, raising a ton of venture from sheep VCs and getting millions of users? YES, absolutely. Props to the SnapChat guys for creating something of value, substance, technology, IP, etc. None, zero. Just another BS app riding the wave of the top-10 in the appstore. It's not a WIN for society when you create garbage that has some sort of value to it. It's just more clutter. But maybe it doesn't matter, people need entertainment, people need dick picks, bad Hollywood movies, Miley Cyrus - these are all business commodities. And if you're capable of that vs. nothing else, good for you. “You only have to do a very few things right in your life so long as you don't do too many things wrong.” Warren Buffett
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bluedino 13y ago

Is Yelp honestly with TWO BILLION? What about Uber?

dakrisht 13y ago
Yelp, no way in hell. Uber, closer for sure. Uber is a valuable service at least in the Top-20 cities.
nemothekid 13y ago
Yelp is public and is valued at 4.5B.

ojbyrne 13y ago

I think its important to point out that tech blogs always want a breathlessly huge top line number, and that investors play along (The same thing seems to happen with sports contracts). But the details are often vastly more complex and full of earnouts, triggers, board seats, etc, etc. And according to the allthingsd article linked to, the deal hasn't been closed yet: "Sources said the round being raised — up to $200 million — will come in part from China’s Internet giant Tencent and value the self-destructing mobile messaging startup from $3.6 billion to $4 billion."

babakian 13y ago

What Snapchat has is millions of users who have formed the habit of opening the app every day and using it to communicate, sending 350 million* snaps a day. You can go ahead and make clones of Snapchat (or Facebook or Twitter), but building a clone does not guarantee that you will get the number users that Snapchat (or Facebook or Twitter) have. The investors are betting that the folks at Snapchat will experiment to find ways to extract money from some small subset of Snapchat's users (e.g. let's say Snapchat has 350 million users and they find a way to extract $10 a year from 1% of their users, then that's $35 million a year). This is the bet that the investors of Snapchat are making. It's a risky bet, but they're OK with that. They're used to making risky bets. Most of their bets don't pan out, but the ones that do...well, you're smart, you get the picture. * This number was taken from the article. [Edited to fix typos.]

Guest98130 13y ago
That's a steal. Buying at 4bn and earning 35m a year, it'll be paid off in a short 114 years. After then, it'll be smooth sailing.
- babakian 13y ago
  Ha! I should have used larger made up numbers! How about $100/yr from 5% of their users? Anyhow, you know that the investors are betting that the numbers will grow. My main point is, Snapchat has a lot of users who have formed the habit of opening the app and sending snaps, totaling hundreds of millions of snaps/day. Simply cloning the app in no way means that you can generate those kinds of numbers. The numbers are stellar, and the investors seem to think so as well.

cylinder 13y ago

Imagine a beach. People come to the beach, play, build sand castles they later destroy. It's one beach on a long stretch of coastline. But this particular beach is incredibly popular, where lots of young people go to hang out with each other. How much would you pay to own that beach? How would you justify that investment -- would you plan to charge an admission fee? Would you wrap the beach in ads and sponsors? Would you charge to build sandcastles? Would you sell concessions? I think it's helpful to think of SnapChat and many other businesses with this metaphor.

dakrisht 13y ago
Yeah, and then all of the sudden it starts raining and the kids flock to another beach with a newer DJ and fresh faces. End game.
- cheeyoonlee 13y ago
  I believe FB Poke tried to make it rain but look how that turned out
  - billmalarky 13y ago
    To be fair though, snapchat isn't old enough to be "lame" while facebook is, and snapchat isn't doing anything to piss off users yet (which they will have to in order to monetize most likely). We'll see if snapchat can hold the throne after serious monetization.
tg3 13y ago
That's actually a really interesting analogy. I'm sure it's incomplete, but it instructs analysis. Ownership of the beach is clearly valuable, even if it's unclear exactly how you will extract that value. And beach popularity can be subject to trends and other outside factors. It's also easy to ruin a beach, and therefore its value by too aggressively trying to get the value out of it. For instance, I'd rather keep the beach free of ads and aggressive tourist sales people to make my money on hotels, condos, and restaurants near to the beach. I'd say the biggest problem with the analogy is that only part of a beach's value is derived from the other beachgoers - there is some intrinsic value to the combination of sand, sun, and waves. For snapchat, if there are no other users, there is no value at all.

FailMore 13y ago

I think Snapchat are crazy if they don't put ads in there soon. I see Snapchat as a faster Youtube. It's basically content that you want to see - Youtube from the masses, Snapchat from your friends. The Youtube advertising model is clearly fantastic. From things I've read some time in the past I know they kill it on a $/user basis vs pretty much every social site on the web. Putting a 2 second static 'brand flash' in front of every snap would probably not put people off using the service (in the same way that people still use Youtube - even though video hosting is a highly replicable thing). And from a brands point of view 2 seconds is probably all you need to get into someone's subconscious. Bonuses for being an app: 1) Full screen take over. 2) No distractions from other tabs. 3) I'm sure they could find out age and sex quite easily if they wanted to. So they would have - age, sex and location. POWERFUL. The sooner the better. Explain that the app needs to make money to it's users. People get used to things.

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205guy 13y ago
I think you're onto something. Just imagine if the _sender_ gets to pick the snap sponsor from a list of 5-10! Double-monetization. I disagree with the "snapchat is worthless" analysis of the original article. Perhaps from the point of view of the current monetization needs and mechanisms, but my feeling is that snapchat's "ephemeral" model, like it's users, is a young and fresh approach. They will invent something new. Of course, they may also die out like so many others, but it's pointless to say the indusrty shouldn't be that way. The developers may aspire to greater goals, but the consumers still dictate what they want.

FailMore 13y ago

brianchu 13y ago

Since a lot of people have trouble imagining why Snapchat is popular, I wrote a blog post on it a while ago: http://www.brianchu.com/blog/2013/09/11/photo-embarrassment/ http://www.brianchu.com/blog/2013/09/11/photo-embarrassment/. One thing that bears noting is that Snapchat is closer to mobile messaging apps like WhatsApp than it is to photo sharing / social networking apps like Instagram or Facebook.

joyeuse6701 13y ago

As you correctly analyzed, snapchats value is majority in user-base. I believe it is specifically the attention of users that gives it value. We measure that with metrics like reach, views, clicks, messages sent etc. The attention comes from the novelty of it, as you adequately put, it has a low barrier to entry due to it's 'low pressure'. It must maintain that attention through low pressure to maintain value. FB went the ad route a la google and then moved towards analytics. Twitter is doing the same. If snapchat went down that route they would have to analyze the photos taken, pictures drawn etc. to provide data to customers in the same way. Not to get too meta, but there is always value in self-expression.

roymurdock 13y ago
Value for the user and the audience, not so much for the medium of expression. Excuse the lame metaphor, but the canvas Van Gogh painted Starry Night on can't exactly sell itself ;)

samsolomon 13y ago

I think Om Malik said it best "...when you have revenues, you can't get people into giving you mega valuations." https://twitter.com/om/status/394698596320169984 https://twitter.com/om/status/394698596320169984

ChuckMcM 13y ago

I loved this piece, but perhaps not for the reason Roy wrote it. One of the common themes in investing is "what am I missing?" and this piece is a great walk through through a reasoned set of parameters that might make a company or project more or less valuable. The assertion that SnapChat is 'Intrinsicially' worthless is of course false. For something to actually be "worthless" in a free market would require that either no one would offer any value in exchange for partial ownership, or there would have to be outright fraud. We say a 'fake' Van Gough is worthless because it is worth much less than an original, but someone might buy it because they like the painting and they can't afford an original. As a painting it would probably be worth more than a print. But not actually "worthless." So what is he saying? He says that Snapchat's recent valuation was much higher than he would have put it. And we can ascertain that like the forgery vs. actual painting the difference in the two numbers is large. So what is the basis for this disconnect? It is this: " $4bn for an easily replaceable service that is little more than Microsoft Paint duct taped to a disposable camera? A service that voluntarily throws away its own data in the golden age of data hoarding? A service devoid of the nature of competition that is the driving behind every other profitable company in the world?" The focus here is on the tech and not the market. A pet rock was 'worthless' (the rock was just a rock) but the connection with a generation was valuable. So often in our business we look at something that we feel like we could build (or could be easily built) and a valuation, and focus on those two things. The parts we don't see we give little value to (350M snaps? Seriously? That is a boat load of engagement). Making anything that get 350M 13-23 yr olds engaged is a pretty huge deal. That is what is valuable with Snapchat, not the tech.

nrao123 13y ago
Here was my "valuation model" when they raised at 800M: 5 Years From When they raised : 100M Users X $4 worth of advertising per user X 50% margin = $200M Cash Flow X 20 Times earnings = $4BN - solving for a 50% IRR over 5 years gives you $800M The $4/user comes from here: http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-in-north-america-is-now-3-4x-europe-and-nearly-6x-asia-but-growth-in-its-cash-cow-is-slowing-down/ http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-...
tomphoolery 13y ago

clienthunter 13y ago

Your Cart: * 350m snaps per day + potential growth - At least 3 interaction screens per snap (pre-view/view/post-view): that's over 1bn places you could put, say, ads per day. Do the CPI/conversion math on that. * User data for 200m+ users + the ability to extend and refine * A direct line to 200m+ home screens via push notifications * Enough inertia to mitigate the threat of competition (Facebook challenged with the Poke app, that failed) * The potential to change/extend the feature set to more revenue oriented streams * All other possible things you could do with an enormous and massively engaged captive audience...e.g. walking past Starbucks - they're having a slow day. Receive Snapchat from Starbucks with scannable special offer code and super quick expiry. We've just made Groupon for the high street. * Rights to all the above until the end of time Total: $4bn Doesn't seem so crazy to me.

OGC 13y ago

This just dances around the issue that snapchat is probably used to take lots of nude pictures. Yes, you can take a screenshot, i bet loads of people don't know / trust the other party to not to take one.

thesash 13y ago

Can someone who understands the strategy behind fundraising explain why they would want to raise at such a high valuation? To be clear, one point left out of the article is that the $3.5B - $4B valuation is a rumored valuation being "considered" by the startup (Their most recent round of funding valued them at $800MM). When I read about the "rumor" my immediate thought was: Snapchat leaked that to the press to gauge the response from potential investors / acquirers. The thing I don't understand is: what is their goal here? It seems like raising at a 3B+ valuation limits their options for an exit to either an IPO or an acquisition by one of maybe 3 companies. Raising at such a crazy valuation also seems extremely risky considering the volatility of apps in their space and the fact that they haven't even begun to explore monetization. What am I missing?

deleted 13y ago

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notduncansmith 13y ago

While I agree with most of the points the author makes in this article, I disagree with the ultimate thesis. Snapchat offers what? Engagement So how do you monetize that? Get users to engage with brands Allow me to elaborate. Twitter's Amplify partnership program is a brilliant example of the amount brands are willing to pay to engage with customers (both existing and potential). Twitter used to be in a unique position to offer that engagement too: with huge penetration, easy integration into existing media (putting a hashtag in the corner of a TV broadcast, for instance), and an incredibly low-friction engagement process. Twitter made it easy for a brand to create a sea of voices engaging with a brand. I believe Snapchat is now in a position to make a similar offer. Before I go on, I'd like to pose a question: how many people read event-centric tweets after an event? Aside from journalists reporting on said event looking for memorable tweets, my guess is not many. Hell, most people barely pay attention to the stream during these events. At most, you have a tweet that's at the top of a feed for a few seconds before being quickly pushed down by a dozen more, never to be read again. I'm sure by now you're connecting the dots: Snapchat offers a similar service in that respect. The thing is, there's a major core difference between these two. Twitter is a public forum, and Snapchat is strictly peer-to-peer communication. This gives Snapchat a unique offering, in that it allows brands to communicate one-on-one with customers. Imagine, if you will, a broadcast of The Walking Dead (I use them as an example for two reasons: 1.) I'm a huge fan, and 2.) They're big on the second-screen experience so this seems plausible). As part of your second-screen experience, one might find a stream of picture responses to various moments in the episode. Major character dies, suddenly the stream is full of shocked faces (maybe some rage faces or big goofy grins, depending on who). Now imagine this stream is powered by Snapchat. This is already possible with Twitter, to a degree, but with Snapchat there's less inhibition which will drive greater participation and greater engagement. Not only that, but Snapchat would also allow TWD to engage back with the user on a personal level- maybe respond with a snap that contains a marketing call-to-action ("Want more scares? Check out the exclusive behind-the-scenes footage online"), or just responds with a zombified version of the image you sent in (how cool would that be?). I'm sure there are many more awesome use cases than what I just stated, but I think this example speaks to the fact that Snapchat can be a real force for engagement without requiring brands to spam the hell out of the platform's users. This is where Snapchat outperforms against any other social product when it comes to driving brand engagement: because the users are so fanatically engaging with the product already, brands don't need to spam. They can just interact with the users in a meaningful or entertaining way - and I don't mean this "Get a coupon that you have 10 seconds to screenshot" bullshit, or "Let brands send snapchats that last forever" or any shit like that. Just give the users a fun way to interact with your brand, and the loyalty (and purchases) will come. So, here's what I would do, if I were to monetize Snapchat: - $20/yr developer program - Free API access for up to 2,000 snaps sent/received per month - Pay-as-you-go model: $XX for every additional 10,000 additional snaps - Hashtag support (maybe) - Analytics - Offer consulting at a premium to help brands effectively leverage Snapchat Notice the generous pricing structure. I think one thing that Snapchat can cash in on is the uniqueness of its platform, and the eagerness of the hacker community at large to build on top of it. I want you to recall the modest success of App.net, which doesn't have nearly the engagement metrics or penetration that Snapchat currently enjoys. I for one have several small projects I'd like to build on the Snapchat platform, and would be more than happy to pay a modest premium for the opportunity. The pay-as-you-go structure keeps your hackers happy (I doubt anyone would pay $100+ for toy projects), and also maximizes revenue from larger brand campaigns. In conclusion, I think the assertion that Snapchat "has no intrinsic value" is complete bollocks.

tonylemesmer 13y ago

Is it because the more people jump on the more valuable it becomes and I just sell my stock and I've just made a whole bunch of money?