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Thanks for the comment ChuckMcM, I'm glad you enjoyed the article. I tried to stay away from poking fun at the simplicity of the technical aspects of the servi

Thanks for the comment ChuckMcM, I'm glad you enjoyed the article. I tried to stay away from poking fun at the simplicity of the technical aspects of the service as much as possible, and I didn't mean for the article to come across as tech-focused. All I meant with the MS Paint/duct tape comment was that it wouldn't be hard for a competitor to recreate the service - in fact Facebook Poke has already tried and failed due to your observation that it takes a certain "connection with a generation" to make a seemingly silly product successful. That, and Snapchat was the first to move to the market, giving it a huge inertial advantage over Poke. The main point I wanted to make was most definitely market focused: Snapchat has built itself a user base in a market that it can't monetize by itself. It can continue to gather users 'til the end of time, but it will never be able to get any revenue from them without altering its service and driving users away. Therefore Snapchat is intrinsically worthless. This is distinct from the statement that "Snapchat is worthless" - clearly it isn't extrinsically worthless because it can be used as a funnel to get users to other parts of the internet that might generate revenue. So there is some basis for valuing the company. The question then becomes how much is it actually worth? I'd love for someone to help me out and stake a valuation for what they think Snapchat is actually worth. Less than $4bn is my estimate. How much less? Not so sure.

ChuckMcM 13y ago
"The question then becomes how much is it actually worth?" The correct answer is 'what someone will pay for it.' But I recognize that answer is unsatisfactory. Correct me if I am wrong, but I believe you are asking "What line of reasoning about Snapchat results in the highest valuation?" Or to put it differently, how does someone convince themselves that Snapchat could be worth billions rather than a few million at most. I suspect the answer goes something like this; 1.) 13 - 24 year olds spend a big chunk of money (http://www.bls.gov/cex/2012/combined/age.pdf http://www.bls.gov/cex/2012/combined/age.pdf) 2.) They compose a cohort of approximately 50M individuals. (http://www.census.gov/popest/data/national/asrh/2012/index.html http://www.census.gov/popest/data/national/asrh/2012/index.h...) 3.) Smartphone ownership in this market is high, and skewed to the high income members (http://www.nielsen.com/us/en/newswire/2012/survey-new-u-s-smartphone-growth-by-age-and-income.html http://www.nielsen.com/us/en/newswire/2012/survey-new-u-s-sm...) 4.) At an estimate of 305MM 'snaps' per day, assuming multiple snaps per user. We can estimate that Snapchat has something north of 70% of the high income youth smart phones captured. What is that worth? Can you entice them buy 1 thing? What is the biggest expense of any transient product? Customer acquisition. What would you pay to say something to nearly every customer in your market? Well we know from the SuperBowl that 30 seconds of your time, once a year, might be worth $4M (http://variety.com/2013/tv/news/super-bowl-ads-fox-seeks-4m-for-30-second-slot-in-big-game-1200586371/ http://variety.com/2013/tv/news/super-bowl-ads-fox-seeks-4m-...). My guess is that if your in a product space that depends on consumers in this demographic, then being able to talk to them through SnapChat would be as valuable as a SuperBowl advertisement to you. And if you are an investor, owning a piece of that channel might appear to be a very good bet.

ChuckMcM 13y ago

"The question then becomes how much is it actually worth?" The correct answer is 'what someone will pay for it.' But I recognize that answer is unsatisfactory. Correct me if I am wrong, but I believe you are asking "What line of reasoning about Snapchat results in the highest valuation?" Or to put it differently, how does someone convince themselves that Snapchat could be worth billions rather than a few million at most. I suspect the answer goes something like this; 1.) 13 - 24 year olds spend a big chunk of money (http://www.bls.gov/cex/2012/combined/age.pdf http://www.bls.gov/cex/2012/combined/age.pdf) 2.) They compose a cohort of approximately 50M individuals. (http://www.census.gov/popest/data/national/asrh/2012/index.html http://www.census.gov/popest/data/national/asrh/2012/index.h...) 3.) Smartphone ownership in this market is high, and skewed to the high income members (http://www.nielsen.com/us/en/newswire/2012/survey-new-u-s-smartphone-growth-by-age-and-income.html http://www.nielsen.com/us/en/newswire/2012/survey-new-u-s-sm...) 4.) At an estimate of 305MM 'snaps' per day, assuming multiple snaps per user. We can estimate that Snapchat has something north of 70% of the high income youth smart phones captured. What is that worth? Can you entice them buy 1 thing? What is the biggest expense of any transient product? Customer acquisition. What would you pay to say something to nearly every customer in your market? Well we know from the SuperBowl that 30 seconds of your time, once a year, might be worth $4M (http://variety.com/2013/tv/news/super-bowl-ads-fox-seeks-4m-for-30-second-slot-in-big-game-1200586371/ http://variety.com/2013/tv/news/super-bowl-ads-fox-seeks-4m-...). My guess is that if your in a product space that depends on consumers in this demographic, then being able to talk to them through SnapChat would be as valuable as a SuperBowl advertisement to you. And if you are an investor, owning a piece of that channel might appear to be a very good bet.