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Yes, I'm willing to believe it's worth nothing. I'm actually willing to believe it's worth less than nothing; that the cost of running a service processing that

by boucher 13y ago

Yes, I'm willing to believe it's worth nothing. I'm actually willing to believe it's worth less than nothing; that the cost of running a service processing that much data for free may be higher than the service is truly worth. I'm not saying that's the case here, but it really is not hard to imagine. It's quite obviously possible when you're giving away physical things for free. The only difference here is that free software is a hell of a lot cheaper than free cupcakes, but the cost still isn't zero.

aclements18 13y ago
Question: If you were to have a CS grad from Stanford offer you 50% of all of his income for the rest of his life. How much would you pay in one lump sum? $100? $1 million? Probably more… Point is, you would agree the number is not zero. He doesn't have a job yet (and never had a job before), but by any measure everyone that knows him says he's extremely talented. And now he's even getting huge job offers from Google and Facebook. Would you say that you wouldn't make that investment? Is he worthless cause he has an upcoming rent payment due and also has to feed himself?
- greenyoda 13y ago
  It would be an extremely risky bet which I would never make. There's no guarantee that the grad wouldn't take your money and live the rest of his life as a heroin addict -- lots of smart people don't live up to their potential. Also, he might get hit by a bus tomorrow. Similarly, lots of companies run by smart people don't live up to their potentials, or are not lucky enough to be popular long enough to make billions of dollars.
  - aclements18 13y ago
    To be clear, you wouldn't pay $100 to get half of his signing bonus at Facebook? All of those factors (risks) have to be taken into consideration, and you price it as such. It's still a > zero figure.
    - XorNot 13y ago
      Definitely not, because at that valuation the offer is suspiciously too cheap - in fact it's so cheap it's unlikely he'll pay out because the first thing he'll do is hire a lawyer to get out of that contract.
      - Anderkent 13y ago
        You're nitpicking. It's a hypotethical. He's trying to show how something that is not profitable right now might still have positive value. The point of the question is whether you expect the person to earn enough that getting 50% of their life income would be worth 100, 1k, 10k etc. today, not 'how likely that person is to actually keep the deal'.
        XorNot 13y ago
        But that's exactly relevant to the point - the issue is that the details of the arrangement matter, which is relevant to the wider point: how are we expecting profit to be made? Gesticulating to size doesn't actually monetize something.
- RokStdy 13y ago
  I'm sorry, but your hypothetical is bad for this scenario. This only works if, in addition to all of the other possible risks we all face in life, this CS grad could simply disappear because a CS student in the new freshman class is more interesting. Snapchat is risky because it's audience is as fickle as they come.
  - aclements18 13y ago
    I would actually argue that there are more top tier Stanford CS grads than there are startups with Snapchat's engagement numbers. The value of the student should be discounted more than the value of snapchat from a competition standpoint. In either case the point was to illustrate that, all risks considered, snapchat is still worth a lot of money. I have yet to see anyone (HN commenters, tech press) argue about what their valuation should be, which seems like the reasonable follow up to "It should not be $3 billion". We can agree that its not zero, then what basis can we use to agree that $3 billion is inaccurate?
cylinder 13y ago
How many "messages" do copper telephone wires owned by Verizon carry every day? Does that make those wires worth trillions? How much is "Email" worth? If you could "own" Email, but not have any way to monetize the transport of messages, and no way to charge for the service, how much is it worth solely because billions of messages are transmitted with your service daily? Since when are "messages" valuable? Come on, who wants to own a Protocol?
- AJ007 13y ago
  Snapchat could flash advertisements before and/or after 'snaps'. How big that ad market is would just be a guess with little data to back it up. The big risk for Twitter, Snapchat, and some degree Facebook is the more money they attempt to make off of users, from advertising, the easier it is for someone else to start a less intrusive competitor. The cost of creating, launching, and maintaining a service like this will keep dropping. Facebook purchasing Snapchat is just creepy. They think delete=hide.
  - Phlarp 13y ago
    >Facebook purchasing Snapchat is just creepy. They think delete=hide. You really think Snapchat deletes the images? Lets pretend they did, I bet the NSA keeps a copy. laughable.
  - code_duck 13y ago
    Well, snapchat thinks delete=rename with .nomedia extension, it turns out.
  - crockstar 13y ago
    As someone who works in the advertising space I can tell you with a great deal of confidence that SnapChat will not be able to monetize in the way you describe and make enough money (without pissing off users) to justify the price tag. Unless they've got a very clever model that is more advanced than what you've described or that FB or Twitter have ever used it's a very long shot. Unless the owner has a personal issue with FB and didn't want their money for this reason I do not believe this was a sound business decision. I'd love to be wrong but I don't think I will be in this case.
yesplorer 13y ago
Yes, you are entitled to believe it's worth nothing. But the only problem is that, the market has decided it's worth anywhere from $0 to $3 billion. Facebook is not paying for the software. A very good hacker can put together a snapchat app in an afternoon. Facebook is paying for the traction and the fact that the people who are using both services are not exclusive set of people. therefore, the more a user spend time on snapchat, the less she spends on Facebook. As already mentioned, this is not about how much they are making now, it's about how much they could potentially make in the future. Facebook knows this better than you and I because they've been there. Any dollar that SnapChat makes in the future is potentially a dollar facebook would have lost and that is what they are trying to protect. FB can throw $10b at snapChat and some people (me not included) will still find sense in it. Look, if on March, 2006, a 'crazy' billion said he has envisioned that twitter is the next big thing and threw $5b for a 99% stake, everyone would have called him shit crazy but in just 7 years, he would have made a cool $16b on his investment. No matter what you think about how silly the service is, its ability to be monetized is where the value lies.. In a logical world, an investment in coca-cola shouldn't be considered a safe one at all, but here we are!

by boucher 13y ago

aclements18 13y ago

Question: If you were to have a CS grad from Stanford offer you 50% of all of his income for the rest of his life. How much would you pay in one lump sum? $100? $1 million? Probably more… Point is, you would agree the number is not zero. He doesn't have a job yet (and never had a job before), but by any measure everyone that knows him says he's extremely talented. And now he's even getting huge job offers from Google and Facebook. Would you say that you wouldn't make that investment? Is he worthless cause he has an upcoming rent payment due and also has to feed himself?

greenyoda 13y ago
It would be an extremely risky bet which I would never make. There's no guarantee that the grad wouldn't take your money and live the rest of his life as a heroin addict -- lots of smart people don't live up to their potential. Also, he might get hit by a bus tomorrow. Similarly, lots of companies run by smart people don't live up to their potentials, or are not lucky enough to be popular long enough to make billions of dollars.
- aclements18 13y ago
  To be clear, you wouldn't pay $100 to get half of his signing bonus at Facebook? All of those factors (risks) have to be taken into consideration, and you price it as such. It's still a > zero figure.
  - XorNot 13y ago
    Definitely not, because at that valuation the offer is suspiciously too cheap - in fact it's so cheap it's unlikely he'll pay out because the first thing he'll do is hire a lawyer to get out of that contract.
    - Anderkent 13y ago
      You're nitpicking. It's a hypotethical. He's trying to show how something that is not profitable right now might still have positive value. The point of the question is whether you expect the person to earn enough that getting 50% of their life income would be worth 100, 1k, 10k etc. today, not 'how likely that person is to actually keep the deal'.
      - XorNot 13y ago
        But that's exactly relevant to the point - the issue is that the details of the arrangement matter, which is relevant to the wider point: how are we expecting profit to be made? Gesticulating to size doesn't actually monetize something.
RokStdy 13y ago
I'm sorry, but your hypothetical is bad for this scenario. This only works if, in addition to all of the other possible risks we all face in life, this CS grad could simply disappear because a CS student in the new freshman class is more interesting. Snapchat is risky because it's audience is as fickle as they come.
- aclements18 13y ago
  I would actually argue that there are more top tier Stanford CS grads than there are startups with Snapchat's engagement numbers. The value of the student should be discounted more than the value of snapchat from a competition standpoint. In either case the point was to illustrate that, all risks considered, snapchat is still worth a lot of money. I have yet to see anyone (HN commenters, tech press) argue about what their valuation should be, which seems like the reasonable follow up to "It should not be $3 billion". We can agree that its not zero, then what basis can we use to agree that $3 billion is inaccurate?

cylinder 13y ago

How many "messages" do copper telephone wires owned by Verizon carry every day? Does that make those wires worth trillions? How much is "Email" worth? If you could "own" Email, but not have any way to monetize the transport of messages, and no way to charge for the service, how much is it worth solely because billions of messages are transmitted with your service daily? Since when are "messages" valuable? Come on, who wants to own a Protocol?

AJ007 13y ago
Snapchat could flash advertisements before and/or after 'snaps'. How big that ad market is would just be a guess with little data to back it up. The big risk for Twitter, Snapchat, and some degree Facebook is the more money they attempt to make off of users, from advertising, the easier it is for someone else to start a less intrusive competitor. The cost of creating, launching, and maintaining a service like this will keep dropping. Facebook purchasing Snapchat is just creepy. They think delete=hide.
- Phlarp 13y ago
  >Facebook purchasing Snapchat is just creepy. They think delete=hide. You really think Snapchat deletes the images? Lets pretend they did, I bet the NSA keeps a copy. laughable.
- code_duck 13y ago
  Well, snapchat thinks delete=rename with .nomedia extension, it turns out.
- crockstar 13y ago
  As someone who works in the advertising space I can tell you with a great deal of confidence that SnapChat will not be able to monetize in the way you describe and make enough money (without pissing off users) to justify the price tag. Unless they've got a very clever model that is more advanced than what you've described or that FB or Twitter have ever used it's a very long shot. Unless the owner has a personal issue with FB and didn't want their money for this reason I do not believe this was a sound business decision. I'd love to be wrong but I don't think I will be in this case.

yesplorer 13y ago

Yes, you are entitled to believe it's worth nothing. But the only problem is that, the market has decided it's worth anywhere from $0 to $3 billion. Facebook is not paying for the software. A very good hacker can put together a snapchat app in an afternoon. Facebook is paying for the traction and the fact that the people who are using both services are not exclusive set of people. therefore, the more a user spend time on snapchat, the less she spends on Facebook. As already mentioned, this is not about how much they are making now, it's about how much they could potentially make in the future. Facebook knows this better than you and I because they've been there. Any dollar that SnapChat makes in the future is potentially a dollar facebook would have lost and that is what they are trying to protect. FB can throw $10b at snapChat and some people (me not included) will still find sense in it. Look, if on March, 2006, a 'crazy' billion said he has envisioned that twitter is the next big thing and threw $5b for a 99% stake, everyone would have called him shit crazy but in just 7 years, he would have made a cool $16b on his investment. No matter what you think about how silly the service is, its ability to be monetized is where the value lies.. In a logical world, an investment in coca-cola shouldn't be considered a safe one at all, but here we are!