6 ms·

Snapchat isn't being valued on revenues or potential monetization, but rather as a piece of someone else's (eg Facebook's) business model. In the Steve Blank s

• wpietri 13y ago
  I don't have the reference handy, but somewhere Steve Blank basically says, "If there's another bubble, ignore all this advice. Building a real business only makes sense when the market is sane." The only way I could look at SnapChat as a startup is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook. We know that Facebook is willing to buy things perceived as threats to their business model, or perhaps to buy large sets of users they've failed to capture. It's a stupid business to go into, in that the odds of success are really bad: low barrier to entry, lots of interest, lots of competitors, a winner-take-all game. But if you win the lottery you can get zillion-dollar offers from Zuck and feel like a genius. Bubble 1.0 was filled with built-to-flip companies, and one of the things I like best about the Lean Startup movement is that it demands building an actual business. Sad to see that the pendulum might be swinging back some.
  • d0m 13y ago
    Dunno, I firmly believe that once you have that many users, you're sitting on a gold-mine just waiting to be exploited.
    • notahacker 13y ago
      The evidence from companies that have that many users certainly points towards high revenues, but not revenues commensurate with a $3billion valuation. Facebook is a mature advertising platform with far more to offer advertisers than Snapchat is ever likely to, and earns revenues of less than $7 per active user per year. If Snapchat is as effective at monetising at Facebook, which sounds optimistic, it would take them 17 years to make $3billion in revenue off ~25million active users. I don't doubt that Snapchat's user base will continue to rise in the short term, but I also don't think it'll be around in 17 years... If you compare Snapchat not with the internet's leading repository of user metadata, and more with similarly popular locations for ephemeral meme-sharing amongst teenagers, its current user base more closely resembles that of the Cheezburger Network, whose decision to lay off a third of their workforce earlier this year hardly points towards stratospheric advertising revenues from their own ~25 million users
      • wpietri 13y ago
        Exactly. If there's any lesson people should learn from Facebook, Instagram, and Snapchat, it's that these users are fickle. Valuations based on long-term growth and long-term exploitation of those users are somewhere between very speculative and outright fantasy.
    • bmelton 13y ago
      I don't disagree, but to me, $3 billion dollars is indeed a gold-mine. I don't know what they're worth, what they will be worth, or whether or not it'll ever end up being super profitable. Apparently, the naysayers were wrong about Groupon, as they're now doing pretty well, and it seems that turning down the acquisition offer wasn't entirely stupid. That said, $3 billion dollars is a lot of money, and I would pretty much always take it, and move on to executing the next idea.
  • sillysaurus2 13y ago
    The only way I could look at SnapChat as a startup is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook. We know that Facebook is willing to buy things perceived as threats to their business model, or perhaps to buy large sets of users they've failed to capture. It's a stupid business to go into, in that the odds of success are really bad: low barrier to entry, lots of interest, lots of competitors, a winner-take-all game. But if you win the lottery you can get zillion-dollar offers from Zuck and feel like a genius. I wouldn't be so quick to dismiss the Instagram acquisition as crazy. Isn't Instagram now used by most teenagers, and sometimes preferred over fb?
    • 001sky 13y ago
      Nobody is doubting spending 1% of your 100b market cap on your #2 competitor is a dumb idea. And your point is well taken, that empirically the defection from fb is to Ig, which is a lot less of a problem than it otherwise would be for fb stock.
    • wpietri 13y ago
      I'm not saying it's crazy for Facebook to buy Instagram. I'm saying it's crazy for anybody to try to start companies in the hopes that Facebook will acquire them.
  • sixQuarks 13y ago
    Are you sure Steve Blank said that? That doesn't seem like something he would say.
    • wpietri 13y ago
      I am very sure. A quick Google search doesn't turn it up, so I think it must have been in the early part of Four Steps to the Epiphany. My copy of that is in storage, though, so I can't find the quote. You can see similar sentiments here: http://steveblank.com/2010/10/04/why-pioneers-are-the-ones-with-the-arrows-in-their-backs/ http://steveblank.com/2010/10/04/why-pioneers-are-the-ones-w...
      • sixQuarks 13y ago
        I wouldn't say that's a similar sentiment. He's not saying you should throw good fundamentals out the window.
        • wpietri 13y ago
          Sorry, I'm referring to this paragraph: "They guess at their business model and then do premature, loud and aggressive Public Relations hype and early company launches and quickly burn through their cash. This is a great strategy if there’s a bubble occuring in your market or you are going to bet it all on flipping your company for a sale." That's a very similar sentiment.
          • sixQuarks 13y ago
            This still doesn't say "ignore all the Lean startup advice during a bubble". That's what you claimed, and this sentence doesn't say anything of that sort.
            • wpietri 13y ago
              He is saying that in a bubble it is a great strategy if you "guess at their business model and then do premature, loud and aggressive Public Relations hype and early company launches and quickly burn through their cash." That is precisely the opposite of the Lean Startup approach. So I believe the sentiment is, as I said, similar. If you aren't seeing that, I'm happy to disagree.
  • mkramlich 13y ago
    > is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook. This. My take is that SnapChat's valuation is driven mostly by the perception that it's a strong contender for acquisition by Facebook or the like. Of course it's a separate issue as to whether that buyout makes sense in the long run, because, from what I've heard anyway, a big part of the attraction of SnapChat to teens is that it is NOT part of Facebook (or Twitter or G+). Because they of them not wanting parents/teachers to see stuff, not wanting Facebook intentionally or accidentally exposing their data later, and also just the desire to be "cool" like other cool kids (the temporary fad effect, always churning along with all ages, but at a faster rate with juveniles.), etc. All/most of that gets extinguished immediately, or, eventually after, an acquisition by Facebook.
    • amirmc 13y ago
      > "All/most of that gets extinguished immediately, or, eventually after, an acquisition by Facebook." We think that because we follow the tech news and are savvy about the consequences of an acquisition. However, I'm not sure (anymore) that it necessarily plays out that way for the general public. For example, I'm not an Instagram user but I do wonder how many of them are aware that it's now a Facebook property. If I look over their website I don't see anything obviously linking it to Facebook so maybe there's a chance that a proportion of their user-base is still treating it as independent (of course, I'm not aware of the in-app experience). It reminds me of one of those stories I read about an online game (EVE-Online?) where one guy had cornered the entire market for selling a particular power-up/drug but had a number of completely different avatars 'on the ground' so his customers had no-idea they were buying from the same person.
      • mkramlich 13y ago
        > We think that because we follow the tech news and are savvy about the consequences of an acquisition. However, I'm not sure (anymore) that it necessarily plays out that way for the general public. fair point. this is a recurring pattern where there's a kind of profitable arbitrage that occurs between high/early-info groups and low/later-info groups (eg. between Wall Street types and mom-and-pop on Main Street.) This certainly could be partly due to that effect again.
• jroseattle 13y ago
  I look at this from the angle of FB and GOOG, and seriously question if Snapchat is worth the acquisition. My gut tells me that patience will be rewarded. The value to FB/GOOG is the audience -- the users they're trying to reach. It's not as if they couldn't replicate the technology to drive that type of service. The defensibility of Snapchat against competitors is the demographics of the user base. I don't use Snapchat, nor does my wife. Or any other set of parents I know. But my kids do, as do their kids. Right now, for any teen/tween in our community, it's Snapchat and Instagram. And if I acquire Snapchat, that gets me.......what? A service with no revenue and a user base that's naturally fickle. The only way I can justify this acquisition for FB or GOOG is if there is some long-term value from the user base. And I don't think the value is there. If I'm GOOG or FB, I think I sit on Snapchat for as long as possible. I'm betting that Snapchat's value will never be more than it is right now.
  • joering2 13y ago
    > And if I acquire Snapchat, that gets me.......what? It gets you solid 3-7 years of billions of eyeballs to monetize from, and nobody is better at monetizing than Google or Facebook. There are 2 reasons why GOOG/FB are interested in picking Snapchat up. #1 user base #2 traffic. No other reasons. #1. When FB strategist comes to Zuckerberg, he tells him: "listen this company is making dent in our traffic. If its continue the kids that abandon FB for Snaptchat will create $XX billions (sum A) of a hole in ads sales. So you need to go out and offer X% of sum A and pray they accept it. #2. When FB ads vp come to Zuckerberg, he tells him: "listen, here are my ideas how we can serve ads to those billions of eyeballs. This will create $XX billions (sum B) of profits for Facebook. So you need to go out and offer X% of sum B and pray they accept it. Thats it. As of whether its a "startup" or not, I say it is exactly for the reasons other says its not: revenue (or lack of it). I don't think you can call a company "startup" only when they have a business model and or revenues. Snapchat through millions of uniques proved to the world they do solve some kind of problem, even if its as silly as flashing photos of a drunk teen for 5 seconds. Edit: so the wisdom of the day would be: build a service for a huge user base that is important to facebook (youngsters), preferably on mobile (that is a future of computing/socializing).
    • 13y ago
• mbesto 13y ago
  Spot on. I provided another analogy to this concept in a comment awhile back: > It's not particularly strange if you break down the business models that dominate the SV ecosystem. These companies you speak of are merely procurement channels. Think of them as oil drills that suck up as many attention spans as physically possible. And largely they are all competing with each other to strike the next big oil well. Not unlike the oil industry they put massive amounts of capital into the discovery and refinement of such oil wells. The likes of Facebook, Google, etc are simply refineries who sell this attention (refined by analytics and insight) off to the Fords, Coca-Colas, etc of the world.[1] [1]https://news.ycombinator.com/item?id=6400714 https://news.ycombinator.com/item?id=6400714
• 001sky 13y ago
  > Their plan is to grow until they dock with the Deathstar. many chased that model in 2002-2007, with google in mind
• mkolodny 13y ago
  > Their plan is to grow until they dock with the Deathstar. If that was their plan, then I would think that $3B would be enough for them to drop anchor. As a zero-revenue company, I would only deny that payday if either: 1) I believed that my company had the potential to be its own Deathstar. 2) I disliked the company that made the offer so much that I had nightmares about them owning my company. 3) I cared more about my company than the money.
  • mathattack 13y ago
    How about "4 - they think they can get a better offer"?
    • ams6110 13y ago
      Pigs get fat. Hogs get slaughtered.
      • mathattack 13y ago
        By this argument I would have sold at 10 million.
  • wensing 13y ago
    Or 4) I'm already so wealthy as a founder that's sold stock through multiple rounds of funding that I might as well wait for the $5B offer.
  • dustingetz 13y ago
    4) he lost control and the board won't let him sell. Founder surely wants to sell. Unfortunately snapchat took $800M vc money, and his new VC bosses have completely different incentives to go for a long tail outcome. Which sucks because the founder is probably a lot more likely to get nothing than he is to get a huge exit and he knows it. Though as wengsing says he probably got a bunch of cash in prior rounds so maybe he doesn't really care.
    • wensing 13y ago
• mathattack 13y ago
  I'm thinking that if Spamchat is worth 3+ billion, then Instagram sold too cheap.