http://www.nytimes.com/2013/11/14/t...pects-a-better-offer.html?hpw&rref=technology Rejecting Billions, Snapchat Expects a Better Offer By JENNA WORTHAM Published: November 13, 2013 What business makes no money, has yet to pass its third anniversary and just turned down an offer worth billions of dollars? Snapchat, a social media service run by a pair of 20-somethings who until last month worked out of a beachfront bungalow in Venice, Calif. Thanks to todayâs rabid rat race for the hottest social media start-ups, Snapchat has joined the list of tech companies â like Tumblr and Instagram â with no money coming in but multiple sky-high takeover offers. So far, Snapchatâs leaders have balked at the offers, according to three people with knowledge of the overtures, including a recent multibillion-dollar proposal from Facebook, the biggest social network of them all. Itâs not that they donât want billions of dollars. In part, itâs because they think making a deal now would leave many billions more on the table. The service, started in 2011 by Evan Spiegel, 23, and Bobby Murphy, 25, two former Stanford fraternity brothers, lets users send photo and video messages that disappear after they are viewed. Snapchat quickly gained a reputation as an easy way to send sexually suggestive photos, but it also picked up steam as a fun and easy way to trade photo messages. The company has in recent months become one of the most sought-after businesses in the tech industry, getting attention from top Silicon Valley companies and venture capital firms, as well as international technology companies. In the past, several start-ups found even greater success by passing up a billion dollars or more, including Facebook and Twitter. Even Twitter, with its red-hot debut on the public market, still has skeptics who question whether it can grow enough to justify its current market capitalization of more than $20 billion. But Silicon Valley is littered with many more entrepreneurs whose big dreams went unfulfilled, people who were at the helm of the next big thing and lost momentum before they could cash out. âI think this is classic bird-in-hand versus bird-in-bush,â said Julie A. Ask, an analyst at Forrester Research. âSnapchat must believe the bird-in-bush is bigger.â There are some suggestions about why Snapchat thinks it will be worth far more later than it is now. For one thing, Snapchatâs leaders think it might be one of the first social media companies in the United States to build its business largely around revenue beyond advertising. On stage at an industry event in September, Mr. Spiegel said that he wanted to duplicate the success of overseas chatting applications like WeChat. Many such companies, particularly WeChat and Line, have found ways to make money from their applications through virtual goods and games. WeChat, which is based in China and operated by a company called Tencent, allows its users to subscribe to brands like Starbucks and Nike and receive messages from them. Line, a Japanese messaging app, has $10 million a month in revenue from selling stickers that users can send to each other while chatting with friends. But the decision appears to have also been influenced by one of Snapchatâs big venture backers, Benchmark Capital, according to a person close to the talks. Before leading an investment in Snapchat, Benchmark led an early bet on Instagram, a photo service, and was disappointed when Instagramâs founders decided to sell to Facebook for $1 billion last year. Despite the high price tag, the firm thought Instagram could have succeeded as a stand-alone company, or at least could have brought a higher offer. Eight months after the Instagram sale, Benchmark switched tactics and placed an initial $13 million bet on Snapchat. Benchmark executives thought they might be able to profit from Facebook fatigue by investing in services like Snapchat that offered users â particularly teenagers â greater privacy. It is those teenagers who most interest Facebook. In an earnings call this month, Facebook said that its youngest users were using its service less. Still, the news about Snapchat rejecting Facebookâs offer, first reported by The Wall Street Journal on Wednesday, sent a small shock through the industry. Both Snapchat and Facebook declined to comment. Snapchat and applications like it represent a coming sea change in social media, one not necessarily defined by shared or public interactions. These services present an antidote to mainstream services that are meant to capture life moments so they can be shared, liked and commented on. Snapchatâs appeal lies largely in the lack of permanence. It offers a reprieve from worrying about awkward or unflattering photos turning up unexpectedly. Snapchat recently said that it now processed upward of 350 million messages a day. In February, the company was processing only 60 million a day. Other messaging services similar to Snapchat are also quickly gaining in popularity. WhatsApp, KakaoTalk, Kik, WeChat and Line, to name a few, have added hundreds of millions of users in the last few years, and each continues to grow. That rocketlike growth has emboldened Snapchatâs leaders to hold out for a better deal, and with a suitor of their choice, at least for now. One person with knowledge of the talks, who would speak only on the condition of anonymity, said one roadblock in the talks with Facebook was that Mr. Spiegel questioned whether he wanted to work for Mark Zuckerberg, Facebookâs young billionaire chief executive. In addition, Snapchat relishes being a successful company outside Silicon Valley. In December, when the company was still getting its footing in the social media market, Mr. Zuckerberg requested a meeting. But he traveled to Venice, Calif., to meet with the company, according to Snapchatâs founders, instead of them visiting him at his headquarters in Northern California. Shortly after the meeting, Facebook started a similar product called Poke. But Poke never took off. Even Facebookâs stand-alone messaging product, called Messenger, has struggled to attain the same kind of momentum that rivals have gained. Facebook released a new Messenger mobile app on Wednesday. And in Silicon Valley, where something new could pop up at any time, tech companies and investors are often compelled to act when they can â sometimes with fear and little regard for the number of zeros involved. Another potential suitor for Snapchat is Tencent, one of the three Internet giants in China. In September, Pony Ma, one of the founders of Tencent, spoke of that constant tension when discussing his interest in Snapchat. âIâm facing a crisis in this industry, said Mr. Ma. âYoung people, the things they like on the Internet, increasingly I donât understand it. This is my biggest worry.â Nick Bilton, David Gelles, Vindu Goel, Nicole Perlroth and Shanshan Wang contributed reporting.
Turning down an offer like that is one of the stupidest, most arrogant decisions I've ever heard of, especially considering that the primary function of Snapchat is to allow people to send naked pics to each other.
They are young and they don't know better. On the other hand FB turned down a 6 billion offer before they went public, and that was the correct decission. I think one reason they turned it down because they didn't want to be sold to FB. Zuckerberg visited them and maybe they didn't like his style...
Ahhhh dot com days are back....I have read numerous articles on social networking companies with zero profits zero revenue and not even an idea on how to make money but through just the idea of advertising..... Another company called next door worth a half a billion dollars... Again what zero people are pointing out is that the only single reason this company is turning down billions is because of all the cheap easy money policies and trillions in money.printing....money is going to areas where it would have never made it if it weren't for the printing press and all quantitative easings....everything is being pumped up again....why doesn't anyone understand what is happening ...this company is worth more than a million or two yet here we are valuing a company in the billions with zero profits and zero everything ....welcome to 1999 all over again!
Line, a Japanese messaging app, has $10 million a month in revenue from selling stickers that users can send to each other while chatting with friends. Imagine selling virtual stickers and making $10 million a month.... I know people who are skilled at trades where they just barely make it in this over inflated economy .... Amazing how dumb consumers have become to actually buy a virtual sticker. Some people wont even pay retail for a loaf of bread but will drop real money on a virtual sticker.... Im extremely baffled...
Jonathan Abrams, the founder of Friendster, turned down Google's $30 million offer in 2003, which would probably be worth ~$1.5 billion today. He subsequently owned a bar in San Francisco. http://www.jabrams.com/ That was probably his one chance in a lifetime to make it BIG.
Facebook offered 3 bill but rumors are that TenCent of China is putting together an offer of 4 billion.
Apparently, the first 1 billion offer rejection was the right move, because FB came back with another, now 3 billion offer. That was also rejected...
Actually a good move. GRPN hit $15B in mcap on the IPO and GOOG offered them $6B. They're still valued above $7B. The SnapChat IPO day will be the ultimate (until we're flying in hovercars) top in the mkt. The premise is stupid; anyone receiving the illicit pic can simply take a pic of the image before it self-destructs. Imagine Anthony Weiner using this and assuming it's like Mission Impossible.