A picture is worth 1,000 words, Snapchat is worth over $3 Billion.

A picture is worth 1,000 words, Snapchat is worth over $3 Billion. Yesterday, it was reported that Facebook offered $3B in cash for the fledgling picture messaging company Snapchat in what would have been its largest acquisition to date. In the ultimate power move, 23 year old Snapchat co-founder and CEO Evan Spiegel graciously told Mark Zuckerberg and Facebook to take their money and shove it as the company had more lucrative options on the table.

Snapchat is the rapidly growing picture and video messaging service that allows users to take a picture, draw on it, add text, then send it to other users where it exists for between one and ten seconds. The appeal of the service is that the picture disappears “forever” after a set amount of time. Nothing is ever gone forever on the Internet however, and the caveat here is that another user can take a screen shot to preserve the image on their phone and do as they please with it afterwards. In the event the taboo act of screen-shotting is committed, the sender is immediately alerted by the app, but there is little they can do at this point. Additionally, past messages are saved on the phone’s hardware, which could eventually be extracted. (Take a look at some of these awesome screenshots to get an idea for how this works.)

Evan Spiegel wasn’t the first one to come up with such an idea though. In 2010, my friend Andrew Schmidt who occasionally writes for this blog, had an idea he called “Safe Sexing”. The way he tells the story, he was at a bar in Chicago with a friend who was trying to get an image from a girl. The girl was reluctant to send him anything because she didn’t trust it would be seen by his eyes only. After seeing his friend get shot down, Andrew and his friend started discussing an app that would automatically delete an image after it was seen and disallow screen shots. Their idea featured a scroll wheel that would set the amount of time the picture could exist. (Sounding familiar?) He pitched the idea to everyone he knew (including me) under the name “Safe Sexting” and described how he would have celebrities who were caught sexting like Brett Favre, Anthony Weiner, Chris Brown, and Scarlett Johansson as promoters and investors. Everyone laughed and said it was a good idea, but no one, including me, took it seriously. About a year later, two Stanford college students (Evan Spiegel and Bobby Murphy) ostensibly had the same conversation as Andrew and his friend at a bar and subsequently developed Snapchat.  

As this article says, “I hate to tell you this, but there is no such thing as Safe Sexting.” Sorry Andrew, maybe with a little support we would have Safe Sexting instead of Snapchat. Next time you get a $3B idea, don’t let me walk away.

I believe Snapchat’s success is not solely predicated on the ephemeral nature of the images, which enables clandestine and risqué exchanges. Rather, Snapchat is the first direct picture-messaging platform. Its user-friendly interface allows individuals to send pictures and videos without the cumbersome process necessary to send a picture on a smartphone. The message can be sent to multiple people at once without anyone knowing who else received the message and the message is automatically displayed on the full screen when opened. A picture is worth 1000 words, so Snapchat is a fast, convenient, and fun way to communicate with others.

This service is apparently worth at least $4B, as Snapchat has an investment offer from Chinese e-commerce giant Tencent Holdings for at least that much. Other investors and potential acquirers are also competing for a piece of Snapchat, which will likely drive up the value of a deal to be made early next year. To put this valuation in perspective, Twitter is valued at about $25B and Pinterest at $3.8B. Facebook bought the photo sharing social network Instagram for $1B in 2012 and had previously made a $1B offer for Snapchat.

Snapchat currently has about 15 employees and no identifiable revenue or business plan, so what are investors like Facebook trying to buy? Users. Snapchat has about 30M users and nearly 30% of adults ages 18-29 say they use the service based on data from a Pew study conducted in October. Despite its popularity among adults, the vast majority of Snapchat’s users are teenagers. The teens flocking to Snapchat are the same ones I wrote about recently that are eschewing Facebook and twitter.

In addition to their desirable user base, Snapchat is based purely on smartphones, which is also Facebook’s largest segment. Snapchat’s prevalence with teenagers is appealing to Facebook because it would compensate for the large number teens that have absconded from the social network and allow them access to that audience for mobile advertising. Facebook is at a point where they have to get creative with revenue generation because they have reached the saturation point of advertisements in users’ timelines. If they add any more advertisements, the company believes users would start deactivating their accounts rapidly.

In June, Snapchat raised $60M from investors to sustain operations, which valued the company at about $800M. Within three months, Snapchat said usage had doubled to 350M messages a day, up from 200M in June. This rapid growth coupled with other investment offers, makes Snapchat’s decision to rebuff Facebook prudent as it holds out for more money. Plus, how often do get to say “No” to Mark Zuckerberg, especially when he is offering you $3B? There are some things money can’t buy, and for now it appears Snapchat is one of them. 

Follow me on Twitter (and add me on Snapchat) @Aaron_Kraus