How much could a company that makes zero operating profit be worth? Over $3 billion in cash, Facebook would tell you. Earlier this week, the social networking website offered to buy Snapchat, a company recently popularized by its photo sharing app for that sum of money — and Snapchat turned it down. This certainly raises another pertinent question: How is Snapchat worth anything?
Despite intending a $3 billion investment in Snapchat, Facebook would have received essentially nothing. Snapchat is currently run by a small staff operating a handful of servers. Even the technology they use is nothing impressive. Facebook in particular would know this because the company immediately created a similar app after their conquest had failed.
What Facebook does want, however, is the attention Snapchat commands. Ever since Facebook bought Instagram for $1 billion in April 2012, it has been pulling all of its strings to reestablish its reputation as the cool and popular center of social media. Earlier this month, Facebook admitted that there has been a noticeable decline in teenage users on Facebook. This age demographic has long been the primary target of advertising agencies, so it is absolutely crucial that Facebook regain its popularity with teens if it wants to succeed. In recent years, as adults and companies have became increasingly involved in Facebook, teenagers are looking for a new outlet of media and digital networking.
So there are good reasons why Facebook would like to acquire Snapchat — but is there a reason why Snapchat would reject $3 billion? If the cash had been distributed among its small staff, each person would have left work that night as a millionaire.
Possibly the largest reason Snapchat did not join the Internet giant is to maintain its reputation as the budding startup that joins and leads a new era in the mobile industry. Alongside Vine, Snapchat is one of the two most popular viral mobile sensations to grab the attention of teenagers nationwide. Already, the “Best Vines” and “Leaked Snapchat” accounts on Facebook and Twitter garner as many followers as some of the most popular music artists.
What Snapchat realizes — and perhaps Facebook does as well — is that this new culture created by teenagers through apps like Snapchat, Vine and Tumblr is still shaping itself. Snapchat shows it is fully capable of updating its app with new, dynamic features such as its recent “stories” update, which has been an enormous success. How valuable Snapchat’s predominance in this movement down the road will be is anybody’s guess.
