April 25, 2015    4 minute read

Snapchat: $20bn Valuation and Growing?

   April 25, 2015    4 minute read

Snapchat: $20bn Valuation and Growing?

Created in the bedroom of three Stanford University students; Evan Spiegel, Bobby Murphy and Reggie Brown, Snapchat started off as a mere photo messaging platform; but has evolved into a part of modern day culture.

In May 2014, the app’s users were sending 700 million photos and videos per day, whilst Snapchat Stories content was being viewed 500 million times each day. The company has a valuation of up to $20 billion depending on various sources; but how did the company go from users sending 20 million photos a day in 2012 to almost 40 times more than this in only two years, in addition to a soaring valuation? The answer lies in innovation and forward thinking.

Most social networks/messaging services that were created before 2010 such as Facebook and Twitter  built their platforms for the PC generation – the internet of old. However, Snapchat recognised very early on that mobile would be pivotal to society as a whole and increasingly embedded in modern social culture.

The app has enabled people to gain a small snapshot into the lives of not only their friends and family but also the rich and famous, with the likes of Kim Kardashian and Rihanna being avid users of service, further bridging of the gap between ‘normal’ citizens and celebrities.

Following the rapid success of the Snapchat model, Facebook CEO Mark Zuckerberg flew out to meet Evan Spiegel in his hometown at the end of 2012 (according to Forbes), and proceeded to try scaring Snapchat’s founders by telling them that they planned to release a nearly identical app a few days later. Following this in December 2012, Facebook released Poke, a messaging app that mimicked Snapchat’s self-destruct feature. Initially, it surged to the top of the download charts. However, Poke fell out of the top 25 quickly after and as of mid-March 2013, it began a free fall out of the top 1,000.

As a result of such a sizeable failure, Snapchat received a $3 billion cash acquisition offer from Facebook in 2013. However Snapchat, who had little to no revenue at the time shocked most of the tech community by rejecting the offer.

“There are very few people in the world who get to build a business like this…I think trading that for some short-term gain isn’t very interesting”

Evan Spiegel, CEO & Co-Founder, Snapchat

Upon rejecting the bid, investors became increasingly curious about the start-up that was making so much noise in Silicon Valley. As a result of this, in October 2014, Yahoo made a $20m investment  into Snapchat. Following this, Snapchat continued to expand its business and in January 2015, it began it’s ‘Discover’ feature which shows daily videos and articles from mainstream media outlets such as CNN and Sky Sports, bringing Snapchat into closer competition with Facebook and Twitter . E-commerce giant Alibaba also saw the potential in the future of Snapchat and ploughed $200m into the start-up. Following this, many critics asked why Alibaba would invest in a company whose primary feature is the novelty of disappearing photos and their only source of revenue being through advertisements.

However, perhaps a reasonable explanation is that Alibaba would like to expand growth by tapping into American social media, and that they’ve recognised the effectiveness and innovation of the mobile application.

Despite the uncertainty about whether it is viable to value a company with little in the form of tangible assets at up to $20 billion dollars, what is certain is the future of Snapchat does indeed appear to be bright, and they are a force to be reckoned with in the world of social media.

And this has been recognised by many people in the tech world, with an executive (who has remained anonymous) stating in a Fortune magazine article that:

“What they’re doing is amazing. The new Discover feature? They’re so far past ephemeral messaging”

This emphasises the future potential of Snapchat and the continued impact that it will have, not only on social norms of today’s culture, but also as a potential all encompassing social and media distribution network of the future.

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