Facebook attempts to bite into Snapchat

Snapchat’s 23-year-old CEO, Evan Spiegel, has reportedly declined a £1.84bn cashoffer from Facebook. Snapchat is a photo messaging application whose main demographicis between the ages of 13 and 23. Despite having been downloaded by 9% of US mobile phoneusers and handling 400 million messages everyday, Snapchat has as of yet failed to generate any revenue. Although, Twitter has managed to receive a valuation of £20bn when it floated on November 7th, despite never generating a profit. Only 5 months ago, when Snapchat received a second series of investments, it was valued at £500m.

The Snapchat team urgently needs to find revenue sources. They cannot continue making losses in the long term. Like other similar appcompanies, they could thrive through the use ofadvertisements, however this will most probably cause users to move elsewhere, which is a big issue, because Snapchat is technically easily replicable. It could probably take a couple ofprogrammers a month to come up with an almost identical service. Alternatively Snapchat could sell virtual goods, like some of the online game companies, however this is unlikely to justify Snapchat’s £1.8bn valuation. Unfortunately for Snapchat, their whole model is around the fact that data is never stored. This is set to hinder Snapchat’s success because it means that there is nothing to encourage users the more they use it.Hypothetically, Snapchat users can delete their account and still have their network, as the application relies solely on the user’s address book. If Snapchat cannot keep their users, theywill fail to ‘monetize’ them.

These factors has led me to question Facebook’s strong interest in the two year old company, which would have been their biggest acquisition to date. Facebook has already acquired Instagram, another media sharing application and is planning to introduce a private messaging service within it. This will directly compete with Snapchat in an effort to lure users. On the other hand, Facebook’s bid is understandable to some extent, due to Snapchat’s growing dominance in the picture-sharing market. Snapchat now shares 14% more photos than Facebook. Facebook is simply trying to eliminate the threat of a futurecompetitor. I believe Facebook is willing to pay as much as they need to in order to ensure their longevity and success. But I think Facebook should remain competitive with innovation, not with acquisition. However, no one wants to become the next MySpace.