How does a mobile company that doesn’t sell ads or generate revenue thrive to the point that it can turn down a $3 billion buyout?
Well that’s what Snapchat did late this year when Facebook tried to purchase the fledgling company for that startling amount. Clearly, they must have some intel that informs them they’ll wind up being worth more down the road — even though tech companies have a very high chance of busting after an initial surge of public interest.
Snapchat, for the uninitiated, is a mobile app that allows senders to share photos to recipients, who will then get to open and view the image for seconds before it disappears without any record. For example, a person might use this to send sexy pictures they don’t want shared. (The sender can choose how long the recipient can view it, from 1-10 seconds.)
One reason they may see a higher value in their future is because of their audience. Snapchat is popular with a demographic that skews young, largely Millennial. That means they’ve created an incredibly marketable open line with a crowd that many, many businesses would like to tap.
Of course, there’s also the suspicion that founders Evan Spiegel and Bobby Murphy (themselves Millennials) are actually holding out for the opportunity to begin selling ads on their app. They’ve thus far followed in social media’s time-honored tradition of grabbing a big audience before trying to monetize it — but many economics experts agree that the money may begin to sell space as soon as 2014, in their lucky third year of operation.
Hopefully, of course, this change wouldn’t come at the expense of user experience, which is an incredibly important selling point for Snapchat and its many young, tech-savvy users. Of course, knowing kids these days, they’ll just probably build some software around it — or, of course, create a replica alternative of their own instead. Snapchat’s programming is relatively simple. Right now, the company leans on its brand popularity to keep people interested in the product, which would be easy to duplicate by individual programmers or huge entities such as Facebook.
Until then, competition is mild at best — therefore, while the ball is in their court, Snapchat’s founders and investors will need to keep in mind audience engagement as they move into the next advertising-driven steps in their business plans.