Snapchat Rejects $3B Offer—What This Says about Tech Startups Today
What company would turn down a three-billion-dollar cash acquisition offer from Facebook? A better question: What twenty-three-year-old head of a fledgling company would turn down that offer?
The answers are trendy messaging service Snapchat and its young CEO and cofounder, Evan Spiegel. And the likely reasons for rejecting Facebook's offer are interesting.
First and foremost is that, believe it or not, Spiegel probably thinks he can get a higher price. Even though Snapchat—which lets users send photos and messages that disappear after a few seconds—started a craze, the app doesn’t make any money. Spiegel has said he’s not likely to consider an acquisition or investment until early next year.
However, between now and then, he’s banking on Snapchat gaining more users, messages, and worth. Already, Chinese e-commerce company Tencent Holdings has offered to lead an investment that would value the app at four billion dollars, according to The Wall Street Journal.
The (not-so-quickly-disappearing) message here is that unlike in the past, today’s mobile technology offerings don’t need a big parent company to become successful. As Joshua Brustein wrote for Bloomberg Businessweek, “In other words, Snapchat can grow without Facebook’s help. This means that Facebook has to compete on equal footing with each novel form of communication that comes along.”
And speaking of the one-time suitor, another reason Spiegel may have rejected the offer could be Facebook itself. With the desirable teens and twenties set, Facebook just isn’t cool anymore—after all, parents and even grandparents use the social networking site. Snapchat, however, is only two-years-old and is still a niche service for young people. Everyone knows about Facebook; Snapchat is a little more underground.
Facebook’s ubiquity has worked to its advantage, as it’s now lucrative enough to try to buy any up-and-coming social network that’s threatening to lure away its users. But Snapchat has the cool kids, and it looks like it values its reputation.
The trouble with being in with the cool kids is that while their favor is worth a bundle, it’s also fleeting. Snapchat could continue on its rise in popularity, and Spiegel may get lucky enough to sell at its apex. Or the app could crash and burn without ever making a cent.
Either way, Snapchat is a great example of the meteoric rise today’s tech startups can have, as well as what can happen when they get huge and have some options. Entrepreneurs are no longer jumping at the chance to be merged with or acquired by large, established companies. These days, startups can get the resources and attention to grow without help, so why not do it on their own?
