Editor’s Note: Semil Shah works on product for Swell, is a TechCrunch columnist, and an investor. He writes at Haywire, and you can follow him on Twitter at @semil.
In many parts of Silicon Valley and the consumer technology world, the zeitgeist surrounding SnapChat is undeniably the talk of the town. In a way, it has been for most of 2013. I wrote a post on SnapChat’s rise in February 2013 and it generated an intense level of feedback. A seemingly small, unassuming outfit which builds a social, mobile application from the shores of Venice Beach, the company has grown into one of the world’s most dominant photo-sharing services, has reportedly turned down billions in acquisition offers from some of the world’s most powerful technology companies, and in a complex yet simple manner, continues to extend its brand as the hyper-growth symbol for the anti-web, anti-Facebook, anti-permanent network.
While few deny SnapChat’s growth and engagement, plenty are skeptical regarding the number of zeros tacked on to the company’s valuation as this year unfolded. Common refrains include “they have no revenue” and “it’s a frothy environment” and “it’s a bubble” and “they’re stupid for not selling and taking the money.” Yet, it wasn’t too long ago that another hyper-growth photo-sharing service was acquired for a handsome sum by one of the largest technology companies. At that time, a small chorus did want Instagram to remain independent to see if it could unseat Facebook. The majority of the crowd, however, realized that a team of under 15 could build a billion dollars worth of value in a few short years — “take the money and run.”
In 18 months from Instagram to SnapChat, we find ourselves with a bit of hypocrisy.
Scores of Internet-famous startup “gurus” constantly peddle their theories, bemoaning founders and investors who help create more social media properties, more photo-sharing services, and more new companies which don’t start out with lofty ambitions. The implication in this line of criticism is to suggest that there are too many companies getting funded going after the same, small problems, a cycle which stifles innovation. Then, when valuations creep up, especially in the absence of a clear revenue model and/or for services the chattering class in technology doesn’t often use themselves, we hear more criticism about the frothiness of the market, how SnapChat will never be able to sell a proper ad unit, and how the company is overvalued on paper given all the hype surrounding the technology sector worldwide today.
The Instagram team is applauded for taking the quick exit over playing the long game. They could have potentially turned their little toy into something potentially bigger than Facebook. I tip my hat to them, no doubt. The SnapChat team is, on the other hand, often the subject of public scorn and perhaps a bit of jealousy as they brashly play a high-stakes game of courting acquisition or investment and turning up the heat. “Of course, SnapChat should take the money and run.” “It’s hard enough to build and distribute a great product, let alone slapping a robust business model on top of one.” “If SnapChat rejects these offers, they’ll have to go it alone and may flame out.”
All the chatter and pontification in the world does not change some hard facts. SnapChat and other big, growing mobile messaging platforms such as, but not limited to, Line, WeChat, Whatsapp, Kik, and others are all in the middle of a high-stakes, lucrative mobile land grab. Regardless of “how” these new networks grew to such large scale, the fact remains mobile growth only continues to march on, unbundling and fracturing the concentrated graph Facebook has collected on the web. It’s not hard to imagine a future where mobile messaging apps become the predominant platform for new mobile products and services, distribution and commerce. In the eye of the storm, it’s nearly impossible to model what these apps are worth on paper — that can only be determined by the market, and in the case of SnapChat, if the reports are true, it is worth somewhere between $ 3-4Bn.
It is more precise to say that SnapChat is worth $ 3-4Bn to Facebook, or to Google, or to Tencent. Each potential acquiring company is playing a slightly different game, but their strategies all converge at the same place — in the palm of our hands. Tencent, which owns WeChat, may view SnapChat as a key piece on its chessboard; Facebook may see SnapChat as a potential runaway freight train that needs to be bought and killed; and Google may either want to bolster its mobile portfolio, or simply just get under the skin of its social network rival.
Dollars and sense aside, the larger question for me revolves around the emotions and confusions a company as seemingly simple as SnapChat can arouse among so many. The crowd wants more big ideas, more founders attacking real problems, and more investors and entrepreneurs who align incentives to build for the long-term. Yet, when a certain amount of cold-hard cash is put on the table and rejected, the crowd reaches its reserve price and calls into question the rationality of such a decision.
And, herein lies the rub. Entrepreneurs often play a series of complex, concurrent, nuanced games. Entrepreneurs often don’t have a reserve price when momentum is at their back and probably aren’t economically “rational” in the way most of us believe to be sane. In dramatic instances such as these, I go back to the silver screen — in this case, to Heath Ledger’s immortal performance as The Joker, who in one scene lectures a greedy criminal while setting his own cash bounty on fire: “All you care about is money…It’s not about the money, it’s about sending a message.” Unlike its photos which expire, SnapChat’s recent message has an aura of permanence around it, reverberating through startup technology circles and trickling into the mainstream consciousness. By publicly rejecting latest eye-popping Facebook’s offer, SnapChat reinforces its anti-Facebook message and simultaneously taps into our collective imagination and disbelief, exposing a hypocrisy in the charlatan mantras, the greed in the crowd’s thirst to make sense of valuations, and the insecurity in the harsh reality that a little app which appears to be a simple toy “could” potentially grow so large by riding the biggest technology platform wave of our lifetimes, it could render the giants before it obsolete.
