Now You See It, Now You Don’t: The Rise of Snapchat

POSTED BY Analyst Team
Snapchat, for those who don’t know, is an image messaging service which allows users to send pictures to one another that are erased after 10 seconds of viewing. The iOS and Android app has surged in popularity since its launch in 2011, but has also been constantly plagued with reports that it is primarily used for ‘sexting’ among its core users, however founder Evan Spiegel, 23, has been keen to distance the app from claims of such use. According to the BBC, more than 350 million images (or ‘snaps’ as they are known) are sent daily between users.

According to the Wall Street Journal, Facebook has offered to pay $3 billion for this ephemeral photo messaging service. Much like one of Facebook’s previous purchases, Instagram, Snapchat has yet to make any revenue. However, many believe that the potential for advertising on Snapchat is not the key reason Facebook were keen to acquire the company: In its most recent earnings call, Facebook CFO David Ebersman said that Facebook ‘did see a decrease in daily users specifically among younger teens’.

It’s not hard to speculate why teens are dropping off Facebook – everyone and their Gran now appears to be using the Social Network, which led one TechCrunch reporter to state that kids ‘see Facebook Like Adults see LinkedIn’, reasoning that teens no longer want their daily lives to be permanently documented. According to AllThingsD, Facebook began testing a competitor app to Snapchat in December 2012, although the app was never launched. It seems that Facebook is especially eager to get its hands on the company; the $3 billion offer was made after an initial $1 billion offer was rejected.

The potential for advertising on Snapchat exists, and Spiegel has described both in-app purchases and some form of native advertising as potential revenue generating mechanisms, but has also said that right now that’s not what he is focused on. Others have also pointed out that because Snapchat is mainly used by young people, who generally don’t have a lot of disposable income, advertising on the platform could be inefficient. Further to this, targeting on the platform would be problematic, given that the only information Snapchat has on its users when they sign up is their email address, birthday and phone number.

According to the Wall Street Journal, Spiegel will not consider an acquisition until early next year at the earliest, as he believes that Snapchat’s popularity – measured by the number of users and messages sent – will grow more, justifying an even larger valuation. Let’s hope that Snapchat’s business is more sustainable that the pictures being sent by its users.