Why Snapchat wasn't crazy to rebuff FacebookNovember 13, 2013: 2:33 PM ET
Snapchat turned down a $3 billion buyout offer from Facebook. And that's okay.
Most interesting is the question of how Facebook's interest is impacting Snapchat's plan to raise new capital at a big valuation (a deal that likely will include more founder liquidity). One theory is that it's an effort to make Zuckerberg increase his offer, by showing that others believe the company is far more valuable than his opening volley. An alternate – and more likely – theory is that this raise is to eliminate any temptation to sell the company, both for the founders and early investors (who may also get some cash back).
Well, it seems to have been the latter.
Facebook's original offer was said to be for between $1 billion and $2 billion, but today the WSJ is reporting that Zuckerberg later raised the stakes to $3 billion. And was still rebuffed!
At first blush, it seems ridiculous. A pre-revenue company founded less than three years ago turns down a deal that would value it at 3X what either Instagram or Tumblr got. Or at up to 3X what Zuckerberg originally agreed to take from Yahoo (YHOO), before Yahoo mistakenly got cold feet.
But there is some precedent. Groupon (GRPN), for example, famously shunned a $6 billion offer from Google (GOOG). And, as we recently learned from Nick Bilton, it seems that everyone from Zuckerberg to Al Gore has tried to purchase Twitter over the years.
More importantly, Snapchat and its investors seem to believe that this company is the next generation of social networking -- not an add-on to the dominant incumbent. Snapchat is about immediate/disposable communication, not permanent record-keeping.
Yes, some of that means sexting. But think about all of the conversations you had as a teenager that you wouldn't have voluntarily put out for public consumption (not only for your parents, but even for many of your friends). And, for millennials, a lot of that communication comes via photo, rather than via voice (or even text -- save, perhaps, for a quick caption).
Plus, there are some tangible concerns that go beyond personal relationships:
In other words, Snapchat is providing its users exactly what existing services like Facebook and Twitter and Tumble are not. Not surprisingly, some people close to the company say that Snapchat's depth of engagement is off the charts. Sure the core technology itself is fairly simple. So is Twitter's (TWTR) -- a company that also wasn't monetizing 2.5 years into its existence.
To be clear, I don't use Snapchat. But I am beginning to understand the hype. And maybe, just maybe, why it was comfortable walking away from $3 billion...
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