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Comparing the Snapchat and Facebook Buyout Offers



November 14, 2013 – Comments (3) | RELATED TICKERS: FB , YHOO , GOOGL

Snapchat has been in the news again, after turning down a $3 billion buyout offer from Facebook. 

I've been wondering the same question raised by many others - how is Snapchat going to make money? Several years ago, when Facebook was offered a $1 billion buyout from Yahoo!, some could at least see the feasibility of integrating advertising into the service. Snapchat, however, brings in no revenue and may have a hard time integrating paid advertising without disrupting the user experience. 

Comparisons with this story have been made to 2006 when Yahoo! reportedly was in talks about acquiring Facebook to the tune of $1 billion. I didn't even get a Facebook until 2008 (Myspace was the place to be for a junior high school student), so I was not even following the Yahoo!-Facebook story in 2006. However, in looking back at some of the commentary on the story from 2006, it becomes apparent that some people had little faith in the future of Facebook, social media, or even Yahoo!. 

If anything can be learned from this, don't rely on comments on when evaluating the future of a new form of technology and social communication. One reader seven years ago amusingly commented on the Yahoo!-Facebook acquisition story: 

You know what? Yahoo will be losing a lot of money if they buy the Facebook. College students move on. Social networking isn't as hot as it used to be.

Social networking isn't as hot as it used to be? Someone said this in 2006

1.2 billion users later... Facebook is now publicly traded and worth more than three times Yahoo!. (Facebook's market cap sits at $119.31 billion versus Yahoo!'s $36.21 billion.) My how much can change in seven years. 

The point of this is not to suggest Snapchat will be a $500 billion company in seven years, but you do not want to underestimate the potential for things to drastically change in a relatively short period of time. Within three years we might have people predominately using wearable technology, such as Google Glass, for communication. Smartphones, as they currently exist, might be obsolete within five years. 7-10 years ago, very few people would have believed Facebook could have grown to where it is today. 

Until Snapchat actually develops a revenue model, however, I join others with both skepticism and intrigue toward the future of the company. I still have a difficult time comprehending how Snapchat even got on the map to receive a $3 billion buyout offer from one of the world's social media giants. Evidently some individuals, who also have the purse strings, see considerable potential with Snapchat. 

What's next, a Snapchat IPO? 

David K

3 Comments – Post Your Own

#1) On November 14, 2013 at 10:32 PM, jiltin (45.91) wrote:

You know what Jerry Young did, leaving 42B offer....?

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#2) On November 14, 2013 at 10:57 PM, EvanBuck (99.93) wrote:

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#3) On November 18, 2013 at 6:56 PM, awallejr (36.09) wrote:

I don't know who is advising that kid.  I would have sat him down and told him to take the $4 billion and then do WHATEVER he wanted.  I actually wouldn't have said that to Zuckerberg with FB.

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