Is Snapchat worth more than $3 billion?

Here's why Snapchat may have turned down Facebook's seemingly generous $3 billion bid.

Forrester Research

If you believe the idiom "a bird in the hand is worth two in the bush," then Snapchat believes it will be worth more than $6B to a future buyer - or the public through an IPO. The service is appealing not just for the UI, but also for the limited time the content is stored. That appeals to me as a middle-aged adult let alone a teen with poor judgement who may be applying for college or a job in a few years. We've probably all felt awkward at some point about something someone posted. 

If you believe the movie, "The Social Network," Mark Zuckerberg was also advised to turn down early offers. Remember the shockwaves that rippled down the west coast when Microsoft invested $240M in the fall of 2007 for what is now a 1.6 per cent stake or $1.36B valuation?

I am not our social media expert. I am also not our primary mobile marketing expert though I've covered it extensively at times. This POV is from a mobile analyst who has spent a lot of time looking at social networks on mobile devices. 

Here's what we do know:

  • There are about 7 billion people on earth 
  • 6 billion of them have mobile phones
  • 1 billion (and growing) of them have smartphones with nearly 400m of those in China
  • People communicate, consume media and transact on mobile phones - in that order
  • Mobile phones sit at the core of our social graph. We create photos and we share good times with friends. I don't often post while I am sitting at home working. I post when I am out and about doing fun things that I want to share. 

What drives a $6B valuation beyond pure speculation, optimism and wishful thinking?

You have to believe that marketers and advertisers will increasingly turn their attention - and their spend - to mobile apps like Facebook, WeChat, SnapChat, WhatsApp, Kakao, Celltick .... mobile apps where consumers spend a disproportionate amount of their time. 

For marketers seeking reach, few mobile media properties can top what this collection of social networking, sharing or instant messaging applications offer. Consumers flock to apps like WeChat for the features. Apps like WeChat rock it compared to the typical experience directly on the platform. AND ... they do it on the 2G/Edge networks that billions of consumers rely upon around the world who don't have inexpensive data plans like we do in the US. Sure - I can't imagine life without 4G. Most of China is still waiting on 3G. 

WeChat went from zero to more than 400m users in less than two years. That is mind-blowing growth. Are they monetising it? Not really - a little. Like many apps, they are being protective of the user experience. They allow consumers to subscribe to channels or opt in to receive messages and content from brands. They limit the direct or untargeted access that brands have - if they have it at all. These apps start simple - instant messaging or photo sharing or story sharing ... but before you know it, the audience is so big that marketers are embedding commerce and marketing into these apps (along with their own) because that is where their customers are. It makes sense. (And my colleague Melissa Parrish offers a deeper dive in this research.) I placed a take-out order in a restaurant in WeChat in Beijing. Yeah - no limits. 

If marketers create great content, contests (Nike - badges chance to meet LeBron James), give away's (Starbucks - sent songs to 270,000 people who told them how they were feeling over a 4 week period) (Source: Adage), etc., there is no medium that goes viral faster than mobile - just by the ease of sharing and number of people with mobile devices. It's hard to get consumers to download your app. As Melissa says, if you can't get that done, ride on someone else's. 

Why does Facebook make a bid for Snapchat?

I am not privy to that insider information. I would offer a few ideas:

Why did ABC buy ESPN? or Disney? What do media properties buy one another? Maybe scale. More likely - reach to a new audience defined by age, interests, geography, etc. More and more media minutes are being spent on mobile. The dollars haven't followed - enough, but the growth trajectory is attractive. 

Mobile offers phenomenal targeting capabilities based on the context mobile phones offer. You need a huge audience, however, to slice it and dice it in ways that take advantage of the targeting. Targeting today on mobile devices is limited relative to potential. 

The more a consumer uses an app, the more you learn about that user and the more relevant you can make your services. The more services, utility or value you offer, the more minutes you get, the more you learn, the better you serve, and then you can better target or offer relevance. Just because the content isn't saved, doesn't mean the learnings aren't saved. 

And remember - while folks mostly are thinking of marketing on these apps, there is also commerce - small today, but it's there - so don't ignore this phenom eBus pros

There could also be some technology, patents and people in the mix - but less likely though possibly to be the drivers of billions in valuation at an early stage. 

The founders most likely have a belief or a vision of great things to come - it's at the heart of why entrepreneurs do what they do. 

Julie Ask is an analyst at Forrester Research. 

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