The founders of Snapchat turned down a $3 billion offer from Facebook. Wow. It feels like déjà vu. Is this yet another overly confident tech company? Or is it really the next big thing for technology and digital marketing?
Everyone in tech and marketing is wondering about Snapchat. Turning down a $3 billion offer from Facebook just seems crazy. Of course, Twitter turned down a $500 million offer from Facebook in 2008 and 5 years later, the market valued the company in its initial public offering at $25 billion.
Just so we're clear, regardless of its popularity, Twitter is still not profitable after 7 years. And neither is Snapchat.
So, why such excitement? It has to do with eyeballs, demographics, and advertisers.
Let’s first take a look at Snapchat and what it does. If you haven’t downloaded this app yet, go ahead and do so. Any company that turns down a $3 billion paycheck is worth checking out.
What is Snapchat?
Snapchat is a photo and video-sharing app for your mobile phone.
So what? You might say. We’ve got Instagram for that. And Vine and Facebook.
Yes, but those photos and videos are permanent. They last forever.
Snapchat is about things that are ephemeral. Any photos or videos that appear on Snapchat disappear within 10 seconds of being viewed, erased forever from the public record.
In a May 2012 blog post, co-founder Evan Spiegel described Snapchat in this way: “We’re building a photo app that doesn’t conform to unrealistic notions of beauty or perfection but rather creates a space to be funny, honest, or whatever else you might feel like at the moment you take and share a Snap.”
If you’re a teenager or young adult, the idea that you can share the silly things you do and leave no trail behind for your parents or potential employers to find – well that’s just irresistible.
So it’s no surprise that the Pew Research Center found that 26% of 18-to-29-year-olds with mobile phones are using Snapchat. By contrast, only 5% of 30-to-49-year-olds and 3% of 50-to-64-year-olds are using it. (Based on previous experience, I expect more 30+ folks might begin using Snapchat in the next couple of years.)
So it’s popular. I get that. But why would marketers be interested in a platform that requires content to disappear after 10 seconds? Why would investors put such a high value on it?
I’m not going to comment on the $3 billion offer (well, maybe I will, later) – or what the founders think it could be worth – but rather on whether the service has marketing potential.
5 Reasons Why Marketers Might Love Snapchat
Demographics. Millennials, aka the coveted 18-to-29-year-old demographic, are a lucrative market. According to Advertising Age, they’re expected to spend $200 billion a year by 2017 and $10 trillion over their lifetimes.
Mobile. According to analyst Mary Meeker’s Internet Trends 2013 report, mobile as a percentage of global Internet traffic is growing at 1.5 times each year. That rate is likely to continue or accelerate. In other words, marketers should pay attention to successful mobile apps.
Messaging. Teens are heavy users of messaging and chat services. I’ve observed that my own teen children use Facebook primarily to chat with their friends, rather than post an update for the masses. So it’s not surprising that we’re seeing a mass migration among teens to messenger apps, like Snapchat. As marketers, we want to be where our audience is, but can Snapchat offer us a way to embed marketing messages into a personal conversation? Well, that may actually be the point.
Brands as friends. Taco Bell was the first major brand to advertise on Snapchat. It asked its followers on Twitter to add it on Snapchat and then promised to send a secret announcement to those who did. The advantage: the brand attracts a highly interested, captive audience and has the opportunity to build a stronger personal relationship over time.
Signal, not noise. Last month, Snapchat announced the availability of Snapchat Stories, a capability that allows users to string together a series of snaps into a single stream that can be replayed for 24 hours before it expires. There’s potential in this feature for marketers who can use it to promote daily deals or specials to an audience that will pay attention.
In addition to advertising and marketing opportunities, Snapchat may also generate revenue by selling virtual goods and games. But is all of this enough to lure marketers and justify a market valuation beyond $3 billion?
I’m not convinced, but I’ll be watching.
Do you use Snapchat? What do you think of it? Share your thoughts in Comments below.