In November of last year, Snapchat, the popular “disappearing” photo-sharing app, turned down a $3 billion all-cash buyout offer from Mark Zuckerberg’s Facebook (FB). Evan Spiegel, the CEO of Snapchat who would have personally received about $750 million from Facebook, inexplicably stated, “I think trading for some short-term gain isn’t very interesting.” Furthermore, Spiegel and his co-founder Bobby Murphy revealed to Forbes they had the upper-hand when negotiating with Mark Zuckerberg, as evidenced by Facebook’s eventual release of “Poke” (an app that attempted to overtake Snapchat, but epically failed). Now, however, approximately six months since Snapchat spurned Facebook, reports indicate that Facebook is on the verge of releasing “Slingshot,” another messaging service app that will function similarly to Snapchat. Although Facebook’s previous attempt to challenge Snapchat was a complete disappointment, I believe that Facebook possesses the capital and resources necessary to pose a real threat to the existence of Snapchat. Which raises the question, “did Snapchat make a $3 billion dollar mistake?”
Firstly, one must note that any information surrounding “Slingshot” is nothing more than unofficial reports and speculation. Facebook has not directly commented on reports concerning its “Slingshot” app, or any other developmental app for that matter. Speculation aside, Facebook is one of America’s 20 largest companies, with a market capitalization of approximately $163 billion. Over the last year, Facebook signaled its willingness to acquire promising start-ups (see What’s Up With WhatsApp and 3D-Farmville… & Drones?). Facebook’s two largest acquisitions of 2014 totaled $21 billion, with WhatsApp accounting for $19 billion and Oculus VR accounting for $2 billion. In fact, buying Snapchat for $3 billion would’ve only represented 1.8% of Facebook’s market cap. Similarly, Snapchat has failed to convince investors of the rationale for a $3 billion valuation. For instance, in its latest round of financing, Snapchat raised $50 million and reached a $2 billion valuation. Now that Snapchat is struggling to grow and generate revenues, Facebook must be thrilled that Spiegel and Murphy denied its $3 billion offer.
Regardless, the big question is whether or not Facebook can develop an app that both functions like Snapchat and, more importantly, draws interest from the over 30 million daily Snapchat users. Fortunately for Facebook, there is no current patent that protects the idea of a “vanishing” picture-messaging application. Facebook clearly has the infrastructure and capital to invest in the development of a Snapchat “twin.” Additionally, without any legal barriers, Snapchat’s core idea is open for Facebook to use.
The more significant question is whether or not Facebook can capture Snapchat’s large, young audience. Facebook’s most pressing issue is its slowing membership. Since 2011, more than 11 million high school and college-aged individuals have stopped using Facebook. However, with its massive overall user base, if Facebook were to successfully develop “Slingshot,” it could easily integrate the service into its existing “Messenger” application. According to Statistic Brain, Facebook has 1.31 billion monthly users, 680 million of which use its mobile applications. Given Facebook’s already 680 million active mobile users, “Slingshot” could easily overtake Snapchat if correctly marketed.
Only time will tell whether or not Snapchat, and its owners, made a mistake rejecting Facebook’s $3 billion offer; it has become increasingly apparent that Facebook has the financial, technological, and infrastructural means to release a competitive mobile app. Therefore, don't be surprised if Snapchat disappears in a matter of years.