Internet titans are seemingly going nuts over Snapchat, a two-year old startup whose core product is a self-destroying messaging service.
Earlier this week, the Wall Street Journal reported that Snapchat turned down a massive $3 billion acquisition offer from Facebook. At the time, market watchers commented that paying so much for a company with $0 revenue would be a massive mistake for Facebook. For comparison, Facebook acquired Instagram, the popular photo sharing service for close to $1 billion at the beginning of 2012, while Marissa Mayer’s Yahoo paid $1 billion for blogging site Tumblr in another high-profile transaction this year.
But Facebook isn’t alone in its interest for Snapchat. Om Malik, the respect founder of GigaOm, first tweeted that Google offered Snapchat $4 billion:
— Om Malik (@om) November 14, 2013
Then ValleyWag filled in some of the blanks, supposedly from a different source: Snapchat first received an investment offer from Chinese Internet giant TenCent, that valued it at between $3 billion to $4 billion. CEO and co-founder Evan Spiegel reportedly turned down the offer and went to Facebook, which had previously expressed interest in the startup.
The social media giant offered $3 billion ($3.5 billion according to ValleyWag), but that wasn’t enough for Spiegel, who then requested “strategic investment” from Google. The maker of Android supposedly offered $4 billion for Snapchat, but ultimately, Spiegel decided to wait, hoping that he would get even more if Snapchat increases its user base over the winter.
Keep in mind that this rumor hasn’t been confirmed from reliable sources and that all the talk about sky-high valuations is hugely beneficial for Snapchat, at a time when the company is looking for investors.
Is Snapchat worth it?
So, why would Google or Facebook shell out so much money for a service that doesn’t have any revenue, never mind profits?
Facebook’s biggest problems are slowing growth, decreasing interest among young users, and the transition to mobile. Acquiring Snapchat, which is growing explosively, is hot among teenagers, and is mobile-only, seems like a good way to energize the aging social network.
Google doesn’t even have Facebook’s position in social media, despite huge efforts to turn Google Plus into a viable alternative. According to ValleyWag, Larry Page’s company admits that “Facebook has proved against Google that it’s better at social and consumer products.” So for Google, Snapchat could be the shortcut it needs to get ahead of Facebook in the all-important social race.
The problem with all this crazy billions talk is Snapchat is just one of many hot messaging apps. If users, fickle as they are, decide that a competing service is hotter, the explosive growth could turn into a fizzle overnight.
Is Snapchat really worth a third of Motorola? What do you think?