SnapChat Spurns $3Bn Offer

So Facebook offered $3 Billion to buy SnapChat, which has no revenue, and SnapChat refused the offer.

People have been asking me "Why? Are they crazy?!"

SnapChat thinks they have the next big thing. And quite honestly, they just might.

Indeed, they may have a business that could be valued in tens- or hundreds-of-billions of dollars. So to them, they feel like they’d be selling out too early at $3Bn. They think they’re the next Twitter or Facebook themselves. That’s the first reason that they spurned Facebook, and the one most publicly stated.

The second reason is culture. They’re concerned that if they sold to Facebook, that Facebook could potentially kill their business, and at this stage of the game it's still "their baby." Witness nearly anything Microsoft buys — it instantly loses its cool factor.

Step back and think about brands for a minute. For example, Apple is seen as hip and cool. Microsoft may own the PC business behind the scenes, but the brand is geeky and uncool. Apple is driven by design. Microsoft is driven by software engineering. Every time Microsoft acquires a company, their stink rubs off on it and the acquired brand becomes uncool by association. Microsoft can’t just “own” a business either, it needs to Microsoft-ize it, and fiddle with it, and often times break the very things that made it successful in the first place. Not that I can blame them - if I paid billions for a company, I’d want to leverage it, make it work for me, and get my stink all over it too!

In the case of SnapChat, teens are fleeing Facebook for a reason. Two reasons, actually.

First, because mom and dad are on it now, and it’s stifling. A site that started off on college campuses is now the domain of the middle-aged mom and dad. Kids don’t want to be posting photos of their latest keg stands at homecoming parties, with mom and dad grabbing them by the ear and berating them.

Also, once you post on Facebook or Twitter or Tumblr, etc. it’s “out there." Forever. SnapChat is brilliant in that once the recipient sees a photo, it disappears. No object permanence. So kids can post their jerky stuff and not worry about it coming back to bite them later - a minute later, it’s gone. This is brilliant as a tech platform because they don't need storage for all the content (photos and videos) which keeps costs down. But more important is the net effect for end users -- it is built-in privacy for teens’ overly dramatic social interactions. It lets kids be kids again, and not have to worry about ramifications. And it’s outside of mom and dad’s prying (and unapproving) eyes.

SnapChat is therefore concerned that selling to Facebook could end up alienating their user base if Facebook decided to start integrating them into Facebook proper, and killing the very thing that made it so successful in the first place.

For my two cents, I understand the concept of leaving money on the table. Look at Facebook’s valuation now as a public company versus if they would have taken $50 million and $100 million buyout offers in the early stages. Even the much-publicized spurning of Yahoo's $1Bn offer seemed crazy. Yet Facebook's market cap is now $112Bn. But there’s a point of diminishing returns. $3 BILLION dollars is a ludicrous amount of money for a start-up with no revenue. Teens are fickle and follow the next big thing. A certain 23-year-old could find himself feeling like the guy with two immunity idols who got voted off the island.

If it were me, I’d take the money and run.