How Snapchat Could March Startups Right Off the Cliff, Lemming-Style

Nerval's Lobster writes "Two investors are Tweeting that Instagram, had it stayed an independent company, could be worth between $5 billion and $15 billion today. That's led to talk of whether Snapchat was right to (reportedly) shoot down Facebook's bid of $3 billion for its business, considering its growth and sizable user base. Snapchat's founders evidently think they can score a better deal within the next few quarters. If they manage to sell their startup a year from now for twice as much, they'll be lauded as extraordinarily smart businessmen—perhaps smarter than the folks at Instagram who sold for a 'measly' $1 billion (and all this despite Snapchat making no revenue). But for other startups in the space, the Snapchat and Instragram stories won't do them much good. Propelled by dreams of ever-increasing millions (perhaps billions!) startup founders could end up turning down perfectly good acquisition offers in favor of continuing to bootstrap — and find their businesses eroding and imploding, as the market for their particular app or service either fades away or (more likely) ends up crowded out by competing software. The startup market is a shark-tank, and most of those who don't get out of the water as soon as possible are eaten, dreams of grandeur or no."

Comments

Oh, dear.

[Ralph Spoilsport]

Business is complex. Making the right decision to sell at the right time to parasitically extract money from the vector capitalists is fraught with peril.

Headlines from Captain Obvious.

Re:Oh, dear.

[Moheeheeko]

"One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley." - Louis Winthorpe III

Re:Oh, dear.

[dkleinsc]

Up to a point, yes. But I'd also factor this in: If I'm a startup founder and am ever in a position to hold $50 million, I could take that, invest it relatively sanely in the stock market, and be living extremely comfortably for the rest of my life. There's such a thing as "enough", and there's no particular reason to press your luck when you already have it.

Re:Oh, dear.

[mythosaz]

I have a friend that was offered 1M to walk from a business in 1990.

The only thing the 1M offer convinced him was that it was clearly worth more than 1M, so he held on, and today has nothing.

Wisdom now is to take your 1M and get some percentage of the future action, so when you're terribly wrong, and it's worth 1B instead, you don't have to kill yourself.

Re:Oh, dear.

[bloodhawk]

yes that is the part I don't understand. If they were holding out because they would only be making a small premium on there investment I could understand. But they would be making a massive amount of money leaving them all very rich, why the hell would you hold out for more in such a fickle market as social media where in a few short months they could end up begging to be given a fraction of the original offer. Sure they might get more, but such insane greed makes no sense when they might also get nothing.

Re:Oh, dear.

[paiute]

The lesson in most cases is to take the million, walk, then buy back your old company for pennies on the dollar in a couple of years.

Re:Oh, dear.

[Anonymous Coward]

There's such a thing as "enough", and there's no particular reason to press your luck when you already have it.

This.

The only viable business plan is to get acquired. In the long run, all businesses go back to zero. Even stalwarts of the Dow - good blue chip names like the American Cotton Oil Company, Pacific Mail Steamship, Studebaker, Bethlehem Steel, Sears Roebuck & Company, and Eastman Kodak, are no longer with us in recognizable form.

If for some reason it's personally more important to you to be a founder/CEO than it is to actually make money, you still have an obligation to your shareholders to sell the damn company, take the money, and go found another one.

Re:Oh, dear.

[rudy_wayne]

Instagram, had it stayed an independent company, *COULD*could be worth between $5 billion and $15 billion today.

The important word here is "could". The truth is, Instagram pulled off an amazing scam and they were smart to just go for it.

-- Instagram takes $50 million from investors and gives them 50% ownership of the company
-- 3 days later, Instagram, which has 13 employees and zero revenue, agrees to be bought by Facebook for $1 Billion
-- Investors see their investment go from $50 Million to $500 Million overnight
-- The founder of Instagram gets half a billion in the process.
-- PROFIT!!

What's not to love?

Re:Oh, dear.

[Sarten-X]

For perspective, $1 million is like having a $30K salary for 30 years* that you don't have to actually work for, while you can continue to work on other projects or more fun jobs. With a "regular" job that pays the bills, $1 million is a pretty luxurious two-week vacation every year for fifty years. With a healthy retirement plan already in place, $1 million is a decent second home on a lake somewhere, with a savings fund to cover the upkeep. As a point on a résumé, $1 million is a pretty bold statement that you have enough dedication and business sense to get an idea off the ground, and enough creativity to bring good ideas to a prospective employer.

I'll take the million, thanks.

* 20 years after taxes, if you won't spend the few thousand dollars to get a good accountant to avoid those.

Re:Oh, dear.

[retroworks]

Didn't you read the summary??? Two investors sent TWEETS!!!! Case closed.

Re:Oh, dear.

[Jah-Wren Ryel]

There's such a thing as "enough", and there's no particular reason to press your luck when you already have it.

The snapchat founders have been able to monetize their situation such that they've already got at least 10 million in the bank. That's enough "FU money" to press their luck and ride this thing all the way to the end, glory or otherwise.

Re:Oh, dear.

[Anonymous Coward]

You are right; SnatchChat (damn autocorrect), I mean SnapCunt (damn autocorrect), SNAPCHAT - there, got it right - will be a MySpace in a few years. Sell at the top. Not at the bottom.

Re:Oh, dear.

[able1234au]

$1 million at 3% is like having $30,000 for ever

Re:Oh, dear.

[asmkm22]

People like that generally aren't driven by the desire for "good enough." What makes sense to you seems trivial to them.

Le Pop!

[bob_super]

Remind which which date we have agreed on for that bubble to pop?

Re:Le Pop!

[bob_super]

Nah, that one is evident. $3B for a competitor with no revenue, after $1B for a competitor with little revenue?

Lemming-Style...

[Hsien-Ko]

You mean like programmed by a bunch of Scots and saturated ports of other platforms taking the world by storm eventually being bought up by a larger entity to rot on with half-assed iterations through third-party developers?

frat bro's

[globaljustin]

Snapchat was made by frat bro's who royally screwed the guy who did all the real work.

A *real* tech thought it up and made it, then his rich friends stole his idea...

An idea for a way for people to send drunk videos to each other w/o consequences, which the frat-bro's took to the logical place they would, which is to drunken college girls...

**that's Snapchat**

Facebook.com offered $3Billion b/c facebook.com is *hemoragging* young users & it will do anything to buy other system's users (ex: Instagram) for them to vampire the life force from for advertising profit

that's it: facebook.com wants to buy Snapchat's users

all the noise about 'IPO valuation' is absolutely standard issue tech-bubble startup stuff that **we all know** how the cycle goes!

snapchat is only good as long as drunken hotties use it to send consequence free drunk selfie videos

Re:frat bro's

[kamapuaa]

It's not rich frat bros using their money to push out the real developer, that's not what's being argued. The two central developers presented and developed the program for a class at Stanford University. The third guy (from the same frat) is arguing that he had a hand in further development, and that he came up with the old name of the business that's no longer in use. Whether that entitles him to a third of the business is a legal matter that relies on what contracts were signed or agreements were made, but that's hardly the narrative you're pushing.

SnapChat founders are idiots.

[RightSaidFred99]

If Facebook offered them that much money, they are complete nimrods to turn it down.

Maybe they didn't think that the alternative is Facebook (and maybe others) dropping a cool $1B on a similar app of their own that better integrates with existing social platforms. Wonder how much their company will be worth then?

Idiocy. Greed and idiocy. Will be hilarious if they can't even sell for $0.5B in 6 months.

Re:SnapChat founders are idiots.

[Seumas]

Instagram and Snapchat are two examples of how there is no such thing as a stupid internet idea. Or, rather, there are plenty of stupid internet ideas, but they'll make billions anyway.

Overvalued?

[lymond01]

I'd like to see the numbers on ad revenue/data selling revenue for these services. I have a hard time believing that instagram, with its miniature, completely ignorable ads, would ever truly be worth $5 billion. This is what is terrible about "value" these days -- it is turbulent. Houses are bouncing back -- our house gained $100K in one year. Do I think it's worth that much? Not at all...but a lot of people do, so there it goes for no other reason than many people think it should be worth more. Price of wood, stucco, tile hasn't gone up 50% that I know of...

I suppose it's not advertisement so much as selling the information from the userbase to other clients. Those are the dollar amounts I'd like to see -- not so much what ads are directly bringing in, but what other companies are buying access to. "Hmm...Instagram user ou812 has a linked Facebook account under David Lee Roth with lots of pictures of banjos, cows, and hair replacement techniques. We can sell his info to [insert companies here] for $X."

Or something.

Years #1 morons.

[Anonymous Coward]

Snapchat founders are the years stupidest people. By a wide margin.

3 billion. for a stupid chat program... 3 billion!

You turned down 3 billion. Your program makes nothing. 3 billion for nothing.

Thats the ultimate great deal. And you said no...

Now line up so we can slap you. 3 billion times.

Why is SnapChat even a thing?

[GoodNewsJimDotCom]

Snapchat should have sold. The entire idea should die to hackers making a buck when Snapchat becomes big. Can't someone make a hack to permanently store the data? Outside of a little encryption breaking, it shouldn't be that hard to do. And I'm sure there are ways to dodge encryption breaking even if you'd have to go a hardware button where when you press it, the video memory gets saved.

Re:Why is SnapChat even a thing?

[Connie_Lingus]

" Can't someone make a hack to permanently store the data?"

yeah...its called using the screenshot function of your phone to capture the pic while its there.

Re:Why is SnapChat even a thing?

[Algae_94]

You're making this too difficult. There are numerous apps to store SnapChat messages in the Play store. I imagine the same is true for other platforms. All you need to do is a screen grab. Don't bother with encryption functions, etc. Your client has all that to show you the original message. Just take a screen grab before it disappears.

Is there some crazy patent that SnapChat has? Why again couldn't Facebook or anyone else build "self-destructing" messages for well less than $3 billion?

Re:Why is SnapChat even a thing?

[ColdWetDog]

As has been pointed out, Facebook doesn't want the software, the want the victims^Husers.

Whether several million drunk college students are worth billions of dollars is another deep and unanswerable question.

Maybe the market is tired of this type of startup?

[mlts]

We have gone through a first round of startups which were actually pioneering, back in the dot com days.

The next boom are startups which really don't offer much in the way of breaking ground. What they offer is the fact that their customers and their product are totally different groups. FB, Twitter, SnapChat, and many more follow this model.

The problem is that there is only so much money advertisers will pay, and only so much data they can squeeze out of their subscribers before they give the middle finger and move on. This is a bubble waiting to happen, because long-term, there isn't really any product, and their services are essentially fungible. Someone else can come out with a virtually identical service and wrest the userbase away, just like Facebook wrested MySpace's userbase away.

I can understand why people invest in these companies on the short term, but long term, what product do they have over time? Cable at least has fiber in the ground guaranteeing they will be around. Same with wireless providers and spectrum.

Those that don't learn from history...

[hirschma]

The original "but we're worth so much more than they're offering" dot.com story...

http://en.wikipedia.org/wiki/PointCast_(dotcom)

How many have their been since?

Making change

[TheloniousToady]

They'll be lauded as extraordinarily smart businessmen—perhaps smarter than the folks at Instagram who sold for a 'measly' $1 billion (and all this despite Snapchat making no revenue)

This billions-for-no-revenue thing reminds me of "The Change Bank" commercial that appeared on Saturday Night Live years ago:

A lot of people don't realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels - we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You'd be amazed at the variety of the options you have....All the time, our customers ask us, "How do you make money doing this?" The answer is simple: Volume. That's what we do.

Heh, Lemmings

[readacc]

Oh no!

*pop*

Or as I used to end up doing...

*pop**pop**pop**pop**pppooopoooppppppppppppppp [Amiga stutters]

"enough" is not the end goal for these guys...

[schlachter]

They are not looking for "enough" money to sip drinks at the beach. They are looking to ride the crazy train and steer it along for as long as they can...and selling out to a company at any amount takes them out of the driver seat. And if the shit really hits the fan and things take a dive, they'll still be able to off load their once $3B company for a couple hundred million which is certainly "enough" in failure mode.

Lemmings Don't Commit Suicide

[rubycodez]

Lemmings don't commit suicide by cliff or any other means, Disney actually rigged up a turntable to fling them off cliff for their "documentary" White Wilderness

'publicly presented' = nothing

[globaljustin]

How is it that he developed the app, if it was publicly presented by somebody else?

hey, AC...it's actually really, really easy for one person to develop something and another 'publicly present' it ;)

it happens every day in the tech industry

the link shows alot more than what you listed...it shows the other two acknowledging the truth that the one guy had the idea for the messages disappearing...

you ignore that, which is the crux of the whole thing...b/c the disappearing messages is **the only reason anyone uses Snapchaat**

people use Snapchat b/c it disappears...everyone acknowledges on paper it was the one person's idea...end of story

as far as 'publicly presenting'...that and two bits and you have a quarter....'publicly presenting' is **exactly** the bullshit hype language that people use to justify huge stakes in things they did not make or contribute to intellectually

stolen vs borrow

[globaljustin]

just about every idea is, or was stolen from another company, or several companies

I wanted to address this b/c there is an important distinction to make...however I don't have any argument against your greater point

Regarding ideas & the stealing thereof...you are right in a sense, but I make a distinction between *borrowing* & *stealing*

B.B. King did a commercial for some dumb credit card (AmEx? can't find it on youtube) back in the early 2000's and he said something to the effect of, "My advice to young musicians today is, if you love music, find what you like and listen to as much as you can of it, then learn to play an instrument, and then if you want to write your own songs, go ahead and borrow a little"

All the greatest creative types can list (usually with affection) their list of influences

Same goes for internet sites.

facebook.com was (and still is) *better* than any alternative from an everyday user perspective...there's no honor in their title, but they get it nonetheless

I don't begrudge Zuck & Co for borrowing ideas from other sites at the time. Hell **WE ALL KNEW IF SOMEONE DID IT RIGHT IT WOULD BE HUGE** Credit them for having the coding chops to make a functional system and the discipline to *keep ads away*...they did that part right.

Zuckerberg & friends had wealthy parents to support them in the weird interim between starting the site > getting users > monetization. The way Zuck punked the Winklevoss'ses's is kinda funny but morally, ethically, and legally wrong, but they had their settlement.

No, today, what makes Zuckerberg and facebook.com awful isnt a stolen idea like Snapchat was stolen from its creator. Instead, Zuckerberg is evil b/c he has perpetuated the business philosophy that tech must profit from users **by taking their privacy for profit** and **bottlenecking features**

Facebook.com's IPO says explicitly that any legislation or policy that gives users control over their data is a threat to business profits. That's it in black and white.

Zuckerberg is the new Gates.

Snapchat was stolen.

Re:Snapchat is like google, and it will go big

[__aaltlg1547]

No it won't because Snapchat's popularity is directly due to its simple UI and lack of ads. There's no way to put ads on Snapchat without being obtrusive and diminishing the quality of service. Do that and they will be instantly replaced by some new service that does what they used to do before they tried to monetize your fun. SharePix or something.

Google's serving up ads to the side and even among search results is actually part of what people want to use Google for. If I'm searching for "sweaters" there's a damn good chance that what I'm really doing is shopping for clothes. So ads for sweaters and other things that I might also be looking to buy based on my search terms are part of what I expect to see.

Compare that to Facebook ads. Facebook ads on the sidebar don't bother people much. But ads in the news feed and sponsored links with their friends names on them really annoy users. So far, not so much that FB users have abandoned the service. They keep it at a level where it's moderately annoying but won't actually change users' willingness to use the service.

Coulda woulda shoulda. Or: duh

[wonkey_monkey]

Two investors

Wow, two! One might just be a crazy person, but two? This I gotta see.

are Tweeting that Instagram, had it stayed an independent company, could be worth between $5 billion and $15 billion today.

Or it could be worth nothing. Or monkeys could fly out of my butt.

considering how its growth and sizable user base.

I think you accidentally a verb.

Propelled by dreams of ever-increasing millions (perhaps billions!) startup founders could end up turning down perfectly good acquisition offers in favor of continuing to bootstrap — and find their businesses eroding and imploding, as the market for their particular app or service either fades away

So what you're saying is, business is risky? Prices may go down as well as up? Terms and conditions apply?

Well, no shit.