The instant video sharing service Snapchat is once again in the news. This time it’s about the two 20-something year old founders turning down a reported $3 billion buyout offer from Facebook.
Keep in mind that Snapchat is a three year old company with no revenue and no business plan. The company has been the darling of teenagers who are able to send pictures that disappear once viewed. Earlier on there was controversy about Snapchat being used in the service of sexting. You can insert your own Anthony Weiner riposte here. (BTW, Weiner did not use Snapchat, but probably wishes that he had).
Snapchat is obviously hoping to join the elite ranks of Google, Facebook and, now, Twitter that have joined the pantheon of Internet brands. There’s no other reason why it’s founders would have scoffed at a $3 billion offer. They may have neglected to look at less successful holdouts like Digg and Pointcast. Remember them?
The first question for entrepreneurs, and everyone else, is how much is enough? This deal would leave the two founders more than set for life (or multiple lives). It would also leave them free to go on to perhaps even bigger and better projects. Yet, they’re holding out. They don’t want to leave money on the table. That assumes, of course, that there will be money on the table. Remember, at present, no one is asking them to justify their revenues. Oh wait, that’s because there are no revenues.
Here’s why I think that Snapchat would be wise to take the money and run (or at least to walk quickly). It is not a disruptive technology. It’s cool and popular, but it does not transform the industry or the way we communicate. Both Google and Facebook have done that. They were also making buckets of money when they went public. Not only does Snapchat have to make a bucket of money, they have to figure out how to make a bucket of money.
It is great to have an innovative product, which Snapchat is, to have confidence in it and to want to derive the maximum profit from it. I would say it’s wiser to look at its prospects realistically and to know when to grab the cash.