Turn Down a $3 Billion Offer? Dumb Move, Snapchat
Business isn't just about counting dollars. Anyone who's really been in it--any entrepreneur--knows that is true. Yes, you need to make money to grow the business and it's great to do and get what you want, but usually there are other factors at play--like the thrill of taking on the competition, the idea of creating something, the pleasure in seeing your idea take off.
So, it's not hard to understand why a company might not want to sell. You're enjoying the process, plus you want to do business a particular way, and a big company might shatter what you've achieved in the quest of scaling it or making things more profitable.
But there is holding to principles and then there is doing something really dumb. When Snapchat reportedly turned down a $3 billion acquisition offer from Facebook, it was squarely in the latter camp.
If you need any evidence that there is a bubble attitude bouncing along in tech these days, this should do the trick. To be fair, maybe it's a matter of keeping faith with users. Co-founder and CEO Evan Spiegel helped start the company to give people a way of sharing photos and videos that would not sit forever archived in the vault of some behavioral marketing fanatic like Facebook. One could hope.
Then again, maybe the reluctance came because "Snapchat is being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent Holdings had offered to lead an investment that would value two-year-old Snapchat at $4 billion," according to the Wall Street Journal story. Apparently they hope that a growth in users and messages sent among them could drive the value even higher.
The Value of Disappearing Messages
There's lots of money flying around, looking for a home out there. But at some point founders need the grounding of some realism. Market value is a funny thing because it's based on what people will pay for an item. Sometimes they are sensible and frugal. Sometimes--with Dutch tulip madness in the 17th century or in the dot com bubble not so long ago--people pour money into something that a more objective look would suggest was a waste.
Maybe Snapchat's decision was driven by Twitter's IPO. "Hey, if you can do that with 140 characters, think of what you might do with photos and videos that self-destruct!" The company already has attracted many millions in users and investments.
But right now there's no ad revenue, and getting it would be tough. When messages disappear in seconds, you're not giving advertisers much opportunity to connect with people. And there's no reservoir of information about users that the company can mine and offer, in various ways, to marketers.
Could Snapchat eventually become so big that $3 billion would seem like spare change? Maybe. Or it could become a Groupon, that had its ups and downs and is now worth more than the $6 billion Google reportedly offered for the company. But that's after some years and it's not that much more. You have a duty to investors and employees, and a chance to cash out with enough money to fund whatever venture you'd like. Sometimes you walk away, but other times you take the money. That's what Snapchat should have done.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.