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BLOG: Snapchat turns down $3 billion acquisition offer from Facebook

Yoni Heisler | Nov. 18, 2013
Facebook recently offered to buyout popular photo sharing service Snapchat for $3 billion. Incredibly, Snapchat said thanks, but no thanks.

There are no shortage of startup companies refusing large buyout offers in the annals of tech. Groupon famously refused Google's buyout offer of $6 billion while Facebook famously turned down Yahoo's $1 billion buyout offer. Even more obscure, Dropbox once refused an $800 million offer from Apple.

And now, there's yet another name we can add to the list. Snapchat.

According to Bloomberg, Snapchat recently refused a ridiculously large $3 billion offer from Facebook.

Oddly enough, when Facebook acquired Instagram for $1 billion in April of 2012, Mark Zuckerberg was ostensibly adamant that the company would not be making such large acquisitions in the future.

Zuckerberg at the time wrote:

This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.

So what gives?

Assuming that the Bloomberg report is, in fact, true, why would Facebook be willing to lay down $3 billion big ones for a company with absolutely no revenue?

Well, it likely all comes down to young users in the mobile space.

For Facebook, two things remain and will likely always be a priority. One, Facebook wants to be big on mobile. Two, Facebook wants to have a large userbase of young users. To this end, Snapchat is doubly threatening to the extent that innumerable youngsters are now using Snapchat to send photos back and forth rather than using Facebook. Facebook likely sees this as a threat and wants to gobble up Snapchat to either eliminate it or bring it under its own banner a'la its strategy with Instagram.

Indeed, Facebook indicated in its most recent earnings report that engagement amongst young teens fell off a bit during the company's October quarter. What's more, Facebook's attempt to mirror Snapchat's functionality with a feature called "Poke" hasn't really done much of anything to stall Snapchat's tremendous growth. As it stands now, Snapchat alleges that it processes upwards of 350 million photo uploads every single day, putting it on par with Facebook.

Given Snapchat's business model, though, something tells me that they won't be getting any type of similar offers from any other company any time soon. Snapchat's bread and butter focuses on photos that disappear upon viewing. It's hard to attach a viable business model to that.

Of course, Snapchat's strategy here is a time honored tradition in Silicon Valley — attract a inordinate number of users and figure a way to become profitable later on down the line. Hell, it's a strategy that Amazon has been using to shareholder delight for a number of years now. The only difference is, Amazon is actually getting its hands on consumer money, Snapchat is not.

 

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