Image: The Verge
Started as a class project for Stanford University by then-students
Evan Spiegel (now CEO), Reggie Brown, and Bobby Murphy, Snapchat
has grown to be one of most popular messaging and social media
apps. It allows users to take photos, record videos, add text and
drawings, and send them to a controlled list of recipients. Photos
and videos disappear within seconds (between 1-10 seconds; amount
is up to the sender) after the recipient views them.
It was officially launched in 2012, and is available for both iOS
and Android users.
Snapchat has raised nearly $650 million in 6 rounds of funding, an
astonishing number that was raised with help from companies like
Chinese internet giant Tencent, Coatue Management, Kleiner Perkins
Caufield & Byers, the Government of Singapore Investment Corp.
(GIC), and Yahoo (
Thanks to the latest round of funding in December of last year,
Snapchat has reached a valuation of about $16 billion, putting them
in the elite clique of tech startups who have attained a similar
estimation. It was announced in February that the company is
seeking a new round of funding that would value the company as high
as $19 billion. To date, Snapchat
has raised $1.2 billion
in eight rounds of venture capital funding.
Back in May, Mr. Speigel told Re/code at its annual conference that
"We need to IPO. We have a plan to do that." He did not give
details on when an IPO would happen, but added that "an IPO is
Along with this verbal confirmation, Snapchat has been making
strategic business decisions over the past few years that hint at
the possibility of a market debut.
Back in 2013, the company caught the attention of tech giants
) and Alphabet (
), the company formerly known as Google. The companies offered to
acquire Snapchat for $3 billion and $4 billion, respectively. In a
bold but smart move, Snapchat turned down both offers, with
attention from investors rising exponentially as a result from the
Snapchat has also recently made high-profile hires that could be
viewed as IPO preparation. Late last year, the Los Angeles-based
company hired Imran Khan, the Credit Suisse banker who led
) IPO earlier in 2014. His title will be Chief Strategy Officer.
Khan joins other high-profile hires such as Emily White, formerly
of Instagram and Facebook, as COO, and Jill Hazelbaker, who is
known for her PR work for New York mayor Michael Bloomberg, U.S.
Senator John McCain, and Google.
Since its beginning, Snapchat has utilized the idea of engagement,
and has made it a priority in their development and business model.
Engagement is not new for social media applications. In fact, it is
very important to all social media companies, as engagement is
driving revenue factor, besides advertising. Snapchat, however, is
approaching it in a completely different way.
Harvard Business School Professors Marco Iansiti and Karim Lakhani,
offer an interesting perspective
on this idea. In an introduction to the elective course "Digital
Innovation and Transformation" presented on HBS's Digital
Initiative, a platform that explores the digital transformation of
the economy, Iansiti and Lakhani argue that Snapchat "is not just a
messaging system, but also a social network, a community, and an ad
Most importantly, Snapchat is an
messaging system, social network, community, and ad platform. Their
unique, yet increasingly popular application method is a major
contributing factor to their success. Even Facebook is trying to
live in the moment, so to speak.
reported last year
that the company has been working on a competitor called Slingshot,
a service that allows videos and messages to appear for up to 10
Iansiti and Lakhani continue, arguing that "Snapchat provides a
window into this challenging question: what drives value creation
and capture in today's digital economy?" In other words, Snapchat
offers a business model perfect for our current digitized economy,
monetizing ephemerality in an innovative way.
Not only is Snapchat monetizing ideas, but it is also attempting to
make money off its user base, which as of this past May, there are
100 million daily active users
, by introducing transient advertisements that disappear after a
set amount of time.
This is a basic yet clever business move for the company; Snapchat
boasts an intensely high user base, with more than 700 million
disappearing "snaps" being sent and more than 500 million stories
viewed on a daily basis.
The combination of a large user base and high daily activity is a
goldmine for advertisers. Snapchat recognizes this fact, and is
charging an astounding $750,000 minimum for a day of advertising.
By charging per day instead of the usual per click, the company is
letting go of the typical internet advertising model.
The price may be staggering for some, but because of Snapchat's
huge, engaged audience-an audience that is compiled mostly of the
highly-sought 13-24 year old demographic-their early ad products
have attracted big-name buyers like McDonald's (
), Samsung Electronics (
), Macy's (
), and Universal Studios, a part of Comcast (
In a time when social media and networking services are changing,
Snapchat is a name that sticks out in a video-dominated
marketplace. According to a recent report in the
, Snapchat's video views have more than tripled in the last six
months, and the social messaging app is now getting around 6
billion video views a day.
This figure is impressive because Snapchat is mobile-only. In
comparison, Facebook has 8 billion daily video views-announced by
CEO Mark Zuckerberg in a call to investors following the company's
Q3 2015 earnings report-but this figure includes both mobile
The issue of what counts as a video, however, may be a potential
problem for the ephemeral messaging app. Snapchat's videos are only
a few seconds long, and most of the videos disappear once they are
viewed; the company will need to clarify what they see as a video
view in order to accurately paint a convincing picture.
Problems to Consider
Despite all of the company's positive aspects, Snapchat does not
come without controversy.
Recently, Snapchat has fallen victim to a hacking scandal. 4.6
million usernames and phone numbers were posted to the site
The Street reports
. The malicious site has since been taken down, but the security
breach has worried potential IPO investors. The hackers exposed a
weakness in the "Find Friends" tool of the app, which was seemingly
ignored by company executives after pointed out by Australian
company Gibson Security.
Because of its ephemerality, Snapchat has constantly been
associated with sexting, a news topic that garners wide public
attention whenever reported on. To some, the app is a perfect tool
for sexting, as any inappropriate content quickly disappears.
Because this issue is not new for the company, Snapchat will have
to develop a strategy to conquer this inevitable issue.
Also recently announced was the departure of revenue boss Mike
Randall 7 months after joining Snapchat. He is not the first
executive to leave after a brief stay; Peter Magnusson, who was the
VP of Engineering, left the company last summer after a 6 month
stint. As an IPO conversation continues to circulate, Snapchat must
make sure not to lose any other of its high-ranking executives.
An IPO for Snapchat would be a great thing. Like other high-profile
IPOs for this year, Snapchat has molded itself as a company for the
digital age and technology-grounded economy; its primary
demographic, smart advertising strategy, and ephemeral business
model makes the company quite the IPO catch.
Its valuation would most definitely spike even higher, putting the
company's potential worth at an amazingly high price; however,
Snapchat must seriously evaluate all of its existing controversies.
They will also need to generate substantial revenue in order to
present a compelling IPO investment rationale.
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