Startups

Snapchat's $3 Billion Rejection and the Great Facebook Unbundling


Snapchat headquarters in Los Angeles

Photograph by Patrick Fallon/Bloomberg

Snapchat headquarters in Los Angeles

The days when a billion dollars was enough to impress a fictional version of Sean Parker are long gone. Now apparently even $3 billion isn’t cool enough for the heady young entrepreneur behind Snapchat.

The Wall Street Journal reported Wednesday that the startup responsible for the disappearing-message craze turned down an all-cash offer from Facebook (FB) and will not consider any acquisitions or investments until at least early next year. It’s very possible Snapchat will crash and burn before ever getting its hands on so many zeros again. The app doesn’t make any money, it’s caught up in a controversy over whether its founders cheated a friend out of his fair share, and almost no one who has graduated college gets it at all. Cue the anticipatory schadenfreude.

But the news seems more striking for what it says about Facebook than for what it says about Snapchat — at least to me, but then again I graduated college before getting my first smartphone. Facebook is no stranger to snapping up a threatening competitor, as it did with Instagram last spring, and Snapchat has been haunting Mark Zuckerberg’s dreams for quite some time. After failing in an attempt to buy the company last year, Facebook decided to build its own disappearing photo app, releasing Poke last December. Some observers immediately chided Facebook for its copycat ways, while other wits made, uh, pointed remarks about the tacky name selected for what is widely seen as a sexting app.

Then everyone forgot all about it, Facebook included. Poke hasn’t been updated a single time since it was launched, even as Facebook has updated its main app 18 times this year. As of Tuesday, Poke was currently the 382nd most popular social-networking app in the U.S., trailing behind such household names as GROWLr, the gay bear social network, and Bling My Text. It doesn’t even register on App Annie’s overall list of most popular apps.

Nor is Snapchat the only app beating Facebook in some corner of digital communication. WhatsApp, a messaging service, is more popular in the U.S. than Facebook’s messaging app. And as industry analyst Benedict Evans pointed out recently, Facebook-owned Instagram is far from the most popular photo-sharing service. Mobile communication services are emerging and finding they can beat Facebook at one thing or another. “Is FB going to buy Whatsapp, Snapchat, Line, Kakao, and the next 10 that emerge as well?” Evans asked over the weekend. “Sure, some of those will disappear, but it doesn’t look like FB will crush the competitors the way it did on the desktop. On mobile, FB will be just one of many.”

None of these services is likely to overtake Facebook as the world’s dominant social-networking app. What’s more likely is that the very idea of a social-networking app as a gatekeeper will be threatened and possibly overturned by the shift to mobile.

On the desktop, Facebook’s social graph was unique. When Zynga (ZNGA) wanted to get people playing social games, Facebook was by far the easiest way to connect disparate players. But mobile apps can tap into people’s social networks on their own: Everyone with a smartphone keeps a list of their friends’ contact information handy. And a phone’s notification screen plays a similar role to Facebook’s news feed, with text messages, game notifications, and the like displayed in a single place. We don’t have to remember to open that new app—if our friends are using it, the phone reminds us.

In other words, Snapchat can grow without Facebook’s help. This means that Facebook has to compete on equal footing with each novel form of communication that comes along.

This is different from Facebook’s often-cited mobile advertising problem, back when it was having trouble getting its own users into its app. The company seems to have solved that one. Instead, it’s an indication that the network effects that have made it largely invincible hold less sway on mobile phones. Smaller companies are coming along and poking holes at Facebook’s weak points, then doing a better job of something the giant company doesn’t do so well.

This is underlined by Facebook’s recent disclosure that growth among American teenagers has flattened and the social network is actually losing users among younger teens. Facebook can’t just put out a competitor to some upstart that catches on with the kids and condemn the new app to oblivion—just as it can’t simply buy off every teen-friendly threat it sees coming.

Brustein is a writer for Businessweek.com in New York.

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Companies Mentioned

  • FB
    (Facebook Inc)
    • $79.88 USD
    • 1.48
    • 1.85%
  • ZNGA
    (Zynga Inc)
    • $2.69 USD
    • 0.26
    • 9.46%
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