Facebook Inc. (FB:US) offered to pay about $3 billion for mobile application Snapchat Inc., a person with knowledge of the matter said, adding to evidence that the company is willing to dig deep into its cash pile to reach young people.
After spending more than $700 million last year on mobile photo-sharing site Instagram, Facebook offered about four times that amount to buy Snapchat, which people use to send photos that disappear in seconds, said the person, who asked not to be identified because the discussion was private.
While Snapchat declined Facebook’s overture, the proposal highlights how the largest social-networking company is looking to use its cash to attract users amid competition from upstarts. The Menlo Park, California-based company is pushing to broaden mobile features and capture young users, who have started reducing their time on the social network, Facebook said last month.
Related: Why Facebook Wants Snapchat But Doesn't Need It
“Snapchat has traction with a piece of the market,” said Brian Wieser, an analyst with Pivotal Research Group. “If Facebook buys them, they mitigate some risks that consumers spend more time off of Facebook’s platform and are outside the reach of their sales efforts.”
Slater Tow, a spokesman for Facebook, said the company has no comment on rumors or speculation. Evan Spiegel, Snapchat’s chief executive officer, didn’t respond to an e-mail requesting comment. Facebook’s offer to acquire Snapchat was earlier reported by The Wall Street Journal.
Facebook, which several years ago was regarded by users as a cutting-edge social-networking technology, is now facing competition from startups that have taken that mantle with applications that risk distracting people -- especially younger consumers -- from its platform. Apart from Snapchat, messaging applications like WhatsApp are also popular.
In its prospectus (FB:US), Facebook underscored the importance of keeping up with young Internet users.
“We also believe that younger users have higher levels of engagement with the Web and mobile devices in general and with Facebook specifically,” the company wrote. “We anticipate that demographic trends over the long term may contribute to growth in engagement as a greater number of users will come from demographic groups that have grown up with the Web and mobile devices and who spend more time online every day.”
Snapchat, born in 2011 in a fraternity house, provides tools that lets users easily draw arrows or other items on photos. The images are deleted seconds after they are accessed. The company, which handles more than 200 million “snaps” daily, has investors including Institutional Venture Partners, General Catalyst, Benchmark, Lightspeed Venture Partners, and SV Angel.
Facebook has shown some vulnerabilities with teens in recent months. While usage among U.S. teenagers was relatively stable during the third quarter on Facebook, there was a decrease among younger teens who log on daily, Chief Financial Officer David Ebersman said on a conference call last month.
Facebook in October also loosened rules to let teens share their content publicly.
The company has tried to appeal to younger users with new apps. Facebook last year unveiled Poke, which lets people send messages, videos or photos that are only available for up to 10 seconds to friends. While the Facebook and Instagram apps are among the top 20 free programs in the Apple Inc. App Store, Poke is nowhere to be found. Snapchat ranks No. 7.
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