Two years ago, his Stanford University classmates were scoffing at his idea for a new kind of instant messaging app. This week, 23-year-old Snapchat co-founder and CEO Evan Spiegel is reported to have turned down an offer from Facebook of $3bn (£1.9bn) for his young firm.
According to The Wall Street Journal, Mr Spiegel and his partner, CTO Bobby Murphy, 25, declined a cash offer of “close to $3bn or more” for Snapchat. It would have made it Facebook’s most expensive purchase to date, dwarfing last year’s $1bn acquisition of the photo-sharing social network Instagram. Facebook boss Mark Zuckerberg had apparently approached the Los Angeles-based firm with a previous offer in the region of $1bn but was rebuffed. His new bid was also declined, said the paper, because the Snapchat CEO is holding out for even higher offers early next year, when he expects the app’s already vast user numbers to have ballooned further.
Snapchat users can take and edit photos or video and send them to friends. Unlike similar services, however, the app allows its users to set a time limit of up to 10 seconds on each message, after which time the “Snap” will self-destruct and delete itself.
Fraternity brothers Mr Spiegel and Mr Murphy conceived the app, originally named Picaboo, as part of Mr Spiegel’s product design degree at Stanford. In spite of classmates’ scepticism, the pair launched their start-up – from Mr Spiegel’s father’s sitting room – in September 2011. Two years on, more than 350 million images are shared via Snapchat every day. A recent study by the Pew Research Center suggested 9 per cent of US smartphone owners used Snapchat, including 26 per cent of 18- to 29-year-olds. The app is also wildly popular with younger teenagers.
News of Facebook’s offer comes in the wake of Twitter’s IPO last week, in which has the micro-blogging service was valued at about $25bn. Twitter remains unprofitable, though it boasted revenue of almost $170m in the last quarter. Snapchat, as yet, has no revenue stream whatsoever. While similar services rely on advertising to make money, Mr Spiegel is said to be pursuing the possibility of charging users for added services and in-app transactions.
The firm has also amassed significant venture capital investment. In June, its most recent funding round raised more than $60m, valuing the company at over $800m. Since then, the Chinese e-commerce giant Tencent Holdings has reportedly offered to lead a further investment round, which would put Snapchat’s worth at $4bn.
Benchmark Capital partner Mitch Lasky, one of Snapchat’s early investors, wrote in February: “At Benchmark we search for entrepreneurs who want to change the world, and Evan and Bobby certainly have that ambition. We believe that Snapchat can become one of the most important mobile companies in the world.”
Snapchat’s success has not come without controversy. Some have questioned its claim that images delete themselves from the recipient’s phone and the Snapchat server, after users managed to hack the app and save the supposedly impermanent snaps. The service has also been accused of encouraging so-called “sexting” among young people. Research conducted this summer suggested almost half of the 18- to 30-year-olds who use Snapchat in the UK had been sent naked images.
Mr Spiegel and Mr Murphy are also the targets of a pending lawsuit from a former college friend, Frank Brown, who claims to have come up with the idea for Snapchat, designed its logo and christened the concept “Picaboo”. Mr Spiegel has said in the past that the idea for Snapchat first occurred to him when a Stanford friend – Mr Brown – complained, “I wish these photos I am sending this girl would disappear.”
Though the trio originally worked on the app together, Mr Brown claims he fell out with the other founders in August 2011. In a recent filing, which also includes Snapchat’s early investors in the lawsuit, Mr Brown submitted several emails, Google chats and even a text message to his mother from Mr Spiegel’s father, which purport to prove that Snapchat was a three-person project. Snapchat describes Mr Brown’s claims as “frivolous” and “utterly devoid of merit”.
The ones that got away
Groupon In 2010, the online daily deals firm declined a $6bn offer from Google. In February, its founder Andrew Mason was fired, after the firm’s value fell by $10bn.
Digg Before Facebook and Twitter, aggregator service Digg seemed like the next big thing for news. Its founder Kevin Rose reportedly had offers of $200m, only to end up selling last year for $500,000.
Pointcast This pioneer of “push” technology rebuffed News Corp’s $450m offer in 1997, and sold for $7m two years later.