Thanks to today s rabid rat race for the hottest social media start ups Snapchat has joined the list of tech companies like Tumblr and Instagram with no money coming in but multiple sky high takeover offers. So far Snapchat s leaders have balked at the offers according to three people with knowledge of the overtures including a recent multibillion dollar proposal from Facebook the biggest social network of them all.
It s not that they don t want billions of dollars. In part it s because they think making a deal now would leave many billions more on the table.
The service started in 2011 by Evan Spiegel 23 and Bobby Murphy 25 two former Stanford fraternity brothers lets users send photo and video messages that disappear after they are viewed. Snapchat quickly gained a reputation as an easy way to send sexually suggestive photos but it also picked up steam as a fun and easy way to trade photo messages.
The company has in recent months become one of the most sought after businesses in the tech industry getting attention from top Silicon Valley companies and venture capital firms as well as international technology companies.
In the past several start ups found even greater success by passing up a billion dollars or more including Facebook and Twitter. Even Twitter with its red hot debut on the public market still has skeptics who question whether it can grow enough to justify its current market capitalization of more than $20 billion.
But Silicon Valley is littered with many more entrepreneurs whose big dreams went unfulfilled people who were at the helm of the next big thing and lost momentum before they could cash out.
I think this is classic bird in hand versus bird in bush said Julie A. Ask an analyst at Forrester Research. Snapchat must believe the bird in bush is bigger.
There are some suggestions about why Snapchat thinks it will be worth far more later than it is now. For one thing Snapchat s leaders think it might be one of the first social media companies in the United States to build its business largely around revenue beyond advertising.
On stage at an industry event in September Mr. Spiegel said that he wanted to duplicate the success of overseas chatting applications like WeChat.
Many such companies particularly WeChat and Line have found ways to make money from their applications through virtual goods and games. WeChat which is based in China and operated by a company called Tencent allows its users to subscribe to brands like Starbucks and Nike and receive messages from them. Line a Japanese messaging app has $10 million a month in revenue from selling stickers that users can send to each other while chatting with friends.
But the decision appears to have also been influenced by one of Snapchat s big venture backers Benchmark Capital according to a person close to the talks. Before leading an investment in Snapchat Benchmark led an early bet on Instagram a photo service and was disappointed when Instagram s founders decided to sell to Facebook for $1 billion last year. Despite the high price tag the firm thought Instagram could have succeeded as a stand alone company or at least could have brought a higher offer.
Eight months after the Instagram sale Benchmark switched tactics and placed an initial $13 million bet on Snapchat. Benchmark executives thought they might be able to profit from Facebook fatigue by investing in services like Snapchat that offered users particularly teenagers greater privacy.
It is those teenagers who most interest Facebook. In an earnings call this month Facebook said that its youngest users were using its service less.
Still the news about Snapchat rejecting Facebook s offer first reported by The Wall Street Journal on Wednesday sent a small shock through the industry. Both Snapchat and Facebook declined to comment.
Snapchat and applications like it represent a coming sea change in social media one not necessarily defined by shared or public interactions. These services present an antidote to mainstream services that are meant to capture life moments so they can be shared liked and commented on. Snapchat s appeal lies largely in the lack of permanence. It offers a reprieve from worrying about awkward or unflattering photos turning up unexpectedly.
Snapchat recently said that it now processed upward of 350 million messages a day. In February the company was processing only 60 million a day.
Other messaging services similar to Snapchat are also quickly gaining in popularity. WhatsApp KakaoTalk Kik WeChat and Line to name a few have added hundreds of millions of users in the last few years and each continues to grow.
That rocketlike growth has emboldened Snapchat s leaders to hold out for a better deal and with a suitor of their choice at least for now. One person with knowledge of the talks who would speak only on the condition of anonymity said one roadblock in the talks with Facebook was that Mr. Spiegel questioned whether he wanted to work for Mark Zuckerberg Facebook s young billionaire chief executive.
In addition Snapchat relishes being a successful company outside Silicon Valley. In December when the company was still getting its footing in the social media market Mr. Zuckerberg requested a meeting. But he traveled to Venice Calif. to meet with the company according to Snapchat s founders instead of them visiting him at his headquarters in Northern California.
Shortly after the meeting Facebook started a similar product called Poke. But Poke never took off. Even Facebook s stand alone messaging product called Messenger has struggled to attain the same kind of momentum that rivals have gained. Facebook released a new Messenger mobile app on Wednesday.
And in Silicon Valley where something new could pop up at any time tech companies and investors are often compelled to act when they can sometimes with fear and little regard for the number of zeros involved.
Another potential suitor for Snapchat is Tencent one of the three Internet giants in China. In September Pony Ma one of the founders of Tencent spoke of that constant tension when discussing his interest in Snapchat.
I m facing a crisis in this industry said Mr. Ma. Young people the things they like on the Internet increasingly I don t understand it. This is my biggest worry.
Nick Bilton David Gelles Vindu Goel Nicole Perlroth and Shanshan Wang contributed reporting.
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