It's hard to keep your wits about you when trying to generate revenue makes a startup worth less money in the eyes of Silicon Valley. But Snapchat's bonkers $4 billion valuation has driven one man, Roy Murdock, to seriously question his mental faculties in an essay entitled, "Am I Going Insane? Snapchat is Intrinsically Worthless."
Loosen up that straight-jacket, Roy. Valleywag is here to help.
We wondered the same thing recently and were told by an investor that Snapchat is "moving forward fast on monetization tests compared to most other social networks." That helps explain why Pinterest, which has always been fixated on commerce, is in that same $4 billion
boat mystery yacht with Snapchat.
On the other hand, considering that most other social networks focus on growth, growth, growth and hope some magic advertising product will materialize, it hardly explains the differential between Facebook's recent acquisition offer, which we heard was $1.1 billion, and the $4 billion valuation Snapchat is hoping to raise at.
Another theory floated by Valleywag: When so many services are winner-takes-all, investors are looking at the overall size of the market for photo sharing, say, and taking a bet that Snapchat can dominate it.
[Evan] Spiegel, you nailed it when you said that Tencent makes money by building "things that people want". You’ve developed an application that people want, and if you try to change it through any type of monetization scheme you’ll end up with an application that people don’t want. You’ve got no data, no infrastructure, no patents, no cutting-edge tech, no wiggle-room for monetization, and yet you’re still looking down your nose at acquisition?
No, you're smarter than that. I think you and your team are playing a dangerous game. As long as the investor money keeps coming in, you'll let the good times roll! You've bought yourself another year or so before acquisition, and every round of funding fluffs up the value of the company for the inevitable buyout.
But what happens when you realize that most of your user base is already on Facebook and Twitter, and that the extra traffic from your service is not worth $4bn to advertisers who are toying with a dangerously-close-to-broken revenue model? The bubble bursts, and you're left paying the server bills and the wages of the 21 employees that will never see any monetary returns on their work.
Call us crazy, but that argument sounds pretty sane.
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