THE BIGGEST LOSER IN THE WORLD: SNAPCHAT

You may have come across with the news that a US technology firm called Snapchat turned down an offer made by Facebook (and Google). Since it was a very very brave decision to reject a $3bn offer I just wanted to share my thoughts and the reasons why I believe the owner of Snapchat will be the biggest loser in the world.

First of all, I believe that social-media sites, mainly Facebook (FB), Google+, Twitter, LinkedIn, are the most over-valued companies in the world. Facebook has gained its popularity because there was a need for people to create their identities (social identities) on the web (through sharing photos, updates, likes, chats etc), and share/connect their life with people around them (in a common platform). Twitter did exactly the same thing but using a different method (called micro-blogging) to let people voice their thoughts via 'tweets'. Mobile applications such as Whatsapp, Viber, Tango etc. have all benefited from increased use of social-connectivity by means of mobile applications.

Obviously there is a huge demand out there but that does not make these companies highly valuable investment in the long run. This is because they do not MAKE MONEY. Their revenue stream is limited to ad-revenue only (oh by the way, marketing through social media is not as effective as it is made to believe)

But lets have look at the reasons why FB made an offer for Snapchat in the first place. I think there are two reasons behind Facebook's offer. Firstly, FB is losing interest from its young user base. Although it is not a very big issue for them at the moment they are fearful of the fact that the fast changing trends in social habits of the society can make them a history; just like its old rival MSN Messenger (Windows Live) which died peacefully soon after FB gained its popularity. Hence, my guess is that they wanted to buy Snapchat to maintain their popularity with its young user base and as a way of overcoming some of their fear with fast changing social habits of its young users. But even if FB acquired Snapchat it would not benefit them anyway, just like purchasing Instagram did not really work for them (considering how much they invested on Instagram). By now FB should have understood that. To illustrate the point in another way, FB is following the footstep of Real Madrid which buys the most expensive players in the world but still can't beat their rivals Barcelona and/or win the big trophies every year.

The second reason for FB's interest in Snapchat is quite simple: competition, but its the least probable one. FB is scared of any kind of competition. They are extremely competitive but they compete with their competitors by overtaking them and... killing the competition. As they have no strong competitor in the market, the biggest proof to this is their product development strategy. Their product development is  hugely criticized as a 'window dressing' exercise to make the FB platform look fresh (or less boring). Since its birth FB has not made any significant change in its platform (Timeline feature is not a significant change) but rather made incremental development work (cosmetic changes) to maintain an up-to-date/fresh interface.

With regards to Snapchat, I think the idea of it is too simple. It appeals to certain segment of the social-media user market. In other words, I don't think the idea is that great to attract that much attention in the first place. Also, similar to above-mentioned companies (FB, Twitter etc.) Snapchat does not have any source of income. This is because they are not designed to generate revenue. Their existence and continuity relies on their social-geniuty not in their marketing geniuty. Unless they build something which will revolutionise the marketing domain and bring HUGE revenue to the company, it will be the biggest loser in the world.

However, Snapchat will remain the biggest loser in the world because they turned down an offer of $3bn for a very simple and greatly 'exaggerated' concept, which they could have easily sold and laughed to the bank (where in that case Facebook or Google would have inherited the title of being the biggest loser in the world).

By the way you can read a more in-depth review of Snapchat's snub here...