Episode 12: Snapchat
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I've noticed where absolutely be getting a little wonder. Yeah.

I have. Do you think that's a problem? Maybe a little.

See me down story. On the.

Welcome to epsom. Twelve of acquired the podcast where we talk about technology acquisitions that actually went well.

I'm been gilbert .

David road and we are your hosts. This episode were going to trying to do something a little bit different.

today. We're going to talk about one that didn't happen .

at all done this this week. We're going to cover um facebooks attempted acquisition of Snapchat for three billion dollars a while back in .

november of twenty thirteen.

yes. And it'll be cool because we have um not only the deal didn't go through, but we have the benefit of of history to help us grade um what would have happened if that that offer actually went through?

Know what would we know for a fact? What would have happened otherwise if .

facebook didn't acquire alright, a few things before we get into IT one, please write us on itunes. It's how we grow the show and how we gain more listeners like you. Um we we also really appreciate any social sharing. If you like to show, please shout out out on twitter or facebook. And David has an update with a new thing really.

Yeah, we have a new innovation here required. We just launched a slack community that we're experimenting with. So if you'd like to join us on slack, go to our website, acquired data m. And from there you can sign up and join our community on on slack. And we can have some fun with that and see have some fun with that and see where IT goes.

Yeah we plan on doing kind of um like episode discussion in the week following. Um we get a lot of email from from people directly to us and we we figure you know that actually could be pretty beneficial to just have that in a group context. And slacks seems like a nice way to do IT because a lot of us are our R D on IT for our work day and day out. We can just kind of passively subscribe and and kind of watch the conversation .

yeah and we'd love to see where IT goes with the community so you can use that. You can dm s with with feedback or questions or just just post .

in the community yeah yeah and also a good, good place for if you have ideas for future shows that you wanted to do um if you think you'd like to be a guest on the show, we've got A A few great guest coming up that we're super excited about. So um more great stuff to come.

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We couldn't .

do IT all right. Well, we tried to get guest for today, but both, both sucked burgan people were booked up, unfortunately.

Yeah, or so we assumed .

i'm to dive in with acquisition history in facts. I'm gonna. This might take a little longer because this is A A long story here.

David. Do not scare them away.

All right. So two thousand and ten, evan speel is a soft Moore at stanford, and he has just recently moved into the company, sigma ferny house he had joined last year at the end of his the watery he joined at the end of his freshman year. And across the hall, a guy in bobbi Murphy who's a senior, uh, is living there. And so they they start hanging out. They become friends and Murphy recruits evan Bobby recruits aven to work on a social APP that he had an .

idea for inspired by google plus .

what unsurprisingly, that goes nowhere. Time goes on and haven stalled. Stanford um and he's actually he's doing great at stanford. Um so he's undergrad and he ends up majoring in product design and David Kelly becomes his advisor.

David Kelly is the founder of the d school yeah founded the d school at stanford and professor there and founded ideo before that um and the dic I A bunch of personal history here having gone to stanford for business school. Um the d school Normally only admits a grad students like undergrads can't take d school classes. But somehow evan manages to get David to be his adviser well and that's not the only cool thing he does doesn't underground.

He manages to uh uh find his way into becoming an auditor for a class at the business school uh strategy and management three fifty four I believe called entrepreneurship and venture capital um which was my favorite course in business school IT was awesome was taught by Peter wendell um who was one of the founders of the ventures and was a long time venture capitalist and then cott by arched IT and rayman nzier who was google's first head of head of communications and worked for area. Both that novel before google and at eric and I was an amazing class. We had amazing guest speakers come um people like make whitman um like this stone, like Peter finton, Scott cook and god cook. When he came to evan was there actually was so taken by evan by the Young evan speak that um he hired him to be an intern to work on on a project .

on to add into IT wow so so no doubt a .

special years before snp jet, you could tell this kid had talent. He was going on places um so that summer after um after ean soft more year um he in bobbi team up again. They started a new company uh this time. It's a website for aspiring college of people. High scholars navigating the college missions process is called future freshman.

Why does this story feel super familiar? I feel like i've seen a movie about IT like kind of a failed idea before, the big idea that took off, maybe maybe when to college together, something about somebody believing IT was actually their idea. Lane clean.

Yeah, was there? There were some twin. Yeah.

they might use a super similar law firm to the the one here. I'm jumping ahead, but obviously .

referring the social network here in facebook, the similarities are early. okay. So the future freshman that goes nowhere again. Uh April twenty eleven uh so it's it's Evans junior year and Murphy bobbies graduated and um evan hanging out one day and his ferid brother also in capita regi Brown who is classmates Evans and a close friend um yeah he he comes running up to and he's like, i've got an idea for an APP oh o and and he's like I sent this I sent this picture to this girl last night apparently this is all uh as we will discuss in a minute this is all in discussing the courts in legal filings um and I I got this idea for an APP that you can make pictures disappear and supposedly having gets really excited and repeatedly calls IT a quote million dollar idea, one million dollars which he denies I believe in the .

court proceedings that he ever anything the million but but they acknowledge he was very excited.

Yes so they get really excited. The two of them, regan, evan, they recruit Bobby again. This point, Bobby graduated.

He's got a real job. He comes back, he becomes the C. T. O of the company. And event conveniently happens to be in a design class at stanford. Where are they build a product and in a company in the class?

And did was this actually part of his like he worked .

on this in a class? yes. So they submit this this idea, this APP that they're building, they decided to call IT pegboard. Um they submitted as the project for the class, as evan's project.

And the the the final day of the class there's a panel of a steam venture capitalist that judge all of these these projects in the and so if they work really hard during the semester, during quarter and and they get the get the APP, you get a prototype done. It's actually at this point is a website. It's not even on a phone. You have to submit photo on a website.

choose file button on your computer and .

IT it's a mess that was jane um and and IT goes over like a red balloon the APP of a stem VC judges hatte IT apparently um according to an interview with evan, one of them suggest maybe they should talk to best buy about a partnership I don't know what that would be maybe with like cameras or something ah so not not not an auspicious start to um the early days of Snapchat um but undaunted, they decide to keep working on IT uh so they spend the whole summer uh after that quarter working on the APP and they work really hard and they grow the by the end of the summer they have one hundred and twenty seven users .

which having worked on a couple of consumer things that that um didn't work and actually working on one now IT is like so terrifying when you see these kind of like super low numbers. And then everything you're reading about in the press has insanely high consumer engagement. And you're like, I need three to form more hours of magnitude before this is any meaningful. yes. And it's like almost inspirational that they only had had one hundred.

Twenty seven hundred were on all summer. They were now roughly six months into the life of what would become snapped at. They've one hundred and twenty seven users uh, at the end of the summer is also unfortunately, a big argument occurs between evan and Bobby and regi and evan babi kick reg out of the company then then the summer and that argument came right .

around the time or part of the same discussion when they're figuring out their equity splits.

right? Yeah, I think I was prompted by figuring .

out the equity splits. Which boy is that a lesson for founders out there to have that thing early before people start to feel like they've already you know contributed and earned more than. Then the rest of the group thinks.

I mean, unless your strategy is really mackerel an and you want to push your confounders out of the company and get more equity for yourself.

yeah have that discussion early.

Yeah ah we would recommend prop have the equity discussion early um so the apps still go nowhere. The summer ends. Evans head back to stanford for a senior year. Bobbi, like, K, I need a jobs. So he he takes a job in another start up and I resist.

That blows my mind. They left the APP in the story.

literally put IT on ice um and and around the same time more bad news, they get a season desist order from another startup called peak abo that I think is also in the photo space uh telling them they need to stop using the name so snap pea bow is on the rope at this point you they need to change the name. They come up their brain, sorry, they come up with snap .

jet and they kept the ghost. I'm pretty sure Brown actually came up with the the um the ghost logo that was his his contribution before he kicked out of the company.

Yeah, I think that's right. So one other thing happens in the fall as as stanford classes are starting again and IT turns out to be really important and that's that evan's mom, this is all this is all according to articles on here and including A A big really good h profile and forbes on on on eleven speaker that that is a lot of our source material here. Um Evans mom is tells her niece who's in high school in orange county y so this is Evans cousin who's a high school in orange county y about this APP that Evans working on and hernan's down downloads IT and a thinks it's really cool and starts using IT with her friends in high school and and one of the reasons that they start using IT is that you don't need to use IT on a phone you can use on an ipad um because know what works works on ipad two and and with the ipad that their school there you know tony private school and orange conney had given them they had him block down so you couldn't like, you know, text you use I message yeah .

I think I read something they they also made IT so you couldn't stall facebook yeah which is actually this is incredibly ironic. The fact that those ipads didn't have facebook is why they needed a different way to communicate.

So they installed naps. So they installed like this, like random cousins APP, so that they could know, text each other during the day with their school. I've heads in an orange county. wow. crazy. So IT sweeps through this school.

Then IT starts sweeping through other high schools in orange county, then IT moves up the state and and then he moves into um other high schools in in northern california in silicon valley um and the the growth takes off. So by december of um twenty eleven in Snapchat is up to just over two thousand users. The next month, january, twenty thousand couple months later in April, one hundred thousand users.

there is an order remaining to growth in a months and then five x the .

next month in in the next two to three months after that. Um and this is the proverbial hockey stick they have found IT. So all the sun, they need to pay the server costs because they are hosting a .

lot of photos at this point. Well, in the incredible thing too, I mean, a lot of the time you're trying to make that product week to get you to that, that hockey stick, but this is truly like the product was stagnant .

and IT was like didn't right market.

And it's not like they're even found IT.

It's like IT finally in the city, vm found the right market for them.

Well, I mean, these things, it's almost like you shouldn't try to learn lessons from these things as founders because there's such extreme outliers that that is almost like like chasing a true chasing a unicorn to try to try and duplicate the sort of success.

Good, good choice of words. So at this point, you they are now it's now April. There are one hundred thousand users um there there I don't know they're using A W S or snapped at now uses google computer engine if they're using that at that point. But they have got to .

start paying the rebuilds. I like far .

the largest tenant I think yeah on on G C E um today. So they raise a seed round four hundred eighty five thousand dollars from light speed at a ah four and a quarter million dollar valuation. He goes the pretty money um so but effectively lighten ed gets about ten percent of the company for less than .

five hundred thousand dollars and at which point evan is furiously refreshing his his wealth fargo APP I think in class as the story goes and as since he watches IT hit, he walks down, he says goodby to the professor and he drops out of of class or a drop side of stand for like months before graduating .

year its April graduation is is in like major ah he literally dropped the mike in the middle class. This is according to um once the money hits the bank account and walks out the door and never comes back .

yeah and if you were in that class, we would love you to join the slack team yeah let us know how really went down. But that's where we going off of.

That's where where we're going off of um and so walks out moved down to L A, convinces 8 be to come down。 They shake up at his dad's house in L A. They convince a bunch of their friends from stanford to also drop about a school months from graduation, come down, join the company and start working on IT and then for basically the rest of twenty twelve.

That's when the core of Snapchat, as we know IT today gets built. So they shake up in L A work for the whole summer. Um in october, they launch on android.

And when they launch on android, they announced that they are now serving twenty million snap per day in october of twenty twelve. December of twenty twelve, they add the next big a pillar of snapshot, which is video. And then also in december of twenty twelve, mark zuck burg has heard about this APP a and he sends an email to evan speel.

He has, and he does seem that he had had heard of IT a little bit earlier since ce kind quietly, my I have said microsoft, facebook had been working on an ephod poke. They were reviving the old name of the the future that we all, from early on and in facebook use that really never gets used today to basically create a clone, and actually, from a us perspective, a very excEllent clone of snapshot.

And when zc does, does me meet with evan kind of an interesting story of how he gets there, suck says, hey, want to come hang out a facebook says, our next stone up in the bar, I think, follows our consistent, they want to come down here. So he actually flies down to to meet the event that snapshot siadoux ters. I think there's there's a whole story about them getting like a private they're ting a private apartment to have the thing but duck walks in with a plan and he basically says, hey, here's how I would do Snapchat um and sort of how I see your role in the world and how I could could see this all playing out.

And it's a grandiose sion and it's quite impressive. And he ends with saying, and we're going to be launching poke next week. A it's not an offer to buy them. It's not like it's like we are going .

to this is not the acquisition offer. This is not the acquisition offer you been looking for.

And so duck fies home, you know, ever I think as the the story goes, I feel like this might be over dramatized but um the book is the art .

of war .

yeah and evan gets this whole thing in a copy .

of the art of .

war and they all .

of all have people come out for .

the week yes yeah yeah that was the guess we were up on and and they watch carefully as poke launches um event deleted his facebook account so he goes to bobbie and has him checked poke and sure of it's great but the thing that even greater is all the buzz that happens for snapshot by poke launching yeah and I believe you .

know ever quoted as saying like this is this is basically like merry Christmas to snap chat when facebook did this because IT brought so much attention to the platform like the second word out of everybody's mouth when talking about this huge launch that facebook was publicizing was Snapchat yeah so .

couple interesting observations here. One um that's a super common thing. I think that a lot of times, uh, I I know this actually the first hand I made IT to do this manager, similar to reminders for the phone before reminders launched.

And when reminders launched, we were like, oh my god, we're dead. Apple, sherlock. Us and share locking is a reference to apple back in the day launching an APP built into the platform called shlock that put all the other search taps out of business.

I think that's sorry, right? Might have been called ah that apple was called sherlock and then apple built t and like but what IT did for us as a to do this was make up. A lot of people realized they needed to do this manager and maybe they didn't like the the generic one that the apple launched. Same thing with inter paper when apple launched the with a red later service that's .

built into the nobody .

and in sales for instant paper Spiked. So it's kind of an interesting like, don't be so afraid of the big guy launching your feature.

And in this particular case, as is so much evidence, I think the reason were spending so much time on the history in facts here is like, this is amazing. Like you couldn't make this .

stuff up and this is like wonderfully dramatic and like IT couldn't been scripted .

any Better and we know at all from both court cases and interviews that that events given with with .

media outlets yeah and here's the part that gets me like snape chat is could you could argue it's already today, but could at one point be an existent al threat to facebook? The reason they got installed on those ipad was because facebook was being blocked and they needed something else. And then the reason that they ve got this huge boost in downloads right before Christmas that year was because facebook gave him a gift. They launched like snapshot and then made everyone go.

This was such a legitimizing moment for snapshot because until then, to extend anybody talked about IT, IT was like, oh, that's just for sexting.

right? I remember that. And I remember the turning point two where I started realizing, okay, we'll talk about this text, trans.

But okay, my friends are using this for, like, really telling me the story of their life. As it's actually happening without trying to make themselves look perfect. And this was before snap chat stories.

I remember getting stamp chats in realizing these pictures people would never put on facebook. And yet i'm engaging with these people all day, every day. And none of like, maybe not cool, I don't know.

None of them we're sexting. Like every single one that I would get from someone is just like this is like a candid, casual peek in my life. And that I kept trying to tell that narrative.

And I was even later, some people trying to tell me that narrative, but I wanted to make the joke. I remember trying to tell that narrative to people at work and my family. And everyone's like, IT was like taboo o to have and install on your phone because IT was known as the APP for setting up and you're right.

it's totally legitimize, totally legitimizing. Um so just two short months later, february ary, twenty thirteen, three huge piven pivotal moments for Snapchat. Uh first, they announced that they're now seeing sixty million snaps per day going to the platform.

Second, they raise their series a. They re raised thirteen point five million dollars from from benchmark at about a seventy million dollar valuation. And interestingly, there was actually matt collar, a benchmark who first kind identified Snapchat and started making inroads with them.

And then MIT asi ended up leading the deal and joining the board for benchmark. But matt had been, well, first you was very yearly employee linked in, but then he was A, I think, one of the first five employees at facebook. And then when he left facebook to join benchmark, his first deal that he did was instagram.

Not a terrible track record.

Not a terrible track record. So here's, here's this guy, you know, this firm that has h and this group of people that have such intimate history with facebook and zig. And then facebook's first four into, they are next sweet in their consolation of mobile apps, with instagram now leading the series. A in stamp chat .

like shakespeare drama continues.

And so then the third event that happens in february of twenty thirteen, is that poor ready Brown, the the earth, while third cofounder sudden he he's moved back home to south CarOlina a at this point again, you can make this stuff up and he realizes that snape might be worth a lot of money and he sees the company and claims that he's do one third ownership stake .

in stepped at, which actually does work out pretty well for him. Um I think he was seeking that and up getting resolved um he was seeking um damages of I think like half a billion dollars and they settle out of court. But I I think .

IT was in the the reds of hundred millions .

yeah well thank you for .

to that court case for helping note because we got this great story to tell.

much like this, the same thing with the youtube zoia memo. Yeah, get all kinds of great stuff .

hear from the courts. So then after that, it's kind of like you to inevitable. So April twenty, thirteen, hundred and fifty million snaps a day, june twenty thirteen, which is just what is what is that four months, four months after they raised their series a there is there is a series b of eighty million dollars LED by iv p at an eight hundred million dollar valuation. So lone over ten times the valuation of the series of four months later.

And I remember at this time, people were not sure this was sustainable. People were like, be a fat. And I remember making the argument that the U. I was terrible. And what they were doing was commodity.

And I remember people talking about like, are they going to charge for IT? Are they going to be ads for IT? And I remember thinking, what they're doing is so simple and easily build the weekend that as soon as somebody cloes IT and build one that's free or there is no ads, everyone's just gonna move to that. And that, like baid sense to me .

at the time that seemed Young, but you were not yet .

schooled in the power of the network effects.

Boo is IT ever. So that was june, August of twenty thirteen. A facebook is getting desperate at this point. They release a feature in messenger that allows you to post to instagram .

from messenger oh yeah.

like this is going, you know, like take down snapp chat september twenty thirteen, three hundred and fifty million snaps per day. Snapp chat announced october twenty thirteen. They launch stories which are incredible that .

will into later.

totally game changing. And then finally, november twenty thirteen, a rumored but lead to many, many press outlets, including the all mark sicker g makes an offer to buy Snapchat for three billion dollars.

He does and. You know there's no um nobody knows exactly where the league came from there think zuker berg sort of alleged and we know this from the SONY email leaks zocor berg alleged that IT was IT was a tactic by evan um you know evan throws back that I could have just as easily been sucker berg to try and and and damp in their fundraising efforts rather than ster them um but anyway there is no never really comes to fruition and all we know is that I didn't I didn't .

we know the offer was made. We know IT didn't happen, but it's pretty I mean, you both have to put yourself in mark zaka berg shoes here. Less than a year ago, he flew down to L A. And he basically SAT there.

You according to you, we've what's been disclosed and what we can read about, he's up there and he told evan, you know how to build step chatt and how he would do IT and what the right way to do IT is and know, by the way, facebook was just gonna IT. So you know good like with your little lap. And then less than a year later, he he's again sitting there offering to pay three billion dollars in cash for this little lap.

which is is three instagram. Give in mind what APP hasn't happened yet. So this seems absolutely preposterous.

And i'm just sitting there thinking later on, we're going kind of judge like they have offered more you know what they have done after what is duck i've done after IT was declined um but you know, IT seems crazy yeah and at the time you gotta think like, okay, why does why does facebook need to do this? What does facebook core competency? That is the the, the mighty mote that they can have up ended.

And you know, that's that's effectively owning your attention because then they get to choose what to do with your attention, how much to to use for advertising, where the point in terms of articles or friends how to wait all that. But facebook, their number one holy grail metric is engagement. And how much can they keep you engaging and hold your attention in a day. And snapp chat is is just like the the perfect storm of more engaging yeah .

and that's IT um well will dip in that position category had IT happened in a minute, but um you know fast for IT today in may of twenty sixteen. It's interesting you nap chat um is growing super fast and i'm sure we'll reach a large number of users at some point. But D A U the daily active users that the reporters about one hundred million now.

which is about a tenth of facebook.

a tenth of facebook um and as I believe smaller than twitter, well twitters M A U I think is like three four hundred million. Maybe it's like three hundred and .

whatever IT is IT doesn't grown meaningfully in a while.

Yeah um but but you ben hit on engagement and that that is the key here with snapshot I mean so today um they are closed with one hundred million daily active users. They are closing in on about just about one billion snap every single day so that for every active user on the platform that's ten snap per daily active user per day .

and sixty percent of people who snap at daily snap every day mourns.

So this total snapshot totally blows up the, you know the old paradise that you know ninety percent year users on a social platform we know won't create content and ten percent well and one percent of the super users, sixty percent super users yeah like .

if you think about like a redit type website or something, you're going na get percent lurking just just being the the consumers. Nine percent are um are commenting and then one percent are are actually originating the content that creates the the the conversation on the site and and you know what they just completely up ended IT by making IT stupid easy to create literally stupid .

easy yeah like I remember .

IT actually works to their advantage that IT still looks like this and it's sort of their brand. But I remember thinking that I was like kind of hackers h and amateurish that the best way that they could think to overlay text over any image was by just like asks will make the whole line dark behind there. And like asia IT IT IT just felt so crummy to me. But like now it's it's become, if you that anywhere you're like, oh, that's that's a screen shot Snapchat, that they should just do billboards of that because that's a brand at this bem.

And it's interesting, you know. I mean, this is one of the reasons why we spend so much time on the history. A because the stories is amazing but B I mean it's clear that evan is an incredibly talented um you know product visionary. Um it's not like you know Snapchat z snp chatz look and feel and brand in a lot of ways as then as you are saying, super jenky but like it's intentional right?

Or is IT pioneering given I mean, they really do all these U I paradise are like so foreign the first time to use the APP. And we're having so many people now that they're kind of breaking north of their stereotypical age group into into more adult usage. People like me saying, I don't know how you Snapchat, I need my kids to teach me.

And that's always true with any new technology. But putting on my IOS developer hat, the easiest thing to do when creating an APP is to create a table view with navigation bar at the top and then a little drill down, just like when iphone O S launched in two thousand seven. And what snapp chats really done is say, like, no, you open IT up and it's in camera mode and then everything is gesture from there. And once you learn that you get incredibly faster, that it's like its own language and grammar.

you and and one of the things there is a great article shoot I came everywhere. We'll find IT in the and linked to IT in the showers that just came out. Um another one of many profiles of evan and of the company and one of the things that talks about it's notoriously been hard to work for ever and has been a lot of employee turn over its snaps jet.

But one of the things that says there is that like the any discussion of, like, well, we we have problem, we need to do thing, why? And so we should just look at what, you know other people have done, that what you will do, what facebook do you like? What did instagram do you like? Like you'll get you fired like right away like the culture they have in the even tried cultivate there is like I don't care what other people have done in the past like we're doing things are here um which I think you I mean you really got to admire I like .

it's what god snapshot to IT is yeah this is I pull forward my tech trans. But um it's some interesting things there because they're doing a lot of things mobile first in a way that I wouldn't have known the current users or the current um products weren't to doing mobile first. One of their big cells.

And we will talk about their revenue model right now um vertical video advertising. And for the first time, they are forcing content creation to appear in the way that is the most immersive on your phone. And I think if they're looking at others, they say, okay, well, how do people do add unit so it's a feed or or they refer pose, you know letter, boxed video or they make people turn its sideways.

And that wouldn't be as engaging. It's a harder path to go this way. But it's you know I think it's fair to say product visionary that everything is completely rethought in this deal. The first way they also have basically, I mean, they changed the way that they they do user growth and and adding your friends with s na APP codes mean that that is the first time i've seen Q R codes used effectively in the wild.

And I think that you if you go get a facebook product manager or you go and get, you know, someone who's worked dead at link in or google, you asked like, oh, how should we do like an invite system? And if you in an adding friends system, there is like a way to know how to do that. And this is so different, it's like, what do you mean if they're probably right next to each other or so will be easy to just show the screen to the other screen? yeah. okay. cool. Nap .

interest. That was an acquisition. They acquire the technology behind the r code.

Oh, I get on them, ford for, you know, seeing the opportunity to do something new and novel there are rather than releasing the play.

But it's a really good point that and I think that's something that you almost say is like a dirty little secret of silicon valley, like there's actually not that much innovation that happens. You know, it's really rare. I mean, I was yes.

I in the facebook are the paypal m ohia.

Figures at at once than everyone that playbook gets disseminated everybody and like it's it's really hard. I am I I was emAiling with the founder I work with today and we're facing a problem and I was like, oh, well, we should let's look at how you know strike dealt with this because like they dealt with this problems so we should probably like do what they did you know and like it's really dangerous thinking um but it's also difficult to know it's difficult to know how to do what's right when when you're doing something new um and how much to take from the playbook because IT is the right thing and how much to be the innovator .

yeah all .

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structure the show, what will do now will dive in the category. What would have happened otherwise we are going to talk through a little bit um and what kind of wait all the way till we get to render conclusion to talk about their current business. So some good .

deal sounds .

good to are you sweet? So acquisition category, I was torn on this, and here's here's how i'll frame IT. If they had actually gotten acquisition done when they did IT would have been or when they made the offer, that would have been a product acquisition they were buying.

You have one single product that people all over the place we're using in the exact same way. At this point, I would be a business line. IT is many products rolled into one.

I mean, they ve got what stories and discover and the traditional naps model, and they like they have several different ad units that they sell in there. And there's are all different products for advertisers. And I think that at this point is that would be like the snapshot business unit of facebook rather than, hey, we bought this one off APP.

IT has a lot of people using IT like WhatsApp IT. IT would truly be like they would need their own ad sales team. They would need a lot of things that wouldn't able to be factored .

in the facebook yeah any gets right. Um the only a counterpoints offer um is maybe this would be had this actually happened and had facebook done this thing and just left him alone and all of the growth and innovation that happened at snape chat had also happened. I think you would almost argue that this would be a new category, which would be like a holy independent company within another company.

Um yeah and then okay, so because it's .

because it's all of IT, really. It's the people, it's the technology, it's the product, it's the like the way the business Operates. All of these things are just wholly .

different from facebook. yeah. And this is in a .

way that instagram and what's up really aren't.

yes. So let's play that out. And now we're what would have happened otherwise um if the acquisition had gone through. This is free revenue for snape chat.

Does facebook can have their way with that and start gathering more information about the snapshot user? Or even Better yet, they probably find a way to just tie those together on the phone where they say, oh, this person's logged in his facebook here they ask you to log in as facebook. With facebook once in the sn naps ChatApp, they can tie together, much like with instagram.

Then an advertiser can target you in multiple ways and can say, you know, i'm going to use the same mad dashboard, I get the same targeting capabilities and i'm going to target this snaps chat user as if they were any other facebook user. But I want to reach them when they're having this aha moment instead of when they're in the facebook APP. You know, reading about X, Y, Z, I think I think that's absolutely would have happened because they would have used that common ad platform and continued to leverage IT and make IT even easier for advertisers to advertise on multiple mediums and that is very different .

than the ad strategy that snapshot is doing now yeah that this is what makes this what listeners are the judge of whether this is interesting or not um but to me what makes this so interesting is like since the the spurn acquisition offer, snap jet has really like totally gone off and become the anti facebook. And that goes not just through the product um and the consumer facing aspects of IT, but through the whole advertising platform as well.

I mean, evan talks about and promises that they will never do creepy targeting. You know there is that is snatched at as a brand advertising platform and they will not track users, they will not collect data. Privacy is core to what Snapchat is. And that's just that's just an athena to the facebook and in a lot of the google way of of doing advertising.

Yeah and as you're bring that up, something we are talking about earlier, IT makes me think about, okay. So they're not going to have a million checks, boxes and drilled downs like I can use on A A facebook ad dashboard. And I was looking into IT.

All all they can all you can target on on snape chat is um geo fix location age. You get reporting on how many people opened your your um you're snap and then you get to choose if you appear in a live story or what discovered channel ua peon. So you basically get life story program, discover channel location in or gender and then you get number of people who opened.

It's pretty primitive. So if i'm trying to do any conversion based advertising that's right out, it's it's extremely expensive. And I can't quantify IT.

And I don't know if I am actually reaching my court to customers, but I am coa cola that sounds like a killer brand advertising platform. I can make sure people see you. They are like in this moment of discovery when they're looking for IT, it's fully save on their screen I designed .

and I can target based on content.

right? That's the other thing .

so that a context .

and location yeah contextual targeting the location is like getting a little bit into the the IT would be more interesting to me from a conversion perspective.

but also interesting, yes, but I think the places where it's really flourished as coach h and places like that, so like I can target people who are at coach, right?

right? And and the big obvious thing here is there is no links on snapp chat. So i'm never leaving the platform. It's not like they could link me out to go buy a product anyway. It's IT purely one directional television style advertising you.

And this is like this is the kind of stuff like, let's say, coca cola again um you know if i'm advertising on facebook, i'm just blasting I can target super granular in the hacker of people but like they're probably not that interested in drinking a coca while they're on facebook but like if I target people who are at chela like and out you maybe they want to drink a cold that's location which is secondary here but but content by so like all the discovery channel, you uh you know E S P N or taste made.

You know I want to advertise to people who are interested in cooking. I'm you know Betty croker, whatever I like. I could advertise on facebook to people who list cooking as one of their preferences, but they're not cooking when they are on facebook. But when they're watching task mid and watching cooking shows, then I can then they're in the mode .

for I don't know the context is Better. Like I look at IT, like you're not the nature brand advertising is that you're not going to go and like transact on that and closed the loop at anywhere near that moment. It's that it's like starred in your head. And um I think that the context doesn't matter, but the richness of the ad does.

You don't think there are psychological associations between content and advertising?

I do I just don't think that um the seeing an add on facebook is contextual worse than seeing IT on snapp s chat. I'm already an entertainment mode. I could see that if you're if you're advertising to me when I want a google search and I want a quest for information and i'm like coca cola, glad here right now but i'm facebook like, you know, i'm open to being entertained anyway. I guess the point i'm making is I think the context of snapshot isn't necessarily any Better. But since they are doing brand ad and you have the opportunity to create a much more rich advertisement that IT makes IT a more valuable brand platform because you don't actually care about that granular of targeting.

First, if I still think like you know when i'm on E S P N in discover and I get ax bodies spray out, I would never wear x bodies spray. But so I claim on the internet but like hide or know I I don't like to the extent you could make an argument that television is still very valuable. It's like this .

is the art you absolutely. So here's we're getting into my render conclusion. But I think snapshot opportunity is enormous because brand advertising currently is and has always been much larger than than transaction based advertising.

I'm not sure conversion based advertising, I do not direct response direct response that um and advertising stays relatively fixed uh as a percentage of the GDP, it's between one and one point four percent of the GDP ever sent. The notion of advertising was was invented in the united states. And so with that staying about flat, you know the GDP l will grow some.

But um with that staying a uh you know about fixed, it's about allocation. And if brand advertising is is is and sort of will always be more significant than direct response right now, a lot more brand dollars are spent on television still than anywhere else. And now it's a race to what platform can effectively steal from television advertising. And that's why I think snapshot real opportunities, can they be the television of the future.

There's no good place really to do IT online right now. I mean, we we did a past show on youtube. You know, youtube is kind of the best place to do brand advertising online right now.

And it's still got a bunch problems and people skip ads and all that. Still no words. yes. You know if yes, you can skip ads on snap chat, but like just the whole modality of the product is so much more immersive and so are the ads.

There are ten seconds and you can want to skip and less like I want to skip add when i'm watching discover as much as I want to skip. One of my friends stories that i'm not interested in, basically like i've got ten seconds. If you can captivate me, i'm good for ten seconds where as on youtube, like running a period for a minute where I have to wait five, i'm just going to skip after five seconds every single time I possibly can because it's not designed to be watched all the way through for the impatient person.

Specially not a mobile.

especially not a mobile. Great point. And snape chat is like totally piggy backing our tecture ons. But totally piggy backing on are completely you know um I are our culture that is not able to pay attention to things for very long and we end up watching us talking to someone else today, watching a snap for ten seconds, watching and other snap for ten seconds and maybe like ten minutes go by and you end up completely immersed in in something where you could have watched a whole television show in there. But I was cut up in small enough content that was continually entertained.

And again, back to, like, even instagram. And know is our listeners know where big fans of instagram, but like you got to scroll through the dam feed you do.

you do and got as a, as a competition ist IT kills me that IT snaps to the top every time. So I have this like fear of opening instagram now, because what if I get part way down and then there's some pictures that I missed, like snaps, doesn't have that because everything in at the understanding is like it's sort of unsupportable and will go away. Anyways, I can just check .

IT at my leisure and literally you just open the APP and maybe you like, you open the APP, you swipe left, you tap. And now with stories auto playing to the next story.

that's all you gotto do. Yeah, I think there are average time viewed. And up right now is like thirty minutes. They command a tremendous amount.

thirty minutes, two taps and once wipe.

Yeah, I mean, it's it's the attention war. I mean, that's what this really comes down to front between facebook and and and snapp chat. And I actually this is another um great conversation I was having earlier this week.

Instagram redesigned and boy is a gorgeous that just shows off just the content we wanted know about the icon but inside IT is like, so nice pink. no. But somebody raised a great point to me that the world sort of shifted.

No, instagram is a museum. Instagram inherently, I put less content on that because it's like a showcase and reflects on me forever. And when you when you go to snapp chat, the my responsibility snapshot like a crowded bar, like there's you know there's content flying everywhere. It's it's lose, it's fun. And like that just creates a platform that is just commending a way, way more attention than that museum field.

How much relative time do you spend in museum's versus bars?

Yeah well I might be not represent but .

maybe yeah anyway right let's to start driving in this toward home um okay a .

textron you know I think we touched .

an all mine yeah mostly mind to um but i'll just call that again. We've talked about this on the show. I think it's maybe been one of my tech trends in the past.

But perfect example of starts small. You know, they started with nothing but starts small nail IT for one audience and grow from there. And I mean, they didn't even do this intentionally. But like you know, the use case of I won attacks with my friends and facebook is blocked on my ipad. Like solve that, then solve the next thing.

Classic case anas program says with that trying get to the next order of magnitude of customers and don't focus on the far future because contrary to what you might think in startups, you can implement a hill climbing algorithm and there are not local maximum a so don't be afraid that you're gna hit of a false peak. Just keep hitting the next peak .

and you'll be specially especially in consumer facing, yes, I ies, yeah I guess it's probably not the same and enterprise .

but yeah and i'm not sure I totally agreed with that premise, but I I sure like IT from a inspiration tional perspective .

all right conclusion.

So so Normally would throw out like was IT a good decision to make this acquisition? And so I was thinking for this one, was IT a good idea if you're a Snapchat shareholder to decline this offer? David has a more interesting framework, I think because because that that wants to sure thing, right? It's like i'm a snapp chat.

Ch cheerfulness. Do I want to be worth three billion dollars or the sixteen billion dollars that is valued on paper today and will likely continue to grow? David was your frame.

So um I thought we could do uh grade mark zc er berg and facebook for the decision to walk away after the three billion dollars versus trying harder to make the acquisition happen, likely at a higher Price.

Yeah and this one's interesting because I think IT presents a little bit more than just like obvious shareholder value IT gets into, you know the more you're send in offers back and forth, the more likely to league um the more you worry about your team back at facebook like we saw what the WhatsApp back position being like nineteen billion dollars we paid for what and then sort of having to justify that there might be like a personal pride thing on the line there.

At the end of the day, like i'm as i'm talking through that all this, I think none of IT really matters that much. And I was still facebook needed to offer war like IT was. I give facebook and f on not going in bidding higher. I think this one is like so clear cut at this point. I've loved here.

So so yeah um i've been thinking about this. I actually I want to be I want to be our listeners are going to love this. I want to be device of here and to give them an a and the reason i'm going to .

give them an a let .

on me is because especially with the direction that snapped had has gone. I was thinking about this when we were talking about the category and was like, oh, I could be like a company within face but like never would work.

Like these are just two companies that cannot exist together um and so if i'm mark sucker burger and facebook, uh this criticism when you were talking about like the reaction within the company of facebook lake, okay, let's say he'd been snapped snaps, chat up to, I don't know, fifteen billion dollars or one thousand billion dollars what's up territory and then come back in and then this guy, evan, would come into the company and basically be like, you know, F, U, everybody like I do things completely differently here. I stand for everything that you are not, you know, what would that have done? right? And like facebook has been super successful in the in the two and a half years since this time. Um and I think in a lot of really ccrtain stalls, ed, what facebook is and and what there you know growth potential is going forward and they know what like a three hundred dish billion dollar market cap company? Um I don't know.

Yes, I talking about digging here, but i'm I am trying to think through if facebook did what I was talking about earlier and kind of like flat out onto the same platform and made IT easy for advertisers like instagram, if, to your point, what have they bitted up to fifteen billion dollars? Were they, in any reasonable time period, have gotten fifteen out fifteen billion dollars of advertising revenue out of IT? Or would there are just have been this explosion beforehand, like you say of like culture, miss math. Uh a lot of the um value that people are attributing ting to snap chat right now is because it's on this unique and different trajectory that's more like television advertising than response.

And could that have existed with in facebook?

right? That's a really interesting.

You logged this would snap to have be like if you logged in with facebook be weird.

Yeah yeah I mean you're only they're only they're projected to um get to earn about three hundred million dollars of revenue this year. So I mean, the evaluation is is like not not based on their recurrent revenues at all. It's based on the promise of the future that IT can replace television brand advertisers.

And I don't know what I would change my grade to, but I totally, totally see your argument that that um you know a facebook continue to build this up. They may actually not be able to get that much value of IT internally or as much as they can do as an external company. And that's why we need new startups to come and create value that incumbent never could create.

You mean this seems like a classic case of he'd hope we saw with poke like they recreated IT you know pixel for pixel and IT just doesn't work inside facebook? no. I mean, yeah, there was the network effect mode to, but like I was still so small at that point.

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step time just skip in the car about today。

Yeah we can skip the car about um if you wants to discuss more, join us on slack in our slack community.

Yes because god knows my minute my opinions are going to continue to waver on this we see now right .

till next time.

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