Turning down $3 billion? An impressive maneuver amidst a whirlwhind of events for the new social media darling for the under 18 crowd – Snapchat.
While nearly everyone has an opinion, most of those opinions focus on either the unfettered brilliance or utter stupidity of Snapchat’s decision. I’d like to propose an equally interesting angle for debate.
What prompted Facebook to make such an offer in the first place?
Facebook is Becoming Commoditized
As the Internet (or any other system) matures, the tendency is to evolve towards higher levels of organization. What Facebook really accomplished was to impose a little bit of order on the previously chaotic way we interacted on the Internet. It connected any one individual to all of their other acquaintances - this is the social graph at the core of Facebook’s business. But users want a more robust and curated experience than simply being connected.
Facebook understands this - it’s why it bought Instagram and continues new feature development - and has worked hard to become the foundation upon which these more curated experiences are built. How many times have you signed up for a new Web service with your Facebook account?
Facebook is ultimately a lot like a public utility – it’s a necessary service that everyone uses and supports more socially vibrant activities. Think about how often you interact with your Internet provider or mobile carrier as opposed to any of the services you use online on or on your mobile device. Facebook is experiencing a similar commoditization.
The ‘Tween’ Problem
It’s no secret that the market for mobile users under the age of 13 is huge. Mark Zuckerberg has been outspoken about his desire to engage users under 13, but Facebook hasn’t yet figured out how to accomplish this task without running afoul of COPPA.
Snapchat, on the other hand, has seen some success in this area with its SnapKidz feature, designed for users under 13.
Everyone knows that there are users under the age of 13 on Facebook – it’s become a rite of passage to get your Facebook account. And just like any other rite of passage that’s based on a firm age requirement, people that are just a bit too young will lie about their age to gain access to the privilege.
To be fair, Facebook has implemented an age gate, but there’s little that Facebook or any service can do to keep children from lying about their age. Snapchat faces a similar problem, but SnapKidz allows the company to claim with a straight face that they really are doing all they can to keep young users off their service.
The age gate is the stick, but Facebook has no carrot to attract under 13 users the way Snapchat does.
Innovation: The Startup’s Advantage
Piper Jaffray recently reported that Facebook is losing relevancy amongst teens – more teens identify Twitter as their preferred social network. We need to remember that there is a distinction between Facebook the publicly traded company and Facebook the social network.
Facebook would like to provide a platform for social networking that is ubiquitous so that it can continue to generate advertising revenues. In some sense, it’s irrelevant if users are on Facebook the social network, so long as they continue to be engaged with Facebook the company. Keeping users in any particular environment requires constant innovation, and Facebook is at a strange place in its life cycle. It’s not yet mature enough to have an innovation branch akin to Google X, but it’s a bit too big for the small culture of innovation that it has formerly been known for.
The solution to this dilemma is simple: acquire innovative services that have proven themselves. It’s less risky than pouring money into innovations internally that may not pay off, and it allows Facebook to participate in a greater share of humanity’s online activities.
Is Snapchat crazy for turning down Facebook’s offer? Only time will tell. The fact that Facebook is willing to spend $3 billion on a company with zero revenue clearly demonstrates that Snapchat made a smart bet on the Tween market.
With a varied past as an Outward Bound sailing instructor, elementary school teacher, and non-profit administrator, Matt does a little bit of everything at Famigo, an Austin, Texas-based startup that builds technology to protect kids and families on mobile devices. A native of Scranton, Pennsylvania, Matt holds a B.A. in Philosophy from Colgate University, an MBA from the College of Charleston, and is currently taking a leave of absence from the University of Texas School of Law. Follow Matt on Twitter @mmmcdonnell.
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