It seems Snapchat is not ready to sell out just yet, with the second round of funding hitting $800 million valuation, slightly less than previously reported. The app has been very successful but questions are still being raised as to how Snapchat will make money and how photos that disappear after three seconds really create value.
While the Snapchat funding is still a rumour, it appear Institutional Venture Partners have picked up 9% of the private company for $80 million. The app had a $1 billion valuation about 3 months ago, but this report has become inconclusive with the recent report, although they could both be false.
Snapchat Keeping Private
Institutional Venture Partners were not the only VP group in Silicon Valley to try and grab the funding for Snapchat, with the report stating multiple VP’s trying to grab the funding. It seem Snapchat is a well sought after startup and with good reason, the amount of photos taken per day mocks Instagram and users are dedicated to the service.
This alone is good reason to invest in a startup, but the company has said they are looking at advertising streams and possible solutions to the money problem. Snapchat is in a bigger ditch than Instagram or Vine because the media added to Snapchat is so quick and any ad taking over 15 seconds will be a burden on the apps fluidity.
We cannot really see an organic way to make revenue at the moment, photos on Snapchat are discarded, so it throws out the idea of using the photos and tags and pushing preferred ads through this. Snapchat would have to look at Google’s way of doing advertisement or make some new special way to advertise.
$1 Billion Club
Snapchat has just missed the $1 billion club it seems, with the $800 million valuation. We have recently seen Instagram, Tumblr and Waze all join this club, although Waze went for $1.3 billion and Tumblr for $1.1 billion. Path has had a $1 billion valuation as well for their next round of funding, but this is still a rumour.
We do question the low estimate of Snapchat, even though the revenue is pretty poor, as was Tumblr, Instagram and Path, yet they join the club. Snapchat has a deep user connection and even though data has not been put out we believe Snapchat has over 50 million users, more than Path or Waze.
However, in a technical standpoint Snapchat isn’t that clever, it is just a messenger that auto-deletes and can only take photos and snap on text. To Google, who bought Waze for $1.3 billion, Snapchat does not offer that same core experience and technology needed to progress apps.
In many ways Snapchat is a loose gun, while it does provide a unique experience, it does so with minimalistic effort. The site is built without incredible UI design and is very simplistic and this may be one of the big reasons it has gained so much success.
With the ever-growing userbase, Snapchat will probably hit the $1 billion valuation soon enough, although we suspect the owners will be less likely to sell out to a big tech company.