Zero to $25B+: How Snapchat Surpassed Twitter in Valuation in 4 Years

Snapchat's meteoric rise amidst a crowded social media landscape is one of the great tech and entrepreneur stories of this decade. As Snap Inc. looks to raise $4 billion in an IPO offering by March 2017, we take a look at its trials and tribulations that made the app a permanent fixture in the social media circuit. 

The ability to embrace challenges and persist in the face of setbacks are critical characteristics of a growth mindset, an essential character trait for successful founders. Even early on in his founding journey, Snapchat Evan Speigel showed he had it in spades. Coming off the back of his second failed entrepreneurial venture, Evan Speigel could have called it quits when Pictaboo, the alpha version of Snapchat bombed on the app store, with just 127 users. 

Ignoring the naysayers, Speigel persisted with his hunch that he was on to a potential ‘million dollar’ idea. Little did he know that Snapchat would make him a billionaire before he hit 25.

Gone in 10 Seconds

“In April 2011 we moved into the not yet lucrative world of mobile photo sharing,” Evan Speigel wrote about the launch on the Snapchat blog a year later. Snapchat isn’t about capturing the traditional Kodak moment.  It’s about communicating with the full range of human emotion — not just what appears to be pretty or perfect.”

In contrast to Facebook and Instagram, where users carefully constructed their online personas, Snapchat served as a perfect foil, a judgement-free place where teens could let their hair down, and share photos that would self-destruct in less than 10 seconds. In the early days, the media framed it as a sexting app, a place where users could share intimate photos that they wouldn’t want to be leaked to the wider world. In the backdrop of infamous sexting fails of celebs like Tiger Woods and Anthony Weiner, the app would find product market fit and runaway growth. In about a year, Snapchat’s user base would swell to 10 million, and over a billion photos would be shared on its app. 

Bigger Than Twitter

Facebook famously defanged Twitter with the launch of the Subscribe button in 2011. Similar to the Twitter’s Follow button, it allowed users to follow celebrities or personalities without having to friend them. When combined with Facebook’s larger user base and accruing network effects, it managed to successfully stall Twitter’s growth.

Facebook, ever savvy to the emerging threat posed by Snapchat, first tried to clone it with the launch of Poke in 2012 but failed to find any traction. Having failed at slowing down Snapchat’s runaway growth, Facebook made a $3 billion acquisition offer, which was rejected by Snapchat’s founders, according to a report published by The Wall Street Journal.

In hindsight, it was the right decision to make. Today, Snapchat is not just a decacorn, its valuation has surpassed Twitter by $10B. In seven financing rounds, Snapchat has raised $2.62B from marquee VCs such as Lightspeed Venture Partners, Sequoia Capital, NEA, KPCB, and Alibaba to name a few.

In June 2016, Snapchat, only four-years-old, clocked 150 million daily active users, surpassing 10-year-old Twitter’s daily active user base. Users spend an average of 25 to 30 minutes on Snapchat, making it one of the biggest time-sucks since Facebook. Meanwhile, video sharing app Vine announced its demise, four years after it was acquired by Twitter for $30 million. Years of management churn, combined with a two-pronged assault from Snapchat and Instagram eroded its user base and first-mover advantage.

Whose Idea was it Anyway?

Curiously omitted from Spiegel’s own blog on Snapchat’s origins is Reggie Brown, who claimed in a lawsuit that Snapchat was his idea. Brown alleged that Spiegel called it a “million-dollar idea,” upon hearing it, and began working on it while studying at Stanford. According to the lawsuit, the three had launched Pictaboo together but had a fallout in August 2011. Brown said Bobby Murphy and Spiegel locked him out of the servers and stopped communicating with him. It wasn’t until September 2014 that the lawsuit was settled and credit given where it was due.

“Reggie Brown originally came up with the idea of creating an application for sending disappearing picture messages while he was a student at Stanford University. He then collaborated with Spiegel and Murphy on the development of Snapchat during its early and most formative days.” reads a tersely worded press release sent out in September 2014.

Why Snapchat is Worth $25B+

From its first funding round, Snapchat has maintained a laser-sharp focus on the teen demographic. As the legend goes, Barry Eggers, a managing director at VC firm Lightspeed Ventures discovered the app after surveying the most used apps of his teenage daughter. Snapchat’s youth connect was the reason for its first cheque, and it’s a demographic the company has successfully retained. 60 percent of Snapchat’s users in the US are under the age of 24, according to Statista. That youth-centric focus of Snapchat was no accident – the founders made sure that the design of the app stayed and was crafted to appeal to the young.

Other than its enviable growth rates and engagement metrics, Snapchat has managed to roll out features to monetize its audience through video ads, branded lenses, and geofilters. According to eMarketer, Snapchat is expected to rake in almost a billion dollars in revenue in 2017.

Users watch 10 billion videos a day on Snapchat, the company said in April this year. While Snapchat has a different way of counting video views compared to Facebook, the number quoted by Snapchat was higher than Facebook’s last disclosed numbers. Still, beating a behemoth several times its size at any metric is a creditable feat.

The Road Ahead

Facebook continues to snipe away at Snapchat as it prepares for an IPO in 2017. Facebook’s previous attempts at cloning Snapchat with Poke in late 2012 met with failure, but it keeps nipping away, undeterred. Slingshot and Riff, two Snapchat-like apps launched by its Creative Labs stable also failed and were shuttered a year ago. In August this year, Instagram took aim at Snapchat with the launch of Instagram Stories. So blatant is the copy that Instagram CEO Kevin Systrom openly admits to it. LifeStage, a teen-only app was also launched in August, and most recently, Snapchat-like photo filters are being tested on Facebook’s main app.

In Asia, a Snapchat clone called Snow, made by South Korean company Naver is gaining traction. Armed with $45M of VC funding from Line, it’s taking advantage of the fact that Snapchat is blocked in China. Line Messenger has also taken a leaf from the Snapchat playbook, with posts that only last 24 hours.

Meanwhile, Snapchat rebranded itself as Snap Inc. and announced the launch of spectacles, which would let the wearer take a 10-second video clip at the push of a button. It remains to be seen if Snapchat’s spectacles find product-market fit. So far, Snapchat’s LA roots have helped craft its perception as an aspirational, non-geeky product, unlike Google Glass. As Snap Inc. looks to raise $4 billion in its initial public offering by March 2017, valuing it at the $25-$35 billion range, the stakes couldn’t be higher.