Snapchat is Intrinsically Worthless

Thanks for the comment ChuckMcM, I'm glad you enjoyed the article.

I tried to stay away from poking fun at the simplicity of the technical aspects of the service as much as possible, and I didn't mean for the article to come across as tech-focused.

All I meant with the MS Paint/duct tape comment was that it wouldn't be hard for a competitor to recreate the service - in fact Facebook Poke has already tried and failed due to your observation that it takes a certain "connection with a generation" to make a seemingly silly product successful. That, and Snapchat was the first to move to the market, giving it a huge inertial advantage over Poke.

The main point I wanted to make was most definitely market focused: Snapchat has built itself a user base in a market that it can't monetize by itself. It can continue to gather users 'til the end of time, but it will never be able to get any revenue from them without altering its service and driving users away. Therefore Snapchat is intrinsically worthless.

This is distinct from the statement that "Snapchat is worthless" - clearly it isn't extrinsically worthless because it can be used as a funnel to get users to other parts of the internet that might generate revenue. So there is some basis for valuing the company.

The question then becomes how much is it actually worth? I'd love for someone to help me out and stake a valuation for what they think Snapchat is actually worth.

Less than $4bn is my estimate. How much less? Not so sure.

I'm unsure why you chose to pick on Pinterest. It seems to have a very real business model that is powered by very real and powerful engagement metrics. Pinterest could very well be as solid as facebook.

Why does Pinterest need $400M in venture to operate? Lets ask ourselves why a glorified status feed, Twitter, needs over 100 engineers. Why does Twitter need to rewrite almost every aspect of real-time stream processing? Because there is huge value there, and at that scale I'm sure the financials look a lot different from your weekend web app.

Back to snapchat, this tech doomsday bubble, everyone is parrotting is a single lone horse in what are many successful and sustainable companies such as DropBox, Uber, RocketFuel and Square. And its not like snapchat is an imaginary app. Snapchat shares over 350M photos a day, people aren't lining up and seeing snapchat success overnight.

I'm having trouble seeing that the current tech industry is in a "bubble" when the only evidence for it is that SnapChat, with an incredibly huge userbase, is raising ~3B. For whatever reason the other 39 "unicorn" companies don't count.

Yelp is public and is valued at 4.5B.

I think you're onto something. Just imagine if the _sender_ gets to pick the snap sponsor from a list of 5-10! Double-monetization.

I disagree with the "snapchat is worthless" analysis of the original article. Perhaps from the point of view of the current monetization needs and mechanisms, but my feeling is that snapchat's "ephemeral" model, like it's users, is a young and fresh approach. They will invent something new. Of course, they may also die out like so many others, but it's pointless to say the indusrty shouldn't be that way. The developers may aspire to greater goals, but the consumers still dictate what they want.

Can someone who understands the strategy behind fundraising explain why they would want to raise at such a high valuation? To be clear, one point left out of the article is that the $3.5B - $4B valuation is a rumored valuation being "considered" by the startup (Their most recent round of funding valued them at $800MM). When I read about the "rumor" my immediate thought was: Snapchat leaked that to the press to gauge the response from potential investors / acquirers. The thing I don't understand is: what is their goal here? It seems like raising at a 3B+ valuation limits their options for an exit to either an IPO or an acquisition by one of maybe 3 companies. Raising at such a crazy valuation also seems extremely risky considering the volatility of apps in their space and the fact that they haven't even begun to explore monetization. What am I missing?