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Explainer: Why did Snapchat turn down Facebook's $3 billion offer?

Turns out the makers believe it could be worth a whole lot more.

Snapchat sees more than 350 million photos shared on it every day.
Snapchat sees more than 350 million photos shared on it every day.
Image: Placeit

WITH SNAPCHAT REJECTING a $3 billion (€2.2 billion) offer from Facebook, one of the hottest photo apps out there is currently in the spotlight. The app has been growing in popularity in recent times and shows no signs of stopping.

But what exactly is Snapchat? And why is Facebook so keen to buy it, considering it already has Instagram?

So what is Snapchat?

Snapchat allows you to message photos to a friend that will self-destruct in 10 seconds or less. Once those photos are destroyed, there is no way you can get them back. While it was released back in September 2011, its novel approach to sharing meant that the app has grown in popularity over the last year and a half. Currently, there are more than 350 million photos shared on the app every day, equaling Facebook’s total.

It also launched two new features recently. The first is called SnapKidz, which is Snapchat for kids under 13. The second is called Stories, which allows you to send photos to a group of friends. These photos stay up for 24 hours and are shown in a feed similar to Facebook which only select friends can see.

(Video: Snapchat/YouTube)

But you can take screenshots on your phones. Doesn’t that defeat the purpose of self-destructing photos?

It thought of that. If someone takes a screenshot of a photo sent to them, the person who sent it is automatically alerted. This is to make sure any potentially embarrassing photos aren’t shared without you knowing about it and prevent people from thinking it’s a good idea.

Now that I think about it, isn’t that the app that all about sexting?

If you were to believe the rumours, then yes. There were rumours about teenagers using it as a way of sexting, something that wasn’t helped by a number of media outlets reporting on it, but its co-founder Evan Spiegel said that it’s not the purpose of the app.image(Snapchat allows user to draw pictures and insert captions over their photos. Image: Snapchat)

So why would Facebook bid $3 billion on it?

Many reasons. The first is that it’s very popular with teenagers, a demographic that Facebook has been trying to tie down for quite a while. The company has seen a drop in the number of teenagers using the site in recent months and it’s a problem that it has still yet to address.

Mobile is also a huge factor behind the bid. Facebook has been putting all its efforts into developing its mobile apps such as Messenger because that’s where its audience is going to be in the future.

Since Snapchat is a popular mobile messaging app that focuses on photos and young people, it’s the perfect app to help Facebook achieve this. That was the reason why it bought Instagram for $1 billion – which later became $715 million plus stock – and is the same reason why it tried to buy Snapchat.image(Facebook has been concentrating all its efforts on mobile, something its founder Mark Zuckerberg has been trying to achieve for the past two years. Photo: AP Photo/Jeff Chiu)

Wouldn’t it be cheaper for Facebook to just create its own version?

It did a year ago, but it failed miserably. It released its update to an old feature, Facebook Poke, back in December 2012 and it quickly reached number one in the Apple and Google Play store.

This was due to it advertising it on its mobile app which drove downloads, but by the end of the month, it began to free fall.  A lack of originality meant that people quickly grew tired of it and either went back to Snapchat or dropped it entirely.

If that was me, I would have taken the $3 billion and ran with it.

You’re not the only one.

So why didn’t Snapchat? Turning down that amount is crazy!

Because its potential means that it could be worth so much more. Reports say that Spiegel isn’t considering any possible acquisitions or investments until early next year and is hoping that the number of users and messages sent on Snapchat will grow, meaning its value will grow.

The app is still getting offers for investment that could value it at more than $4 billion (2.9 billion) and that’s before it has made any money yet.

Wait a second, it hasn’t made any money yet?

Correct. Snapchat doesn’t have a business model yet, but neither did Instagram until a month ago and it was purchased by Facebook back in April 2012. It’s currently working on the best way to make money from it.

Why has it not figured that out yet?

Because its product lives or dies by how many users it has and keeps. In the case of Facebook, Twitter, Instagram and Snapchat, the user is the product and nobody wants to be bombarded by ads the moment they sign up.

Keeping those users without doing anything to upset them is vital to their success and it’s the reason why most sites take a softly-softly approach when they introduce ads.

Read: Snapchat rejected $3 billion offer from Facebook – report >

Read: 11 per cent of people in Ireland now have Snapchat (but just 3% have Vine) >

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About the author:

Quinton O'Reilly

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