How 2 Frat Bros Built Snapchat Into a $16 Billion Company
The ephemeral messaging app went from high school sexting to the one of the most valuable private companies in the world.
By Will Yakowicz, November 2015
During the spring semester of 2011 at Stanford, two fraternity brothers, Evan Spiegel and Bobby Murphy, cobbled together a prototype for a mobile messaging app that featured the ability to send self-destructing photos and videos. Spiegel presented the app, named Snapchat, in one of his classes, but no one was blown away.
Four years later, that app--designed to help messages disappear--has major staying power and a $16 billion valuation to prove it. Snapchat is not only adding media partners and making its own content, it's poised to become a full-fledged media destination in the near future.
All of this growth took time. Throughout the summer after that chilly first reception, Spiegel and Murphy worked on their app. By the fall of 2011, they had a minimum viable product and released it to 20 friends.
The number of users started to balloon as the weeks went on. Spiegel's mother told his high school-aged cousin about the app and the news started to spread like a juicy rumor throughout the halls: There's an app that allows you to send ephemeral videos and photos. No evidence gets pasted on your profiles forever, as it does on Facebook, unless someone takes a screenshot and then posts it. That was the spark for Snapchat.
"It became clear how awful social media is," Spiegel told The New York Times in 2013. "There is real value in sharing moments that don't live forever." Consumers would have to agree. At the time Spiegel shared those comments, Snapchat users were sharing 400 million photos a day through the app, more than the tally at either Instagram or Facebook.
Today, the Los Angeles-based Snapchat boasts more than 100 million daily active users, who share about 700 million snaps and 500 million stories a day. In early November, Snapchat announced that its users view more than six billion videos every day, tripling its video views since the spring and nipping at Facebook's eight billion daily video views. So it's not surprising that the company has attracted $1.2 billion in venture capital from investors such as Alibaba, Tencent, Benchmark Capital, and Yahoo. And with a valuation of $16 billion, it's become the envy of many in the tech world.
Still, the company is very much of the tech world--and thus is subject to the ups and downs of the market overall. On Tuesday, institutional investor Fidelity marked down its stake in Snapchat by 25 percent to $34.5 million in the third quarter, according to widely reported data from Morningstar. Fidelity is said to be reassessing its position in the company, as anxiety looms over whether highly touted tech companies are worth their lofty valuations.
Snapchat declined comment for this story. However, it may be worth noting that unlike many of its technology peers, the company does in fact generate revenue. And even though actual profits remain elusive, plenty of giant companies like Amazon have similarly spent ample time in the red. Plus, as the mobile app makes deals with more advertisers for sponsored lenses, channels, and geofilters, profitability may well be on its way.
Snapchat started catering to advertisers with sponsored snaps and filters. The first ads appeared in October 2014, starting with one for horror movie Ouija. This year, sponsored filters depict Snoopy from 20th Century Fox's The Peanuts Movie. Sony Pictures purchased a Discover channel for its latest James Bond box-office hit, Spectre.
The company has also dealt with its share of setbacks. If you'll recall, Snapchat first came into popular consciousness for its reputation as a sexting app. There were some risqué emails and sexism accusations too. And when the app rebuffed a $3 billion takeover offer from Facebook founder Mark Zuckerberg in 2013, the move won Spiegel and Murphy more than a few searing critiques. But, you have to admit, Spiegel has grit, which will be most valuable in the days and months ahead.
Perhaps the best picture of Spiegel's temerity as CEO came from Sony Entertainment CEO Michael Lynton, whose leaked emails after the company's epic security breach caused quite a storm in the press. Spiegel broke down his strategy for Snapchat and his outlook on the economy:
"I disagree wholeheartedly with the notion that mobile will be forever fragmented--we are the only differentiated messaging service in the United States and we will continue to provide a unique and innovative product experience," Spiegel writes to Lynton. "Snapchat is not valuable in the long-term because it is used by teens or because it is a threat to Facebook. It is valuable because it has fundamentally changed the nature of digital communication."
It now looks as though that arrogant frat boy is all grown up.
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