Episode 12 Snapchat

Summary Notes


In episode twelve of Acquired, hosts Ben Gilbert and David Rosenthal discuss a major "what if" in tech history—the failed acquisition of Snapchat by Facebook in 2013. Initially offered $3 billion, Snapchat's rejection of the deal led to its evolution into a unique platform for ephemeral content and brand advertising, diverging sharply from Facebook's data-driven, direct response ad model. Highlighting Snapchat's growth from a simple photo-sharing app to a multifaceted social media powerhouse, the hosts examine the potential implications and cultural mismatch had Facebook succeeded in acquiring Snapchat. The episode also touches on Snapchat's innovative features, such as vertical video advertising and snap codes, and their impact on the attention economy, challenging the traditional paradigms of online engagement and advertising.

Summary Notes

Episode Length

  • Ben Gilbert and David Rosenthal acknowledge that their podcast episodes have been getting longer.
  • They seem unsure if the increased length is problematic, with David suggesting it may be slightly problematic.

"I've noticed our episodes have been getting a little longer." "Yeah, they have." "Do you think that's a problem?" "Maybe a little."

The quotes reflect the initial conversation about the length of the podcast episodes, indicating some concern but no definitive stance on whether it is an issue.

Introduction to Episode Twelve

  • Ben Gilbert and David Rosenthal introduce episode twelve of Acquired.
  • They note that the episode will deviate from the usual format, focusing on a technology acquisition that did not occur.

"Welcome to episode twelve of Acquired, the podcast where we talk about technology acquisitions that actually went well. I'm Ben Gilbert. I'm David Rosenthal and we are your hosts. This episode, we're going to try and do something a little bit different."

The quote sets the stage for the episode, highlighting the hosts and the podcast's theme, and foreshadows a unique topic for the episode.

Facebook's Attempted Acquisition of Snapchat

  • The hosts discuss Facebook's attempted acquisition of Snapchat for $3 billion.
  • The event took place in November of 2013.
  • They express interest in analyzing the potential outcomes had the deal been successful.

"Today we're going to talk about one that didn't happen at all." "This week we're going to cover Facebook's attempted acquisition of Snapchat for $3 billion." "A while back in November of 2013." "Yes. And it'll be cool because not only the deal didn't go through, but we have the benefit of history to help us grade what would have happened if that offer actually went through."

These quotes provide context for the episode's main topic, highlighting the significance of Facebook's failed attempt to acquire Snapchat and setting up a discussion on the hypothetical outcomes.

Audience Engagement and Community Building

  • The hosts encourage listeners to rate the podcast on iTunes and engage in social sharing.
  • They announce the launch of a Slack community to foster discussion and interaction with the audience.

"One, please rate us on iTunes. It's how we grow the show and it's how we gain more listeners like you. We also really appreciate any social sharing." "Yeah, we have a new innovation here at Acquired. We just launched a Slack community that we're experimenting with."

The quotes emphasize the importance of audience engagement for the growth of the podcast and introduce a new platform (Slack) for community interaction, highlighting the hosts' desire to connect with their listeners.

Sponsorship and Advertisement

  • Pilot, an accounting firm for startups and growth companies, is introduced as a sponsor of the episode.
  • The hosts discuss Pilot's services and its relevance to startups, emphasizing the importance of outsourcing non-core activities like accounting.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner, pilot for startups and growth companies of all kinds." "So enter Pilot. Pilot both sets up and operates your company's entire financial stack."

The quotes serve as an advertisement for Pilot, outlining the company's services and its fit for startups, reflecting the podcast's target audience of technology and business enthusiasts.

Snapchat's Early Days and Founding Story

  • Evan Spiegel, a Stanford student, and Bobby Murphy, a senior, become friends and start working on social apps.
  • They experience several failures before coming up with the idea for Snapchat.
  • The idea for Snapchat is credited to Reggie Brown, a fraternity brother, who suggests an app for making pictures disappear.

"So they start hanging out. They become friends, and Murphy recruits Evan." "Unsurprisingly, that goes nowhere." "He comes running up to Evan, and he's like, I've got an idea for an app that you can make pictures disappear."

These quotes detail the initial collaboration between Spiegel and Murphy and the origin of the idea for Snapchat, which was contributed by Reggie Brown.

  • Evan Spiegel and Bobby Murphy have a falling out with Reggie Brown over equity splits.
  • The dispute leads to Brown being pushed out of the company.

"There's also, unfortunately, a big argument occurs between Evan and Bobby. And Reggie. And Evan and Bobby kick Reggie out of the company."

The quote outlines the internal conflict within the founding team of Snapchat, highlighting the importance of early discussions on equity splits to prevent such disputes.

  • Snapchat initially called "Peekaboo" receives a cease and desist order, prompting a name change.
  • Reggie Brown is credited with creating the ghost logo before his departure from the company.

"They get a cease and desist order from another startup called Peekaboo that I think is also in the photo space, telling them they need to stop using the name." "They decide to call it Snapchat, and they kept the ghost."

The quotes explain the circumstances leading to the rebranding of Peekaboo to Snapchat and acknowledge Reggie Brown's contribution to the iconic ghost logo.

Snapchat's User Growth

  • Snapchat's user base initially grows slowly, with only 127 users after six months.
  • The app gains traction in Orange County high schools, particularly because students use it on school-issued iPads where other communication apps were restricted.

"So they spend the whole summer after that quarter working on the app, and they work really hard, and they grow the app, and by the end of the summer, they have 127 users." "So it sweeps through this school, then it starts sweeping through other high schools in Orange county, then it moves up the state, and then it moves into other high schools in northern California and in Silicon Valley."

These quotes describe the initial challenges in user adoption faced by Snapchat and the eventual viral spread among high school students, which was a critical turning point for the app's popularity.

Snapchat's User Growth and Server Costs

  • Snapchat experienced rapid user growth from December 2011 to April 2012, reaching 100,000 users.
  • The growth pattern showed an order of magnitude increase in a month, followed by a fivefold increase in the subsequent months.
  • This growth trajectory is described as the "proverbial hockey stick," indicating a sharp increase.
  • The increase in users led to higher server costs since Snapchat was hosting a significant number of photos.

"So by December of 2011, Snapchat is up to just over 2000 users. The next month, January 20,000 users. A couple of months later, in April, 100,000 users."

This quote highlights the exponential growth of Snapchat's user base within a few months, emphasizing the scale of adoption.

"And this is the proverbial hockey stick. They have found it. So all of a sudden they need to pay the server cost because they're hosting a lot of photos at this point."

The quote identifies the point at which Snapchat's growth surged dramatically, leading to increased operational costs due to the volume of content being hosted.

Product Stagnation and Market Fit

  • Snapchat's product remained unchanged during the period of significant growth.
  • The market fit was discovered inadvertently through Evan Spiegel's mother, rather than through targeted marketing efforts.
  • The narrative suggests that Snapchat's success was somewhat serendipitous and not the result of deliberate product tweaks.

"Literally didn't change anything."

This quote emphasizes that the product itself did not undergo changes during the time of rapid user growth, suggesting that external factors contributed to the success.

"Evans. Mom found the right market for them."

The quote indicates that the market fit for Snapchat was discovered by chance, through the social circles of Evan Spiegel's mother.

Snapchat's Seed Funding and Stanford Dropouts

  • Snapchat raised a seed round of $485,000 from Lightspeed at a $4.25 million valuation.
  • Evan Spiegel dropped out of Stanford shortly before graduation after receiving the seed funding.
  • Several of Spiegel's friends from Stanford also dropped out to join Snapchat, contributing to the development of the core features of the app.

"They raise a seed round $485,000 from Lightspeed at a four and a quarter million dollar valuation."

This quote details the financial backing Snapchat received, which allowed the company to scale its operations.

"He literally drops the mic in the middle of class. This is according to Evan, once the money hits the bank account and walks out the door and never comes back."

The quote describes the dramatic moment when Evan Spiegel decided to leave Stanford and pursue Snapchat full-time, underscoring the commitment and risk involved in startup culture.

Facebook's Interest in Snapchat and Poke Launch

  • Mark Zuckerberg became aware of Snapchat and met with Evan Spiegel to discuss the app.
  • Facebook created a clone of Snapchat called Poke, which was a well-executed copy from a user experience perspective.
  • The launch of Poke inadvertently brought more attention to Snapchat, legitimizing it in the process.

"And then also in December of 2012, Mark Zuckerberg has heard about this app, and he sends an email to Evan Spiegel."

The quote indicates the moment when Zuckerberg took notice of Snapchat, leading to significant developments in the competition between Facebook and Snapchat.

"Evan had deleted his Facebook account, so he goes to Bobby and has him check out poke. And sure enough, it's great. But the thing that's even greater is all the buzz that happens for Snapchat by poke launching."

This quote explains how the launch of Facebook's Poke actually benefited Snapchat by increasing its visibility and legitimacy.

  • Snapchat announced 60 million snaps per day and raised $13.5 million in Series A funding at a $70 million valuation.
  • Reggie Brown, a co-founder, sued Snapchat claiming a one-third ownership stake, resulting in an out-of-court settlement rumored to be in the hundreds of millions.

"They raised their series A. They raised $13.5 million from benchmark at about a $70 million valuation."

The quote details the significant financial milestone for Snapchat, securing additional funding to support its continued growth.

"He sues the company and claims that he's due one third ownership stake."

The quote describes the legal challenge faced by Snapchat from one of its co-founders, highlighting the potential disputes that can arise in the early stages of a startup.

Facebook's Acquisition Attempt and Snapchat's Valuation Surge

  • In June 2013, Snapchat raised an $80 million Series B at an $800 million valuation.
  • Facebook attempted to acquire Snapchat for $3 billion, but the offer was declined.
  • The failed acquisition attempt and Snapchat's refusal highlighted the company's confidence in its standalone value and potential.

"Mark Zuckerberg makes an offer to buy Snapchat for $3 billion."

This quote reveals the substantial acquisition offer made by Facebook for Snapchat, which was ultimately turned down by Snapchat's founders.

"It's pretty, I mean, you both have to put yourself in Mark Zuckerberg's shoes here. Less than a year ago, he flew down to LA and he basically sat know according we've what's been disclosed and what we can read about, he sat there and he told know how to build Snapchat and how he would do it and what the right way to do it is."

The quote conveys the dramatic shift in dynamics between Facebook and Snapchat, with Zuckerberg initially dismissing Snapchat's potential and later offering a significant sum to acquire it.

Snapchat's User Base and Engagement

  • Snapchat has 100 million daily active users, which is about a tenth of Facebook's user base and smaller than Twitter's.
  • Snapchat users are highly engaged, with approximately 1 billion snaps sent daily, averaging ten snaps per daily active user.
  • 60% of daily Snapchat users create content daily, challenging the typical user engagement model of social platforms.

"With Snapchat today, with 100 million daily active users, they are closing in on about just about 1 billion snaps every single day."

This quote highlights Snapchat's high user engagement, with a significant number of snaps sent relative to its user base.

"So Snapchat totally blows up the old paradigm that 90% of your users on a social platform won't create content and 10% will. And 1% will be super users. 60% are super users."

This quote emphasizes the shift in user engagement on Snapchat compared to traditional social media platforms, where a much larger proportion of users are highly active content creators.

Snapchat's Design and Brand Identity

  • Snapchat's interface and ease of content creation have contributed to its high engagement rates.
  • The platform's unique and sometimes criticized design choices, such as the overlay of text on images, have become part of its brand identity.
  • Snapchat's intentional design choices reflect the product vision of Evan Spiegel, the company's CEO.

"But I remember thinking that it was like kind of hackish and amateurish. That the best way that they could think to overlay text over any image was by just like, screw it. We'll make the whole line dark behind there and ship it."

This quote reflects an initial perception of Snapchat's design as unrefined, which has since become a recognizable aspect of the brand.

"It's clear that Evan is an incredibly talented product visionary. It's not like Snapchat's look and feel and brand, in a lot of ways, is, as Ben, as you were saying, super janky, but it's intentional, right?"

This quote acknowledges the strategic intention behind Snapchat's design choices, underlining Evan Spiegel's role as a product visionary.

Snapchat's Innovation and Company Culture

  • Snapchat has cultivated a culture of innovation, often rejecting conventional tech industry practices.
  • Discussions that suggest emulating strategies from companies like Google, Facebook, or Instagram are discouraged and can lead to dismissal.
  • This culture of doing things differently has been a key factor in Snapchat's success and growth.

"Any discussion of, well, we have problem x, or we need to do thing y, and so we should just look at what other people have done on that. What did Google do? What did Facebook do? What did Instagram do that'll get you fired, right?"

This quote illustrates Snapchat's internal culture of innovation and the importance of unique problem-solving approaches within the company.

Snapchat's Mobile-First Strategy and Ad Model

  • Snapchat has pioneered mobile-first strategies, such as vertical video advertising, which are immersive and effective on smartphones.
  • The company has introduced novel methods for user growth and adding friends, such as snap codes, which have been more effective than traditional QR codes.
  • Snapchat's ad model is different from other platforms, focusing on brand advertising and user privacy, avoiding granular targeting and data collection.

"They're doing a lot of things mobile first in a way that I wouldn't have known the current users or the current products weren't doing mobile first."

This quote highlights Snapchat's innovative approach to mobile-first design, setting it apart from other platforms.

"Snapchat is a brand advertising platform and they will not track users, they will not collect data. Privacy is core to what Snapchat is, and that's just anathema to the Facebook and in a lot of ways, the Google way of doing advertising."

This quote explains Snapchat's advertising philosophy, which prioritizes user privacy and brand advertising, contrasting with the targeted advertising models of Facebook and Google.

Statsig's Role in Product Development

  • Statsig is a feature management and experimentation platform that helps companies roll out and test new features.
  • It provides visualizations and a stats engine for real-time product observability and data-driven decision-making.
  • Statsig's platform is utilized by various companies, including Notion, Brex, and OpenAI, to manage and test AI product features.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing and see the impact every feature is having on the core business metrics."

This quote describes the functionalities of Statsig, emphasizing its role in accelerating product development and feature testing for companies.

Potential Impact of Facebook's Acquisition of Snapchat

  • If Facebook had acquired Snapchat, the platform would likely have become a business line within Facebook, integrating with Facebook's ad platform.
  • The acquisition could have led to Snapchat becoming more like Facebook's other properties, with a focus on information gathering and targeting capabilities.
  • The hypothetical integration contrasts with Snapchat's actual direction post-acquisition, which has been to emphasize privacy and brand advertising.

"It would be like the Snapchat business unit of Facebook, rather than, hey, we bought this one off app."

This quote speculates on the potential organizational structure of Snapchat had it been acquired by Facebook, suggesting it would operate as a distinct business unit.

"Since the spurned acquisition offer, Snapchat has really, totally gone off and become the anti Facebook."

This quote contrasts Snapchat's actual development as a platform focused on privacy and brand advertising with what might have been if Facebook had acquired it, highlighting the divergence in business models and philosophies.

Advertising Platforms and Targeting

  • Different platforms offer varying levels of advertising effectiveness based on user context.
  • Facebook allows granular targeting but may not reach users in the optimal context for certain products.
  • Snapchat's advertising is compared to television-style advertising, which is one-directional and less interactive.
  • Contextual advertising is debated, with some arguing that the platform context (e.g., Facebook vs. Snapchat) may not significantly impact the effectiveness of ads.

"Yeah. And this is the kind of stuff like, let's say, you know, if I'm advertising on Facebook, I'm just blasting. I can target super granularly in the heck out of people, but they're probably not that interested in drinking a coke while they're on Facebook."

The quote highlights the limitations of Facebook's advertising platform in terms of context, suggesting that users may not be in the right mindset to be receptive to certain ads, such as a Coke ad, while browsing Facebook.

"You don't think there are psychological associations between content and advertising?"

This quote questions the importance of the relationship between the content users are consuming and the ads they are shown, hinting at the psychological impact of context on advertising effectiveness.

Nature of Brand Advertising

  • Brand advertising is about creating lasting impressions rather than immediate transactions.
  • The richness of an advertisement may be more important than the context in which it appears.
  • Brand advertising is a significant portion of total advertising spend and is seen as a stable percentage of GDP.
  • The opportunity for platforms like Snapchat lies in capturing brand advertising dollars from traditional television.

"It's like this is the argument, which you absolutely can. We're getting into my render conclusion, but I think Snapchat's opportunity is enormous because brand advertising currently is and has always been much larger than transaction based advertising."

This quote discusses the potential for Snapchat to capitalize on the large market of brand advertising, which has historically been more significant than direct response advertising.

Snapchat's User Engagement and Platform Design

  • Snapchat's design encourages immersive user engagement with minimal interaction required.
  • The platform is suited for the current culture of short attention spans, offering content in brief segments.
  • The difference in user experience between Snapchat and Instagram is likened to a crowded bar versus a museum, with Snapchat being more conducive to continuous engagement.

"They're 10 seconds and you kind of want to skip them less. Like I want to skip an ad when I'm watching discover as much as I want to skip one of my friend's stories that I'm not interested in."

This quote explains how Snapchat's short ad format aligns with users' willingness to engage with content, making ads less likely to be skipped and more effective.

"It's the attention war. That's what this really comes down to between Facebook and Snapchat."

The quote identifies the core competition between social platforms as being about capturing user attention, emphasizing the strategic importance of user engagement.

Growth Strategy and Startups

  • Startups should focus on nailing a product for a specific audience and then expand.
  • The concept of avoiding fear of local maxima and continuing to aim for the next peak is discussed.
  • Consumer-facing companies, in particular, can benefit from this iterative growth strategy.

"Perfect example of start small. They started with nothing but start small, nail it for one audience and grow from there."

This quote encapsulates the growth strategy of starting with a focused audience and product offering, then expanding based on that success.

"Try and get to the next order of magnitude of customers. And don't focus on the far future, because contrary to what you might think in startups, you can implement a hill climbing algorithm and there are not local maxima."

The quote provides advice for startups to focus on incremental growth without fearing that they will reach a false peak, suggesting that there are always higher goals to strive for.

Facebook and Snapchat's Strategic Decisions

  • The discussion evaluates Facebook's decision not to increase its bid to acquire Snapchat.
  • The cultural and strategic fit between the two companies is questioned, with the suggestion that Snapchat's unique trajectory may not have aligned well within Facebook.
  • Snapchat's potential to disrupt television advertising is considered valuable and possibly better realized as an independent entity.

"I give Facebook an f on not going and bidding higher. I think this one is so clear cut at this point."

This quote criticizes Facebook for not pursuing Snapchat more aggressively, suggesting that the missed acquisition was a clear mistake.

"What would Snapchat be like if you logged in with Facebook? That'd be weird."

The quote reflects on the potential cultural and product mismatch between Facebook and Snapchat, questioning the compatibility of their platforms and user experiences.

Crusoe and AI Workloads

  • Crusoe is a clean compute cloud provider specializing in AI workloads and partners with Nvidia.
  • Crusoe's data centers are powered by wasted, stranded, or clean energy, offering environmental benefits and cost savings.
  • The company's unique positioning allows it to provide better performance for AI workloads compared to traditional cloud providers.

"Crusoe's data centers are nothing but racks and racks of a because Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote explains Crusoe's specialization in AI and its use of alternative energy sources to power its data centers, resulting in better performance and cost-effectiveness.

"It's super cool that they can put their data centers out there in these remote locations where quote unquote energy happens, as opposed to the other hyperscalers such as AWS and Google and Azure who need to build their data centers close to major traffic hubs where the Internet happens because they are doing everything in their clouds."

The quote highlights Crusoe's innovative approach to locating data centers in remote areas to capitalize on local energy sources, contrasting with the location strategies of other major cloud providers.

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