Mark Zuckerberg couldn't buy Snapchat years ago, and now he's close to destroying the company
Mark Zuckerberg couldn't buy Snapchat years ago, and now
he's close to destroying the company
Facebook reportedly tried to buy Snapchat in 2013 for $3
billion to boost its appeal with younger users.
Rebuffed, Mark Zuckerberg turned Instagram into a
potential Snapchat killer.
Now Snapchat's valuation is falling just before company
insiders will be free to sell massive numbers of shares.
John Shinal |
@johnshinal July 12, 2017 2 Hours Ago
In late 2013, Snap CEO Evan Spiegel reportedly rebuffed a
$3 billion takeover offer from Mark Zuckerberg.
Now the Facebook CEO may be having the last laugh.
Snap shares fell sharply below their IPO price of $17 a
share this week, after one of the investment banks that helped take the company
public downgraded its stock over worries about Instagram.
The downgrade of Snapchat's parent firm by Morgan Stanley
came one business day after Facebook's rival Instagram service introduced what
it called its "fun new face filter."
The feature, which allows users to personalize photos
with realistic-looking digital elements, was just the latest in a long list of
tools Instagram has rolled out to blunt Snapchat's growing appeal to younger
users.
In the time since Spiegel spurned Zuckerberg, Facebook
has turned Instagram — a photo-sharing service it acquired in 2012 for just $1
billion — into a key growth driver and a Snapchat killer.
And it's done it with product updates — from photo
filters to digital sunglasses — that appeal to the same youthful demographic
Spiegel used to build up Snapchat.
"The [potential] death knell for Snapchat was
Instagram stories," said David Pierpont, vice president of performance
media for Ansira, a digital ad agency with more than 100 clients, referring to
a video-sharing feature launched last August.
"When we saw that, we said, 'It's over,'"
Pierpont told CNBC in a phone interview.
It's not just that Instagram can mimic Snapchat features,
Pierpont says, but that when combined with Facebook's own service, it can offer
advertisers access to more than 2 billion users, as well as detailed data about
their online "likes" and habits.
Instagram's growth has accelerated markedly in the last
year.
Last month, the number of people who use Instagram
Stories every day reached 250 million, up from 200 million in April. That's a
growth rate of 25 percent in just one quarter.
It's also well ahead of Snap, which reported 166 million
average daily users in the first quarter of 2017, for a year-over-year growth
rate of 36 percent.
Apart from Stories, the overall Instagram service also
has been growing fast. In April, Instagram said it had 700 million users, up
from 500 million in June 2016. That's an addition of 200 million in 10 months.
For most of 2014 and all of 2015, Instagram had been
adding roughly 100 million every nine months.
"There was a major push within Facebook to get more
users on Instagram," said Patrick Moorhead of Moor Insights &
Strategy, an industry analyst firm.
Facebook did so by sending messages to users telling them
which of their friends were already on Instagram.
"It was the right strategy and it worked,"
Moorhead told CNBC.
Now even Morgan Stanley, which was one of the investment
banks that helped underwrite Snap's IPO, is admitting in a note this week that
"Instagram is likely to be more disruptive than previously expected"
to Snapchat's prospects.
The stock downgrade and revenue-estimate cut was a rare
move on Wall Street given that the giant investment bank helped sell Snap's IPO
just four months ago.
And Facebook will keep turning up the heat on its smaller
rival.
Some Instagram advertisers are now getting for free a
type of sponsorship that they have to pay for on Snapchat, according to the
Morgan Stanley note.
"It's going to be hard for Snap to become more than
a niche player" in the online ad market, Pierpont said.
Disclosure: CNBC parent company NBCUniversal is an
investor in Snap.
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