A year and half ago, Facebook reportedly offered to buy Snapchat, an upstart messaging app, for $3 billion. Snapchat's then-23-year-old CEO, Evan Spiegel, turned it down. Sources told the Wall Street Journal at the time that Spiegel was holding out for much more.
I thought that was pretty funny, and I wrote a snarky blog post saying so. Here's an excerpt of the snark with which I greeted Spiegel's decision:
Snapchat, it behooves me to point out, makes no money. I don’t mean that it is spending more money than it takes in, like Twitter. It literally does not have any revenue.
I was not the only one snorting condescendingly at Spiegel's apparent hubris in spurning Facebook's cash. My former colleague Farhad Manjoo asked his Twitter followers: "Someone tell me even a halfway plausible way Snapchat can make any money." Suggestions ranged from "in-app funny hat purchases" to "sponsored sexts" to "save all the pictures/chats, threaten to post them unless people pay up." Ah, we cracked ourselves up.
Near the end of my post, I dutifully included the following caveat:
OK, so let’s admit that “advertising” is plausible. And let’s stipulate that while we’re all laughing at Spiegel today, there’s at least some possibility that he’ll be the one smirking last, Zuckerberg-style, when Snapchat becomes the world’s next social-media giant.
And then I wrapped things up by predicting that he'd look back someday in bitter regret at passing up the $3 billion. It was a pretty zingy blog post, if I may say so.
It was also, as is probably quite clear by now, utterly wrong. Bloomberg reported on Wednesday that Snapchat is raising $200 million from Chinese e-commerce giant Alibaba, an investment that values Snapchat at $15 billion. This is not far off from recent rumors that Snapchat was raising money at a valuation of $16 billion to $19 billion, putting it in a class with Uber, Palantir, and SpaceX among the most valuable private startups in the world.
Here comes this post’s obligatory caveat: Even today, we don't know whether Snapchat will justify its valuation. There's still a chance it will flame out spectacularly, perhaps when its monetization efforts make it uncool.
That said, it's pretty clear today that Spiegel was right and the skeptical pundits were wrong. Skepticism is not a bad quality for a tech journalist to have. It is, however, probably the reason we are tech journalists instead of tech billionaires.
What wildly successful entrepreneurs like Spiegel have in common is an unshakable, almost irrational belief in their own vision and ability. You don’t start a company because the pundits say it’s a good career path. You start it because you believe you’re different—that you can buck the odds. Objectively, the odds were against Snapchat exceeding a $3 billion valuation at a time when it had zero revenue. Yet Spiegel liked his chances, and he either got lucky or was good. Probably both.
Here it pains me to note that not all of the pundits were as down on Spiegel as I was. My own colleague at the time, Matt Yglesias, disagreed with me. At almost the exact time I published my post mocking Snapchat, Yglesias published one praising the company for having the audacity to go all-in. “Three cheers for Snapchat!”, he wrote. Slate’s online commenters predictably tore him up. “The platonic ideal of a #slatepitch,” one sniped at his post. “Does Yglesias understand even basic economics?” another asked. (He does.)
To be fair, Yglesias’ argument wasn’t grounded in economics so much as a rooting interest in startups pursuing their own vision rather than selling out. But at least one other pro-Snapchat contrarian did lay out the economic case for Spiegel’s decision, at a time when it seemed like everyone else was down on it.
Snapchat, wrote Business Insider’s Henry Blodget, would make money the same way other social platforms before it made money: by advertising to its fast-growing, teen-heavy user base. That is, in fact, exactly what it is now beginning to do, albeit in a more creative way than initially envisioned. Its new “Discover” service has video channels run by major media businesses, like CNN and the Food Network, which sell ads and share the revenue with Snapchat. (Blodget also said Snapchat would make money selling virtual goods, a strategy that has long been rumored but has yet to materialize.)
So here it is, my apology to Snapchat and to my readers: I got this one wrong. Not that Spiegel or Snapchat need my apologies, any more than they cared about my skepticism in the first place. Snark is cheap; when you turn down $3 billion because you’re convinced you’re worth more than that, being right is its own reward.
Previously in Slate: