You could almost hear the collective gasp inside and outside the tech community on Wednesday when Facebook announced plans to acquire WhatsApp for $16 billion, with another $3 billion in restricted stock units thrown in for employees for good measure.
In fact, this was the second time in three months that news of a possible Facebook acquisition had caused more than a few jaws to drop. The first came in mid-November after reports surfaced that Snapchat had rejected a $3 billion offer from Facebook. The rumored offer, like an earlier failed attempt from Facebook to kill off Snapchat with a copycat app, led to a spike in interest for the startup.
See also: What's WhatsApp and Why Did Facebook Pay $16 Billion for It?
At the time, it was hard enough to wrap one's head around the idea that Facebook would be willing to pay $3 billion — in cash — for a messaging service with no real revenue to speak of. It was even harder to imagine such a startup would be willing to turn that offer down.
“There are very few people in the world who get to build a business like this,” Evan Spiegel, Snapchat's cofounder and CEO, later told Forbes about his decision to reject the Facebook offer. “I think trading that for some short-term gain isn’t very interesting.”
Little did anyone know at the time that Facebook's cofounder and CEO Mark Zuckerberg was willing to commit five to six times that amount for a larger company in the mobile messaging space. As it so happens, the founders of that company are be pretty critical of Snapchat.
"It's not 100% clear to me what's working about Snapchat," Brian Acton, cofounder of WhatsApp, told Wired in a recent interview. "Great, teenagers can use it to get laid all day long. I don't care."
Suddenly, the prospect of a Facebook/Snapchat deal seems much less likely. "Facebook may not be away entirely as a buyer," says Paul Kedrosky, a venture capitalist and industry observer. But he thinks the founders' views, combined with the fact that one of them is joining Facebook's board as part of the deal, "makes it a tricky acquisition."
Snapchat declined to comment for this story. Several of the company's investors either couldn't be reached immediately for comment or declined. Jeremy Liew, a partner at Lightspeed Venture Partners and an early Snapchat investor, said via email that he was "still absorbing" the deal and its possible impact on the messaging space at large. When asked if he was surprised, Liew responded, "I think everyone was!"
Even if Facebook is less interested in Snapchat now, it doesn't necessarily mean other companies won't make a bid. Kedrosky lists off a number of possible buyers, including Google, which is also reported to have made an offer; Tencent, a Chinese Internet company and investor in Snapchat; and even Yahoo. It's also possible, Kedrosky says, that Snapchat could make good on Spiegel's desire to build a business and go public.
"For a second, they might have panicked," Kedrosky speculates of the Snapchat team. "I don't see how the disappearance of Facebook changes everything that dramatically."
Snapchat and WhatsApp may both be messaging apps, but they serve very different functions and likely, very different demographics. WhatsApp is an SMS replacement that is particularly popular among users abroad; Snapchat is an ephemeral messaging tool that has taken off among teens and younger users in the U.S.
"Ephemerality is a category within messaging. We don't expect it to necessarily replace, but it's a great compliment," said Jon Brod, cofounder of Confide, a disappearing message tool for the workplace, and the former CEO of AOL's Patch unit. "I think that this really does validate the entire space, and doesn't necessarily seep up M&A dollars from the ephemerality portion of it."
After the WhatsApp deal was announced, the Confide team says it noticed a spike in investment bankers joining Kik, another messenger service. Likewise, BlackBerry stock ticked up after the news on renewed optimism for the company's BBM messaging service.
Snapchat could benefit from a similar surge in interest among investors and businesses, but for the first time in more than a year, Facebook may finally be giving up the ghost.
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