Last week ended with a blast; Snapchat boldly declined a whopping $3 Billion offer from Facebook. Soon after the story went public, Snapchat was officially dubbed as the heir of social networking that will attract all the masses that are fleeing Facebook and instantly there was a public argument going on whether Snapchat’s founder and CEO Evan Spiegel was insane for letting down such an offer.
As I sat down to write this piece, a movie was being played on the TV in front of me where a man had just offered a bag full of money to buy someone’s silence against tobacco companies. Sitting in the car was his son who looked at him and asked: “Dad, how did you know that he was going to take the money?” to which the father answered “you have to be crazy to let down such an amount of money.” So was it a crazy decision; or perhaps pure genius? This scenario is somewhat similar to our story here; difference is Facebook must have definitely seen it coming. After all, Facebook’s Zuckerberg rejected 11 similar offers back in the days and from both Microsoft and Google and for all of you out there who are shocked by Spiegel’s decision remember this: Microsoft’s takeover bid in 2007 valued Facebook at $15 billion dollars!!! Now what’s a mere 3 billion to that?
In short, Snapchat ended the week by serving Facebook a taste of its own medicine and there are many reasons to that. But the important matter here is not why Snapchat refused; rather it is why we are seeing more M&A attempts from the big fish against the smaller ones. There is something special about a small startup in fact almost magical and it is the thrill and excitement of creating something new and unique, this magic is almost lost as the company becomes bigger and more established. We have seen this in Microsoft and Yahoo, and we are now beginning to witness it in Google and Facebook. It seems that as companies become bigger and bigger, they become more consumed in making more profits and in increasing shareholder value that they forget the reason behind their existence in the first place. Perhaps the most evident example is Google, the company that for many years bragged about its fun work space and its unique 20 percent time concept where it claims most of its greatest ideas came from. Recently there have been rumors going around that Google might have put that program to sleep for the sake of preserving “productivity.” Suddenly the numbers that were used in algorithms which lead to the inception of great programs are ending up on spreadsheets and statistics that reflect profitability, savings, time management, stock price and other details that big corporations are so consumed with.
The story here is almost typical with all tech companies; the minute they become public they forget their roots. They become so big and obsessed with their size and market share so much that the minute they sense any possible threat they rush to purchase that threat and add it to their portfolio and gradually the budget that was originally allocated for R&D starts to trickle slowly towards M&A. And as this happens, those companies start to fail in attracting top talent who will be opting for choices where they can use their talents more, which will result in less innovation, inventions and patents in the big companies and they start to fall behind.
Little is known about whether Mark thought his offer through or was it a result of a panic attack after Facebook realized that their core customer base is decreasing and fleeing them to a cooler place, that’s what the statistics showed him. There were times where he had such self confidence that he did not care about numbers and statistics and dared to take risks; that’s what made Facebook and that’s what’s making Snapchat right now and of all the people Mark should know that the most. The failed deal that took place last weekend was another major blow to Facebook and a big fiasco. This definitely has not been a good month for the Palo Alto guys and if they don’t pull their act together, it won’t be a good year either. At this point Mark has to decide where he wants his numbers to be.