We are in the midst of a dot-com renaissance. There are – to use the scientific term – a crap ton of start-up internet companies around these days, many valued in the tens or hundreds of millions. While some start-ups are deserving of such phenomenal valuations, many darlings of the start-up world are emotionally overvalued by venture capitalists and angel investors clamouring for a piece of the next big thing.
The line between company and product is a little blurry at the moment. Just because your start-up produced a popular app or website doesn’t mean you can spin that into a successful company. Facebook, for example, was able to scale quickly, offer a wide variety of products and services, and has started introducing new forms of monetization. That’s a company. Niche, single-purpose apps like Instagram and Vine are products, and are better suited to being part of a larger company – in their case, Facebook and Twitter, respectively. Yet many start-ups seem to believe they can run a long term business around a single app, and make enough money on their own to survive.
The one very popular start-up/social app phenomenon that continues to baffle me is Snapchat. The self-destructing instant messaging app counted 8 million unique monthly users in May, and has garnered a lot of attention in the start-up world. Snapchat’s latest funding round valued the app at a whopping $800 million, based mainly on the number of eyeballs the service has attracted that could be exploited for cash. Yet it remains to be seen how or if Snapchat plans to make money off their product. The ways in which they could monetize seem fairly limited; in-app purchases is one possibility, as are in-app banner ads, though that would likely turn users away. I’ve also pondered Snapchat hooking up with a Groupon or Yelp to “snap” daily deals and promotions to users based on their location. (Side note: do the kids call it “snapping”?)
One must wonder if any of these money making tactics, and more broadly Snapchat as a product, would be sustainable in the long term? Snapchat’s target demographic tends to move quickly between fads, and it is likely that Snapchat will be replaced in a year or two by “the next big thing”. So in my eyes, the best case scenario for Snapchat is to work toward an acquisition, and I can imagine no better buyer than Yahoo. CEO Marissa Meyer has embarked on quite a shopping spree since taking the reigns at Yahoo just over a year ago. Between acquiring young startups like Sum.ly, Stamped, Astrid, and Qwiki, to reinventing existing services and apps like Flickr and Weather, Meyer is quickly turning Yahoo into the Internet company that owns all the cool Internet things. And what better “cool Internet thing” to compliment the now Yahoo-owned Tumblr than Snapchat?
Both share a similar demographic – the 13 to 25 crowd – and would fill major holes in the others’ service. One of my biggest complaints about Tumblr has always been the lack of communication between users, be it post comments, replies, or a more robust messaging system. Snapchat could provide that. Likewise, Snapchat would get to become part of a larger, more feature-rich social network. Imagine being able to quickly snap a funny quote, animated GIF, song, or link to your friends right from Tumblr.
Even better, Snapchat would be freed the burden of having to monetize. Similar to Instagram, an app that user and feature-wise was doing fine on its own, but needed capital to survive. Facebook provided that for Instagram, and Yahoo could provide that for Snapchat.
While any company could do this for Snapchat, the app seems to fit perfectly with Marissa Meyer’s vision for the new Yahoo. As Yahoo continues playing “Start-Up Snatch Up”, Meyer should take a close look at Snapchat – before she runs out of cash, and before Snapchat gets too big and too expensive. Tumblr is where Snapchat’s demographic hangs out online. Snapchat is how Tumblr’s demographic communicates on mobile. Bring the two together, and you’ve got a killer combination.