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Facebook wants to increase the number of teenage users, so it offered $3 billion in cash to the founders of Snapchat to buy the popular photo-sharing mobile app.
The company – which is not yet seeing profits – turned the Facebook offer down.
Derek Thompson, business editor for The Atlantic magazine, joins Here & Now’s Robin Young with details.
MEGHNA CHAKRABARTI, HOST:
From NPR and WBUR Boston, I'm Meghna Chakrabarti. It's HERE AND NOW.
So, you're a young entrepreneur and Facebook's Mark Zuckerberg offers you $3 billion in cash for your hot, new app. What do you say? Well, if you're the founders of Snapchat, you say, thanks, but no thanks, which is actually what really happened yesterday, and in the parlance of the predominantly teen users of Snapchat: O-M-G. With me now to discuss is Derek Thompson, business director at The Atlantic. Hi, there, Derek.
DEREK THOMPSON, BYLINE: Hi. Good to be here.
CHAKRABARTI: Good to have you. So Snapchat is an app where you send pictures to friends and they disappear off your mobile device and servers and - in a couple of seconds. Why was Facebook so keen in buying it?
THOMPSON: Right. I mean, Snapchat turning down $3 billion from Facebook seems astonishing. Snapchat doesn't have one billion users. It has about 26 to 30 million. And Snapchat makes no revenue while Facebook makes a ton of revenue. But Snapchat has something that Facebook values very highly, and that's the cool factor. Snapchat is extremely popular among teens.
So who cares about teens? Well, Facebook cares about teens. Facebook acknowledged during its last earnings report that usage of Facebook among American teens is actually falling. So I think that the right question here isn't necessarily what is Snapchat worth? But rather, what is Snapchat worth to Facebook.
CHAKRABARTI: OK. So apparently, Facebook says it's worth at least $3 million, which is what it offered. But I have to ask, you mentioned that Snapchat doesn't make any profit yet at all. So is saying no to Mark Zuckerberg the smartest or dumbest move of all time?
THOMPSON: I mean, only time will tell. That's the cliche, and I'm sorry I had to use it. But let me answer the question, sort of, through analogy. In 2006, Yahoo! offered $1 billion to a new company that was essentially just a game for college students. It didn't make any money. It was a way to share messages. And this company said no, to the astonishment of many people in 2006.
Over the next few years, its audience grew. Now this company is worth $120 billion, and its name is Facebook. So never doubt the power of monetizing attention. What Snapchat has is the rabid attention of teens. Teen online behavior predicts overall American online behavior. And so there is a lot of reason to think that Snapchat is not just some weird fad. It is a new communications protocol. The same way that Twitter is, and Twitter is now worth, not $3 billion, but $23 billion.
So it's possible that in the next few months and years, as we learn who to monetize online attention better and better, Snapchat will be seen as not a $3 billion play, but a 5 or $10 billion play. They're thinking, there's no need for us to cash out right now. We're gaining popularity at a time we're realizing how to monetize this medium.
CHAKRABARTI: OK. So this is really interesting, because let's talk about one acquisition that Facebook did make. It bought Instagram last year, what, for nearly $1 billion. How did that work out? Did they get what they wanted in terms of that attention and those loyal users?
THOMPSON: Right. This is a totally fascinating test case, because when Facebook bought Instagram for $1 billion last year, people howled. They said, what are you doing? You can't buy Instagram. It's just a way for people to share photos. It's not making any money. Well, right now, according to a survey by Piper Jaffray of the most popular apps for teens, the most popular app right now is not Facebook, it's not Twitter, it's Instagram.
Actually, Instagram just tied with Twitter, I believe. So Instagram is now more popular than Facebook among one of Facebook's most important markets. So it seems in retrospect that this was a brilliant idea, that Mark Zuckerberg was incredibly prescient in offering them $1 billion. So it's possible, I think, conceivable, that he's being prescient again.
CHAKRABARTI: Derek Thompson is The Atlantic's business editor. I don't see - would you say no to $3 billion? Come on.
THOMPSON: I personally would not say no to $3 billion ever. And I'm willing to go on the record with that fact.
CHAKRABARTI: Derek, thank you so much.
THOMPSON: Good to be here.
CHAKRABARTI: This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.