Acquired - Snapchat

0:00I've noticed our episodes have been getting a little longer. Yeah, they have. Do you think that's a problem? Maybe a little. Welcome to episode 12 of acquired, the podcast where we talk about technology acquisitions that actually went well. I'm Ben Gilbert. I'm David Rosenthal.

0:34and we are your hosts. This episode we're going to try and do something a little bit different. Today we're going to talk about one that didn't happen at all. Dun, dun, dun. This week we're going to cover Facebook's attempted acquisition of Snapchat for $3 billion a while back in November of 2013. Yes, and it'll be cool because we have Not only the deal didn't go through, but we have the benefit of history to help us grade what would have happened if that offer actually went through. We know what we know for a fact what would have happened otherwise if Facebook didn't acquire Snapchat. That's actually easy. All right, a few things before we get into it. One, please rate us on iTunes. It's how we grow the show and it's how we gain more listeners like you.

1:27We also really appreciate any social sharing. If you like the show, please shout it out on Twitter or Facebook. And David has an update with a new thing we're trying to do. Yeah, we have a new innovation here required. We just launched a Slack community that we're experimenting with. So if you'd like to join us on Slack, go to our website, acquired.fm. And from there, you can sign up and join our community on Slack.

1:56We're going to have some fun with it and have some fun with it and see where it goes. Yeah, we plan on doing kind of like episode discussion in the week following. We get a lot of email from people directly to us and we figure that actually could be pretty beneficial to just have that in a group context. And Slack seems like a nice way to do it because a lot of us are already on it for our workday and day out. We can just kind of passively subscribe and You know, kind of watch the conversation. Yeah, and we'd love to see where it goes with the community. So you can use it. You can DM us with feedback or questions or just just post in the community. Yeah. Yeah. And also a good good place for if you have ideas for future shows that you want us to do. If you think you'd like to be a guest on the show, we've got a few great guests coming up that we're super excited about. So more great stuff to come. All right.

2:48Time to get into it. All right. Well, we tried to get guests for today, but both Zuckerberg and Spiegel were booked up unfortunately. Yeah, or so we assumed. All right. I'm going to dive in with acquisition history in fact. I'm going to this might take a little longer because this is a long story here. David do not scare them away. All right. So 2010, Evan Spiegel is a sophomore at Stanford.

3:17And he has just recently moved into the Kappa Sigma fraternity house that he had joined last year at the end of his fraternity. He joined at the end of his freshman year. And across the hall, a guy named Bobby Murphy, who's a senior, is living there. And so they start hanging out, they become friends, and Murphy recruits Evan. Bobby recruits Evan to work on a social app that he had an idea for inspired by Google+.

3:47What? Unsurprisingly that goes nowhere Time goes on and Evan, Evan's still at Stanford and he's actually, he's doing great at Stanford. So he's an undergrad and he ends up majoring in product design and David Kelly becomes his advisor. David Kelly is the founder of the D-School. Yeah, the founder of the D-School at Stanford and professor there and founded IDEO before that. And the D-School, a bunch of personal history here.

4:20having gone to Stanford for Business School, the D-School normally only admits grad students, like undergrads can't take D-School classes, but somehow Evan manages to get David to be his advisor. And that's not the only cool thing he does as an undergrad, he manages to...

4:38find his way into becoming an auditor for a class at the business school. Strategy and Management 354, I believe, called Entrepreneurship and Venture Capital, which was my favorite course in business school. It was awesome. It was taught by Peter Wendell, who was one of the founders of Sierra Ventures, and was a longtime venture capitalist, and then co-taught by Eric Schmidt and Raymond Nazier, who was Google's first head of communications and worked for Eric both at Novel before Google and at Eric and it was an amazing class. We had amazing guest speakers come People like Meg Whitman like Biz Stone like Peter Fenton Scott Cook and Scott Cook when he came the year Evan was there actually was so taken by Evan by the young Evan Spiegel that

5:31he hired him to be an intern to work on a project that he wanted to launch it into it. Wow, so no doubt a special individual even before Snapchat. Even this was years before Snapchat, you could tell this kid had talent. He was going places. So that summer after Evan's sophomore year, he and Bobby team up again, they started a new company this time. It's a website for Aspiring college, people, high schoolers navigating the college admissions process. It's called future freshmen.

6:10Why does this story feel super familiar? I feel like I've seen a movie about it like a kind of a failed idea before the big idea that took off maybe maybe caught went to college together Something about somebody believing it was actually their idea laying clean. Yeah, was there there were some twins who Yeah, they might have used a super similar law firm to the one here I'm jumping ahead, but obviously referring to the social network here in Facebook this the similarities are eerie Okay, so the future freshman, that goes nowhere. Again, April 2011, so it's Evan's junior year, and Murphy, Bobby's graduated, and Evan's hanging out one day, and his fraternity brother, also in Kappa Sigma, Reggie Brown, who is a classmate of Evan's and a close friend. He comes running up to Evan and he's like, I've got an idea for an app.

7:08Uh-oh. Uh-oh. And he's like, I sent this picture to this girl last night, apparently. This is all, as we will discuss in a minute, this is all discussed in the courts in legal filings. And I got this idea for an app that you can make pictures disappear. And supposedly Evan gets really excited and repeatedly calls it a, quote, million dollar idea.

7:33One million dollars, which he denies I believe in the court proceedings that he ever said anything about the million but did acknowledge he was very excited yes so they get really excited the two of them Reggie and Evan they recruit Bobby Again, this point Bobby's graduated, he's got a real job. He comes back, he becomes the CTO of the company and Evan just conveniently happens to be in a design class at Stanford where they build a product and a company in the class. Wait, was this actually part of his, like he worked on this in a class? Yeah, so they submit this.

8:07this idea, this app that they're building, they decided to call it Peekaboo. They submitted as their project for the class, as Evans Project, and the final day of the class, there's a panel of esteemed venture capitalists that judge all of these projects in the class, and so they work really hard during the semester, during the quarter, and they get the app, you get a prototype done, it's actually At this point, it's a website. It's not even on a phone. You have to submit photo on a website. You have to click the Choose File button on your computer. It's a mess. It was janky. And it goes over like a lead balloon. The app of esteemed VC judges hates it. Apparently, according to an interview with Evan, one of them suggests maybe they should talk to Best Buy about a partnership.

9:03I don't know what that would be maybe with like cameras or something. So not an auspicious start to the early days of Snapchat. But undaunted, they decided to keep working on it. So they spend the whole summer after that quarter working on the app and they work really hard and they grow the app and by the end of the summer, they have 127 users.

9:31which having worked on a couple of consumer things that didn't work and actually working on one now it is like so Terrifying when you see these kind of like super low numbers and then everything you're reading about in the press has insanely high consumer engagement and you're like I Need three to four more orders of magnitude before this is any meaningful. Yeah And it's like, it's almost inspirational that they only had a 127 years. So we're now roughly six months into the life of what would become Snapchat. They have 127 users. At the end of the summer, there's also unfortunately a big argument occurs between Evan and Bobby and Reggie and Evan and Bobby kick Reggie out of the company.

10:21Then then the summer ends and that argument came right around the time or part of the same discussion is when they're figuring out their equity splits, right? Yeah, I think it was prompted by figuring out the equity splits which boys that a lesson for founders out there to have that thing early before people start to feel like they're they've already You know contributed and earned more than then the rest of the group thinks I mean unless your strategy is really Machiavellian and you want to push your co-founders out of the company and get more equity for yourself Yeah, have that discussion early. Yeah, I we would recommend that Pro tip have that have the equity discussion early So the app still going nowhere the summer ends Evan heads back to Stanford for a senior year Bobby's like hey, I need a job So he takes a job in another startup that blows my mind that like they left the app in the store literally put it on ice

11:17And around the same time, more bad news, they get a cease and desist order from another startup called Peacaboo that I think is also in the photo space telling them they need to stop using the name. So, Peacaboo is on the ropes at this point. They need to change the name. They come up, they brainstorm, they come up with Snapchat. And they kept the ghost. I'm pretty sure Brown actually came up with the...

11:43The ghost logo, that was his contribution before he got kicked out of the company. Yep, I think that's right. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGoura, the agentic operating system that is redefining how the world's best legal teams work.

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14:12So one other thing happens in the fall as Stanford classes are starting again, and it turns out to be really important. And that's that Evan's mom, this is all according to articles on the internet, including a big, really good profile in Forbes on Evan's big old that there's a lot of our source material here. Evan's mom is tells her niece who's in high school in Orange County. So this is Evan's cousin who's a high school in Orange County about this app that Evan's working on and her niece downloads it and thinks it's really cool and starts using it with her friends.

14:56in high school and one of the reasons that they start using it is that you don't need to use it on a phone. You can use it on an iPad because it works on iPads too and with the iPads that their school, their Tony, private school in Orange County had given them, they had them locked down so you couldn't text, use iMessage. Yeah, I think I read something. They also made it so you couldn't install Facebook, which is incredibly ironic that the fact that those iPads didn't have Facebook is why they needed a different way to communicate so they installed Snapchat. So they installed like this random cousins app so that they could text each other during the day with their school iPads in an orange county. Wow. Crazy. So it sweeps through this school. Then it starts sweeping through other high schools in Orange County. Then it moves up the state and then it moves into

15:52other high schools in Northern California and Silicon Valley. And the growth takes off. So by December of 2011, Snapchat is up to just over 2,000 users. The next month, January, 20,000 users, a couple months later in April, 100,000 users. So there's an order of magnitude growth in a month, and then another five X the next month.

16:20in the next two to three months after that. Wow. And this is the proverbial hockey stick. They have found it. So all of a sudden, they need to pay the server cost because they're hosting a lot of photos at this point. Well, in the incredible thing too, I mean, a lot of the time you're trying to make that product tweak to get you to that hockey stick, but this is truly like the product was stagnant. And it was like...

16:47He literally didn't change anything. Finding the right market, and it's not like they even found it. It's like it finally in the city. Literally, Evan's mom found the right market for them. Wow. I mean, these things, it's almost like you shouldn't try to learn lessons from these things as founders because there's such extreme outliers that it's almost like chasing a unicorn to try and duplicate the sort of success.

17:14Good choice of words. So at this point, you know, it's now April. They're at 100,000 users. I don't know if they're using AWS or Snapchat now uses Google computer engine. If they were using that at that point, but they got to start paying the server bills. Yeah, they're like by far the largest tenant, I think. Yep. On GC. Yep. Today. So they raise a seed round.

17:40$485,000 from light speed at a four and a quarter million dollar evaluation. I think that was the pre-money. But effectively, light speed gets about 10% of the company for less than $500,000. At which point Evan is furiously refreshing his Wells Fargo app, I think, in class as the story goes. As soon as he watches it hit, he walks down, he says goodbye to the professor and he drops out of class.

18:10or drops out of Stanford like months before graduating. Yeah, it's April graduation is in like May, June. Yeah, he literally drops the mic in the middle of class. This is according to Evan. Once the money hits the bank account and walks out the door and never comes back. Yeah. And if you were in that class, we'd love you to join the Slack team and let us know how it really went down. But that's what we're going off of. That's what we're going off of.

18:36And so walks out, moves down to LA, convinces Bobby to come down. They shack up at his dad's house in LA. They convince a bunch of their friends from Stanford to also drop out of school, months from graduation, come down, join the company, and start working on it. And then for basically the rest of 2012, that's when the core of Snapchat, as we know it today, gets built. So they shack up in LA.

19:03Work for the whole summer in October they launch on Android and when they launch on Android they announced that they are now serving 20 million snaps per day in October of 2012 December of 2012 they add the next big pillar of Snapchat which is video And then also in December of 2012 Mark Zuckerberg has heard about this app, and he sends an email to Evan Spiegel. He has. And it does seem that he had heard of it a little bit earlier, since kind of quietly, as I said, Microsoft, Facebook had been working on an app called Poke. They were reviving the old name of the feature that we all know from from early on in Facebook use that really never gets used today to basically create a clone and actually from a UX perspective, a very excellent clone of Snapchat.

19:59And when Zuck does meet with Evan, it's kind of an interesting story of how he gets there. Zuck says, hey, once you come hang out at Facebook, Evan says, oh, next time I'm up in the Bay Area, Evan, I think follows Zuck and says something like, once you come down here, Zuck actually flies down to meet Evan at Snapchat's headquarters. I think there's a whole story about them getting like a private, they're renting a private apartment to have this thing. But Zuck walks in with a plan.

20:26And he basically says, hey, here's how I would do Snapchat and sort of how I see your role in the world and how I could could see this all playing out. And it's this grandiose vision and it's quite impressive. And he ends with saying, and we're going to be launching poke next week. It's not an offer to buy them. It's not like it's like we are going to this is not the acquisition. This is not the acquisition offer you've been looking for is not.

20:56And so, Zuck Fie's home. You know, Evan, I think as the story goes, I feel like this might be over dramatized, but the book is the Art of War. Yeah. Evan gets his whole team a copy of the Art of War, and they all are. Sunsu's the Art of War. Yes. Evan Speagles carve out for the week. Yeah. Yeah. That was the guess we were gonna have on. And they watched carefully as poke launches.

21:26Evan had deleted his Facebook account. So he goes to Bobby and has him check out poke and sure enough, it's great. But the thing that's even greater is all the buzz that happens for Snapchat by poke launching. Yeah. And I believe it, you know, Evan then is quoted as saying like, this was, this is basically like Mary Christmas to Snapchat when Facebook did this because It brought so much attention to the platform. Like the second word out of everybody's mouth when talking about this huge launch that Facebook was publicizing was Snapchat. Yeah, it's so and and a couple interesting observations here. One, that's a super common thing. I think that a lot of the times I know this actually firsthand. I made it to do list manager similar to reminders.

22:13for the iPhone before reminders launched. And what reminders launched, we were like, oh my God, we're dead. Apple sure locked us and sure locking is a reference to Apple back in the day launching an app built into the platform called sure lock. That put all the other search apps out of business. I think I had that story, right? Might have been called certain. Ah, yeah, the app was called sure lock and then Apple built Spotlight. Anyway, yeah, yeah, something like that. The But what it did for us as a to do list was make it a lot of people realize they needed a to do list manager and maybe they didn't like the the generic one that that Apple launched same thing with Insta paper when Apple launched the yeah, what is it read later service that's built into yeah, nobody uses and and sales for Insta paper spiked so it's kind of an interesting like Don't be so afraid of the big guy launching your your feature and in this particular case as is

23:07So much evidence. I mean, the reason we're spending so much time on the history and facts here is like, this is amazing. Like you couldn't make this stuff up. And it's this is like wonderfully dramatic and like it couldn't have been scripted any better. And we know it all from both court cases and interviews that Evan's given with with media outlets. Yeah. And here's the part that gets me like Snapchat is could.

23:33you could argue it's already today but could at one point be an existential threat to Facebook the reason they got installed on those iPads was because Facebook was being blocked and they needed something else and then The reason that they got this huge boost in downloads right before Christmas that year was because Facebook gave him a gift. If they launched like Snapchat and then made everyone go to this was such a legitimizing moment for Snapchat because until then to the extent anybody talked about it. It was like, oh, that's just for sexting. Right. Right. I remember that. And I remember the turning point two where I started realizing, okay, we'll talk about this in tech trends, but like, okay, my friends are using this for like

24:16Really telling me the story of their life as it's actually happening without Trying to make themselves look perfect and this was before a snapchat stories But I remember getting snapchats and realizing there are pictures people would never put on Facebook and yet I'm engaging with these people all day every day and None of like maybe I'm not cool. I don't know none of them were sexting like every single one that I would get from someone is just like this is like a candid casual peek into my life and that I kept trying to tell that narrative and I was even later some people were trying to tell me that narrative but I wanted to make the joke and I remember trying to tell that narrative to people at work and my family and everyone's like it was like taboo to have it installed on your phone because it was known as the app for sexting yep and you're right it's totally legitimized it totally legitimizing it all right listeners now is a great time to tell you about a long time friend of the show Vanta AI has scrambled the whole security picture

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26:52So just two short months later, February 2013, three huge pivotal moments for Snapchat. First, they announced that they're now seeing 60 million snaps per day going through the platform. Second.

27:10They raised their series A. They raised $13.5 million from benchmark at about a $70 million valuation. And interestingly, there was actually Matt Kohler at benchmark who first kind of identified Snapchat and started making inroads with them. And then Mitt Lasky ended up leading the deal and joining the board for benchmark. But Matt had been, well, first he was very early employee at LinkedIn. But then he was a I think one of the first five employees at Facebook. And then when he left Facebook to join benchmark, his first deal that he did was Instagram. And not a terrible track record. Not a terrible track record. So here's this guy, you know, this firm that has, and this group of people that have such intimate history with Facebook and Zuckerberg, and then Facebook's first foray into

28:06their next suite in their constellation of mobile apps with Instagram. Now leading the series A in Snapchat. This like Shakespearean drama continues. and so then the third event that happens in February of 2013 is that poor Reggie Brown the the erstwhile third co-founder suddenly he really he's moved back home to South Carolina at this point again you can't make this stuff up and he realizes the Snapchat might be worth a lot of money and he sews the company and claims that he's due one third ownership stake in Snapchat which actually does work out pretty well for him. I think he was seeking, it ended up getting resolved. It was seeking damages of I think like half a billion dollars, and they settled out of court, but I think it was in the hundreds of millions. Rumored to be, nobody knows. That is one court case that did not make.

29:01Yeah, well, thank you to that court case for happening though, because we got this great story to tell. Much like the same thing with the YouTube Sequoia memo. We're getting all kinds of great stuff here from the courts. So then, you know, after that, it's kind of like, you know, inevitable. So April 2013, 150 million snaps a day, June 2013, which is just, what is that? Four months?

29:25Four months after they raised their series A, there is a series B of $80 million led by IVP at an $800 million valuation. So literally over 10 times the valuation of the series A four months later. And I remember at this time, people were not sure this was sustainable. People were like, oh, it's crazy. And I remember making the argument that the UI was terrible and what they were doing was commodity. And I remember people talking about like, Are they gonna charge for it? Are there gonna be ads for it? And I remember thinking what they're doing is so simple and easily buildable in the weekend that as soon as somebody clones it and builds one that's free or there's no ads, everyone's just gonna move to that. And that, like, made sense to me at the time. It seemed like the young Ben, you were not yet schooled in the power of the network effects. Yep, yep, yep. Boy, this is mighty moat. Oh boy, is it ever?

30:22So that was June, August of 2013. Facebook is getting desperate at this point. They release a feature in Messenger that allows you to post to Instagram from Messenger. Oh, yeah. Like this is gonna, you know, like take down Snapchat. September 2013, 350 million snaps per day. Snapchat announces October 2013. They launch stories which are incredible that we'll get into later. Totally game changing. Totally game changing.

30:51And then finally, November 2013, rumored, but leaked to many, many press outlets, including the Wall Street Journal. Mark Zuckerberg makes an offer to buy Snapchat for $3 billion. He does. And, you know, there's no, nobody knows exactly where the leak came from there. I think Zuckerberg's sort of alleged. And we know this from the Sony email leaks. Zuckerberg alleged that It was a tactic by Evan. Evan throws back that it could have just as easily been Zuckerberg to try and dampen their fundraising efforts rather than bolster them. But anyway, there's never really comes to fruition and all we know is that the offer was made. It didn't happen. We know the offer was made and we know it didn't happen. But it's pretty, I mean, you both have to put yourself in Mark Zuckerberg shoes here.

31:51Less than a year ago, he flew down to LA and he basically sat there, you know, according to, you know, what we've been disclosed and what we can read about. He sat there and he told Evan, you know, how to build Snapchat and how he would do it and what the right way to do it is. And oh, by the way, Facebook was just gonna do it, so, you know, good luck with your little app. And then less than a year later, he's again sitting there.

32:16Offering to pay three billion dollars in cash for this little app which is three Instagram's keeping mine WhatsApp hasn't happened yet, so this seems absolutely preposterous I mean I I'm just sitting there thinking you know later on we're gonna do kind of judge like should they should they have offered more or You know what should they have done after what should Zuck have done after it was declined but You know it seems crazy And at the time, you gotta think like, okay, why does Facebook need to do this? What is Facebook's core competency that is the mighty mode that they can't have upended? And that's effectively owning your attention. Because then they get to choose what to do with your attention, how much to use for advertising, where to point it in terms of articles or friends, how to wait all that. But Facebook, their number one holy grail metric is engagement.

33:12And how much can they keep you engaging and hold your attention in a day? And Snapchat is just like the perfect storm of more engaging. Yeah, and that's, you know, well, we'll jump into acquisition category had it happened in a minute, but, you know, fast forward to today in May of 2016. And it's interesting, you know, Snapchat, Is growing super fast and I'm sure will reach a large number of users at some point but their their DAU the daily active users that they report is about a hundred million now Which is about a 10th of Facebook about a 10th of Facebook and is I believe smaller than Twitter. Well, Twitter's MAU I think is like three four hundred million maybe it's like 300 whatever it is it doesn't grow on meaningfully in a while. Yeah

34:03But, you know, Ben hit on engagement and that is the key here with Snapchat. I mean, so today, they're close with 100 million daily active users. They are closing in on about just about 1 billion snaps every single day. So that's for every active user on the platform that's 10 snaps per daily active user per day. And 60% of people use Snapchat daily.

34:30Snap every day themselves. So this totally snapchat totally blows up the you know the old paradigm that you know 90% of your users on a social platform, you know won't create content and 10% will and 1% will be super users 60% are super users Yeah, like if you think about like a Reddit type website or something you're gonna get 90% lurking just just being the consumers 9% are are commenting and then 1% are actually originating the content that creates the the the conversation on the site and and You know what they just completely upended it by making it stupid easy to create Literally stupid easy. Yeah, like I remember it actually works to their advantage that it still looks like this and it's sort of their brand But I remember thinking that it was like kind of hack-ish and amateur-ish that the best way that they could think to overlay text over any image was by just like Ask girl make the whole line dark behind there and like a ship it It just it just felt so crummy to me, but like now it's it's become if you see that anywhere You're like, oh, that's a that's a screenshot. It's Snapchat

35:40They should just do billboards of that because that's their brand at this point. Yeah. Well, and it's interesting. I mean, this is one of the reasons why we spent so much time on the history, because the story's amazing. But, I mean, it's clear that Evan is an incredibly talented, you know, product visionary. It's not like, you know, Snapchat's look and feel and brand in a lot of ways is as Ben, as you were saying, super janky, but like, It's intentional right or is it pioneering? Yeah, I mean they really do all these all these UI paradigms are like So foreign the first time you use the app and we're having so many people now that they're kind of breaking North of their their their Stereotypical age group into into more adult usage People like being saying I don't know how to use Snapchat and I need my kids to teach me and you know that that's always true with any new technology, but

36:37putting on my iOS developer hat, the easiest thing to do when creating an app is to create a table view with a navigation bar at the top and then a little drill down, just like when iPhone OS launched in 2007. And what Snapchat's really done is say, like, nope, you open it up and it's in camera mode and then everything is just real from there. And once you learn it, you get incredibly fast at that. And it's like its own language and grammar. And one of the things there was a great article Shoot, I can't remember where. We'll find it in the link to it in the show notes that just came out. Another one of many profiles of Evan and of the company and one of the things it talks about, you know, it's notoriously been hard to work for Evan and there's been a lot of employee turnover at SnapChat. But one of the things it says in there is that like the

37:28Any discussion of like well, we need we have problem X and we need to do thing Y and so we should just look at what you know other people have done on that like what did Google do? What did Facebook do like what did Instagram do like like that'll get you fired like right away like the culture they have and that Evan tries to cultivate there is like I don't care what other people have done in the past like we're doing things our way here which I think you really got to admire. It's what's gotten snapchat to where it is. Yeah, and this is, I'm going to pull forward my tech trends, but it's some interesting things there because they're doing a lot of things mobile first in a way that I wouldn't have known the current users or the current products weren't doing mobile first. One of their big cells, and we'll talk about their revenue model right now, is vertical video advertising.

38:20And for the first time, they're forcing content creation to appear in the way that is the most immersive on your phone. And I think if they're looking at others, they say, okay, well, how do people do ad units? Oh, it's a feed or oh, they repurpose, you know, letterboxed video or they make people turn it sideways. And that wouldn't be as engaging. It's a harder path to go this way, but it's, you know, I think it's fair to say product visionary that everything is completely rethought in this absolute level first way. They also have basically I mean, they changed the way that they do user growth and adding your friends with snap codes. I mean, that is the first time I've seen QR codes used effectively in the wild. And I think that, you know, if you go get a Facebook product manager or you go and get, you know, someone who's worked at LinkedIn or Google, you ask like, oh, how should we do like an invite system and an adding friend system? There's like a templated way to know how to do that. And this is so different.

39:19What do you mean if they're probably right next to each other? So we'll be will it be easy to just show the screen to the other screen? Yeah, okay cool snap code accomplished or what an interesting that was an acquisition. They acquired the technology behind the QR code. Oh nice Well, I guess good on them for for you know seeing the opportunity to do something new and novel there rather than re-implementing the place but it's a really good point, and I think that's something that You can almost say it's like a dirty little secret of Silicon Valley. Like there's actually not that much innovation that happens, you know? It's really rare. I mean, I was... Yeah, so in the Facebook, or the PayPal Mafia figures it out once and then everyone does it out there. And then that playbook gets disseminated to everybody and it's really hard. I mean, I was emailing with the founder I work with today and we're facing a problem. And I was like, oh, well, we should let's look at how, you know, striped dealt with this because they dealt with this problem. So we should probably do what they did.

40:14You know, and like, it's really dangerous thinking. But it's also difficult to know and it's difficult to know how to do what's right when you're doing something new and how much to take from the playbook because it is the right thing and how much to be the innovator. Yeah. All right, listeners.

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42:11So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Okay, so I think for the structure of the show, what we'll do now is we'll dive into category. What would have happened otherwise we can talk through a little bit and we'll kind of wait all the way until we get to render conclusion to talk about their current business. So that's not good to you. Sounds good to me. All right, sweet. So acquisition category.

42:40I was torn on this, and here's how I'll frame it. If they had actually gotten the acquisition done when they did, it would have been, or when they made the offer, that would have been a product acquisition. They were buying one single product that people all over the place were using in the exact same way. At this point, it would be a business line. It is many products rolled into one. I mean, they've got stories and discover.

43:09and the traditional Snapchat model. And they have several different ad units that they sell in there. And there's all different products for advertisers. And I think that at this point, it would be like the Snapchat business unit of Facebook. Rather than, hey, we bought this one off app. It has a lot of people using it like WhatsApp. It would truly be like they would need their own ad sales team. They would need a lot of things that wouldn't be able to be factored into Facebook.

43:36Yep, I think that's right. The only counterpoint I'd offer is maybe this would be had this actually happened and had Facebook done its thing and just left it alone and all of the growth and innovation that's happened at Snapchat had also happened. I think you'd almost argue that this would be a new category which would be like a wholly independent company within Another company. Yeah, and then okay, so because it's because it's all of it right like it's the people it's the technology It's the product. It's the like the way the business operates all of these things are just wholly different from Facebook Yeah, and this is in a way that Instagram and WhatsApp really aren't Yeah, so let's play that out. So now we're into what would have happened otherwise if the acquisition had gone through this is pre-revenue for

44:31Snapchat yep does Facebook kind of have their way with it and start gathering more information about the Snapchat user, or even better yet, they probably find a way to just tie those together on the phone where they say, oh, this person is logged in as Facebook here. They ask you to log in as Facebook with Facebook once in the Snapchat app so they can tie it together. Much like with Instagram, then an advertiser can target you in multiple ways and can say, you know, I'm going to use the same ad dashboard. I get the same targeting capabilities and I'm going to target this Snapchat user, as if they were any other Facebook user, but I want to reach them when they're having this aha moment instead of when they're in the Facebook app, you know, reading about XYZ. I think that's absolutely what have happened because they would use that common ad platform and continue to leverage it and make it even easier for advertisers to advertise on multiple mediums. And that is very different than the ad strategy that Snapchat is doing now. Yeah, that's this is what makes this about

45:35listeners are the judge of whether this is interesting or not. But to me, what makes this so interesting is since the Spurnd acquisition offer, Snapchat has really totally gone off and become the anti-facebook. And that goes not just through the product and the consumer-facing aspects of it, but through the whole advertising platform as well. I mean, Evan talks about and promises that They will never do creepy targeting. Snapchat is a brand advertising platform, and they will not track users. They will not collect data. Privacy is core to what Snapchat is. And that's just anathema to the Facebook and in a lot of ways, the Google way of doing advertising. Yeah. And as you bring that up, something we were talking about earlier,

46:31It makes me think about, okay, so they're not gonna have a million checkboxes and drill downs like I can use on a Facebook ad dashboard. And I was looking into it, all you can target on Snapchat is geographic location, age, you get reporting on how many people opened your snap and then you get to choose if you appear in a live story or what discover channel you appear on. So you basically get live story program, discover channel location, indoor gender, and then you get number of people who opened. It's pretty primitive. So if I'm trying to do any conversion based advertising, it's right out. It's extremely expensive and I can't quantify it. And I don't know if I'm actually reaching my core to customers, but if I'm Coca-Cola, that sounds like a killer brand advertising platform. I can make sure people see it. They're like,

47:30in this moment of discovery when they're looking for it. It's fully immersive on their screen. You know, I designed it. And I can target based on content. Right. That's the other thing. So that you have contextual. And location. Yeah. Contextual targeting. Location is like getting a little bit into the.

47:48you know, it would be more interesting to me from a conversion perspective, but also interesting. Yeah, but I mean, things like, like I think about, you know, Snapchat is like one of the places where it's really flourished is Coachella and places like that. Right. So like I can target people who are at Coachella. Right, right. And the big, obvious thing here is there's no links on Snapchat. So I'm never leaving the platform. It's not like they could link me out to go buy a product anyway. It's purely one directional television style advertising.

48:15Yeah, and this is like, this is the kind of stuff like let's say I'm, you know, Coca-Cola again. Um, you know, if I'm advertising on Facebook, I'm just blasting. I can target super granularly in the heck out of people, but like, they're probably not that interested in drinking a Coke while they're on Facebook. But like, if I target people who are at Coachella, like, and it's hot out, you know, Maybe they want to drink a coke, you know, or when I target based on, that's location, which is secondary here, but content wise. So like all the Discover channel, you know, ESPN or TasteMade, you know, I want to advertise to people who are interested in cooking. I'm, you know, I'm, you know, Betty Crocker or whatever, like...

49:01I could advertise on Facebook to people who list cooking as one of their preferences, but they're not cooking when they're on Facebook. But when they're watching taste made and watching cooking shows, then I can then they're in the mode for I don't know what the context is better. I look at it like you're not the nature of brand advertising is that you're not going to go and like transact on that and close the loop at anywhere near that moment. It's that it's like stored in your head and I think that the context doesn't matter, but the richness of the ad does. You don't think there are psychological associations between content and advertising? I do. I just don't think that seeing an ad on Facebook is contextually worse than seeing it on Snapchat. I'm already in entertainment mode. I could see that if you're advertising to me when I'm on a Google search and I'm on a quest for information and I'm like, Coca-Cola, get out of here right now. But on Facebook, I'm welcome to being entertained.

50:02Anyway, I guess the point I'm making is I think the context of Snapchat isn't necessarily any better but since they're doing brand ads and you have the opportunity to create a much more rich advertisement that it makes it a more valuable brand platform because you don't actually care about that granular of targeting. Fair enough, I still think like, you know, when I'm on ESPN and discover and I get Axe's body spray, I mean.

50:30I would never wear axe body spray, but so I claim on the internet. But like, I don't know. To the extent, you could make an argument that television is still very valuable. It's like, this is the argument. Which you absolutely can. So here's, we're getting into my render conclusion, but I think Snapchat's opportunity is enormous because brand advertising currently is and has always been much larger than transaction-based advertising. I'm not sure. Conversion-based advertising? I don't know. Direct response. Direct response. That's, yeah, there you go. And advertising stays relatively fixed as a percentage of the GDP. It's between one and 1.4% of the GDP ever since the notion of advertising was invented in the United States. And so, with that staying about flat,

51:29the GDP will grow some. But with that staying about fixed, it's about allocation. And if brand advertising is in sort of will always be more significant than direct response, right now a lot more brand dollars are spent on television still than anywhere else. And now it's a race to what platform can effectively steal from television advertising. And that's where I think Snapchat's real opportunity is. Can they be you know, the television of the future. There's no good place really to do it online right now. I mean, we did a past show on YouTube. You know, YouTube's kind of the best place to do brand advertising online right now, and it's still got a bunch of problems, and people skip ads, and all that still, you know, whereas, you know, yes, you can skip ads on Snapchat, but like just the whole...

52:21Modality of the product is so much more immersive and so are the ads They're 10 seconds and you kind of want to skip them less like I want to skip an ad when I'm watching Discover as much as I want to skip one of my friend's stories that I'm not interested in basically like I've got 10 seconds if you can captivate me I'm good for 10 seconds whereas on YouTube like running a pre-roll for a minute where I have to wait five so I'm just gonna skip after five seconds every single time I possibly can because it's not designed to be watched all the way through for the impatient person and especially not a mobile. Especially not a mobile. Great point. And Snapchat is like totally piggybacking our integrans, but totally piggybacking on our completely, you know, our culture that is not able to pay attention to things for very long. And we

53:14End up watching I was talking to someone else today watching a snap for 10 seconds watching another snap for 10 seconds And maybe like 10 minutes go by and you end up completely immersed in in something where you could have watched a whole television show in there But it was cut up in small enough content where I was continually entertained and again back to like even Instagram and you know as our listeners know we're big fans of Instagram But like you got to scroll through the damn feed You do, and God as a completionist, it kills me that it snaps at the top every time, so I have this fear of opening Instagram now, because what if I get partway down, and then there's some pictures that I missed? Snapchat doesn't have that, because everything in it, the understanding is it's sort of unimportant, and it'll go away anyway, so I can just check it at my leisure. And literally, you just open the app, and maybe you open the app, you swipe left, you tap.

54:06and now with stories auto playing to the next story, that's all you gotta do. Yeah, I think their average time viewed an app right now is like 30 minutes. I mean, they command a tremendous amount of it. 30 minutes with two taps and one swipe. Yeah, I mean, it's the attention war. I mean, that's what this really comes down to from between Facebook and Snapchat. And I was actually, this is another...

54:31great conversation I was having earlier this week, Instagram redesigned and boy is it gorgeous. It just shows off just the content. We won't talk about the icon, but inside it is like so nice. You're not taking the pink. No, but somebody raised a great point to me that the world sort of shifted and now Instagram is a museum. Instagram inherently, I put less content on it because it's like a showcase and it reflects on me forever. And when you when you go to Snapchat, My response was a snapchat. It's like a crowded bar. There's content flying everywhere. It's loose. It's fun. And that just creates a platform that is just commanding of way, way more attention than that museum feel. How much relative time do you spend in museums versus bars? Yeah. Well, I might be non-represented. But maybe not. Maybe not. Anyway, all right. Let's start driving this towards home.

55:28tech trends. You know, I think we touched it all mine. Yeah, mostly mine too, but I'll just call it out again. We've talked about this on the show. I think it's maybe been one of my tech trends in the past, but a perfect example of start small, you know, like they started with nothing, but start small nail it for one audience and grow from there. And I mean, they didn't even do this intentionally, but like, you know, the use case of I want to text with my friends and Facebook is blocked on my iPad, like, solve that, then solve the next thing. Classic case. Yep, yep, yep. And as Paul Graham says with that, try and get to the next order of magnitude of customers and don't focus on the far future because contrary to what you might think in startups.

56:20You can implement a hill climbing algorithm and there are not local maxima. So don't be afraid that you're going to hit a false peak. Just keep hitting the next peak and you'll be able to get higher. Especially in consumer facing. Yes. Companies. Yes. Yeah, I guess it's probably not the same in enterprise, but yeah. And I'm not sure I totally agree with that premise, but I sure like it from an inspirational perspective. All right.

56:43conclusion. So normally we would throw out like was it a good decision to make this acquisition? And so I was thinking for this one, was it a good idea if you're a Snapchat shareholder to, you know, to climb this offer? David has a more interesting framework, I think, because that one's just a sure thing, right? It's like, oh, I'm a Snapchat shareholder. Do I want to be worth $3 billion or the $16 billion it is valued on paper today and will likely continue to grow?

57:11So David, what's your friend? So I thought we could do a great Mark Zuckerberg and Facebook for the decision to walk away after the $3 billion versus Trying harder to make the acquisition happen likely at a higher price Yeah, and this one's interesting because I think it presents a little bit more than just like obvious shareholder value. It gets into you know the more you send an offers back and forth, the more you worry about your team back at Facebook, like we saw with the WhatsApp acquisition, being like, wait, $19 billion we paid for what, and then sort of having to justify that. There might be like a personal pride thing on the line there. At the end of the day, like as I'm talking through all this, I think none of it really matters that much and it was still Facebook needed to offer more.

58:08Like, it was, I give Facebook an F on not going in bidding hire. I think this one is like so clear cut at this point. I would love to hear your thoughts though. Yeah. I've been thinking about this. I actually, I'm going to be, I'm going to be our listeners are going to love this. I'm going to be a divisive here. I'm going to give them an A. And the reason I'm going to give them an A is Because especially with the direction that Snapchat has gone I was thinking about this when we were talking about the category and I was like oh, it could be like a company within Facebook like never would work like these are just two companies that cannot exist together And so if I'm Mark Zuckerberg and I'm Facebook This crystallized when you were talking about like the reaction within the company of Facebook like okay, let's say he had bid snapchat snapchat up to

59:06I don't know, $15 billion or $19 billion. What's app territory? And then come back in, and then this guy, Evan, would come into the company and basically be like, you know, FU everybody, like, I do things completely differently here. I stand for everything that you are not, you know. What would that have done, right? And like Facebook has been super successful in the two and a half years since this time. And I think in a lot of ways really crystallize what Facebook is and and what their you know growth potential is going for it and they're now what like a $300-billion market cap company. I don't know. Yes, I was thinking about digging in here, but I'm I'm trying to think through if Facebook did what I was talking about earlier and kind of like flattened it onto the same platform and made it easy for advertisers like Instagram if

1:00:04to your point, what if they bit it up to $15 billion? Would they in any reasonable time period have gotten $15 billion of advertising revenue out of it? Or would there just have been this implosion beforehand, like you say, of culture mismatch?

1:00:20a lot of the value that people are attributing to Snapchat right now is because it's on this unique and different trajectory that's more like television advertising than direct response and could that have existed within Facebook right that's that's a really interesting what would snapchat be like if you logged in with Facebook that'd be weird yeah yeah I mean they're only they're only they're projected to Get or earn about three hundred million dollars of revenue this year. So I mean their evaluation is like not and not really based on their current revenues at all It's based on the promise of the future that it can replace television brand advertising Yep, and I don't know what I would change my grade to but I totally totally see your argument that that You know a Facebook continued to bid this up. They may actually not be able to get

1:01:12That much value of it internally or as much as they can do as an external company and That's why we need new startups to come and create value that incumbents never could create. Yeah, I mean, this seems like a classic case of You know what we saw it with poke like they recreated it, you know pixel for pixel and it just doesn't work inside Facebook No, I mean yeah, there was the network effect mode too, but like right it was still so small at that point All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now.

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1:02:32So, if you want to make learning your competitive advantage, whether you're building new AI experiences, or just evolving your existing core product, go to statsig.com slash acquired to get started. All right. More distant time. Just skipping the carve out today. Yeah, we can skip the carve out. If you want to discuss more, join us on Slack in our Slack community. Yeah, because God only knows my opinions are going to continue to waver on this, so we'll see you in there. All right, until next time.

1:03:01Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?