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Home / Business

Facebook may have been lucky not to spend $3 billion on ailing Snapchat

By Brian Fung
Washington Post·
21 Aug, 2015 12:30 AM3 mins to read

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Snapchat CEO Evan Spiegel in Los Angeles. Snapchat has agreed to settle with the Federal Trade Commission over charges that it deceived customers about the disappearing nature of messages. Photo / AP

Snapchat CEO Evan Spiegel in Los Angeles. Snapchat has agreed to settle with the Federal Trade Commission over charges that it deceived customers about the disappearing nature of messages. Photo / AP

People are all abuzz about Snapchat's financials, which were leaked online this week. If you haven't seen them, the outlook isn't good: Snapchat lost $128 million during the first 11 months of 2014. And it took in just $3 million in revenue over the same period, according to records obtained by Gawker.

It's clear whom the leaked numbers hurt the most: chief executive Evan Spiegel and his investors. But if there's a winner in all this, it's Mark Zuckerberg.

Snapchat, of course, was the company that famously rebuffed Facebook's offer of a $3 billion acquisition. Spiegel could have walked away with a huge sum of money. Instead, he's managing a struggling business that - almost four years, a big data breach and a Federal Trade Commission settlement later - still lacks a clear road to profitability.

A Snapchat spokesperson declined to comment.

Read also:
• Snapchat settles claims messages didn't disappear
• Snapchat's controversial emoji update: an explainer for the old and/or confused

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The leaked data Gawker published merely represents a snapshot of the company's health. And it's certainly possible that Snapchat could turn things around in the coming months. There's also nothing particularly surprising about a startup losing money; it would be unreasonable to expect massive profits right out of the gate.

But of course, Snapchat has been out of the gate for some time now, and it's part of an ecosystem that's only grown more crowded and less compelling as a representation of The Future. We've learned that no secrets are safe online, even if that's what we've been promised. For that, we can thank data breaches not just at Snapchat but also Sony, Target and the U.S. government.

Snapchat is also struggling because it's working in a market that's grown increasingly commoditised. There's an app for everything these days. Tell the average consumer you've come up with a hot new app and they're as likely to roll their eyes as to download it. Snapchat may be valued at $15 billion, but it's also part of a recent explosion in so-called "unicorns" (companies valued at $1 billion or more) that some venture capitalists think is unsustainable.

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The technologies that seem more likely to become the billion- and trillion-dollar industries of the future look beyond the app. In fact, they largely shed the smartphone entirely.

For instance, Facebook's $2 billion investment in the virtual reality firm Oculus VR seems, oddly, like a much safer bet. True, many people have never heard of Oculus, let alone tested its bulky, goofy-looking visor. But with Oculus, the range of potential uses seems far wider, if less well defined at the moment. It doesn't take much imagination to understand how a technology that instantly transports you somewhere else could lead to new advances in telemedicine, communications and entertainment. Designers, tourists and international businessmen could conceivably find uses for virtual reality. So could construction workers, or students.

What companies like Oculus represent is a next-generation platform on which whole new firms and ideas can be built. Next to that, what does Snapchat offer? Here's how the company describes itself on Google:

"Fast and fun mobile conversation" sounds more like something you'd do to pass the time on a road trip. Snapchat may be the best $3 billion Facebook never spent.

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