Economics
Mrs. Straub
2/16/2014
Beginning as a project in a Stanford University
classroom in April 2011, a new app appeared in iTunes stores for apple products
by July 2011. This app, now ranked as
one of the top apps used for Android and Apple products, is Snapchat. Since its release in 2011, Snapchat has grown
in the number of users it reaches and is beginning to become a competitor to
the still widely popular Facebook as seen in the graph below.
This increase in the apps demand has forced the company to consider
other measures of revenue to keep up with the necessary production considering
the app itself is free to consumers. Snapchat
began with its two creators, Evan Spiegel and Robert Murphy, who left Stanford
University to pursue their idea of sending picture that could disappear, obviously finding the opportunity cost of Snapchat greater than
continuing college. In the past three years Snapchat has been
gaining larger numbers of human capital, or employees, to keep up with the 350
million snaps sent daily. Currently
Snapchat has 35 employees working to keep up with all of the technical areas
and also with promotions and also to keep creating new effects for Snapchat
including the Snapchat stories.
While
consumers are still able to get the app for free, the business needs money to
support their employees and systems to keep Snapchat running. Snapchat was able to get $485,000 from
investors in 2012 and since has been using series funding, or rounds of looking
for funding for the company. In Series A
funding Snapchat was able to get $12.5 million followed by $60 million in
Series B funding from IVP, or Institutional Venture Partners, and $50 million
in Series C funding from Coatue Management.
These investors aren’t the only ones becoming interested in Snapchats
success. Facebook has already offered to
purchase Snapchat for $3 billion and Google has offered $4 billion, yet
Snapchat has declined both offers. As of July, Snapchat was valued at $860
million, but this number has been drastically increasing as the apps popularity
and economic growth increases. Besides
investors, Snapchat is looking at implementing ads into the app to gain revenue. In the picture below is a list of
milestones reached by Snapchat since it began in 2011.
The overall
goal of the app is to give people a way to share their “moments” with friends
and family without worrying about the permanence of a bad picture. “People are living with this massive
burden of managing a digital version of themselves,” CEO, Spiegel, says. ”It’s
taken all of the fun out of communicating.”
He wants Snapchat to allow people to be able to be more natural and fun
with their pictures they’re sending.
It’s a new form of communication that allows people to be less worried
about how they look and care more about what they’re doing. Most recently, though, Snapchat has been
struggling with events of hacking and postings of people’s usernames and
passwords online. A new version of
Snapchat will now be coming out that will let the users choose not to be in the
“Find Friends” option which requires a stored phone number. This hacking has not decreased the popularity
of Snapchat, and this app is still receiving economic growth with its workers and technological resources.
Works Cited
Colao, J.J.. "Snapchat: The
Biggest No-Revenue Mobile App Since Instagram." Forbes. Forbes
Magazine, 27 Nov. 2012. Web. 14 Feb. 2014.
<http://www.forbes.com/sites/jjcolao/2012/11/27/snapchat-the-biggest-no-revenue-mobile-app-since-instagram/>.
Ortutay, Barbara. "Snapchat
suffers security breach." Yahoo! News. Yahoo!, 2 Jan. 2014. Web. 16
Feb. 2014.
<http://news.yahoo.com/snapchat-suffers-security-breach-161817710--finance.html>.
"Snapchat." Snapchat.
N.p., n.d. Web. 16 Feb. 2014. <http://www.snapchat.com>.
"Snapchat." Wikipedia.
Wikimedia Foundation, 15 Feb. 2014. Web. 16 Feb. 2014.
<http://en.wikipedia.org/wiki/Snapchat>.
"Snapchat Hiring Massive
Sales Team, Said To Be Raising $100M At A Near $1B Valuation To Pay Them."
TechCrunch. N.p., n.d. Web. 16 Feb. 2014.
<http://techcrunch.com/2013/06/08/be-with-me-now-on-snapchat/>.
"Snapchat ‘smoothie
hack’ spams users with images of fruity drinks." Tech2. N.p.,
n.d. Web. 16 Feb. 2014.
<http://tech.firstpost.com/news-analysis/snapchat-faces-smoothie-hack-attack-218171.html>.
That's an incredible net worth for a company that doesn't even make a profit! It's also completely incredible the company is run by 35 employees and that 350 million snapchats get sent a day. That's nearly 100 million per employee! But I'm also curious as to why companies such as Facebook and Google are only offering to buy it out for a small fraction of it's net worth though.
ReplyDeleteSnapchat first released in 2011 is doing very well, especially since it's value is around $860 million only three years later. Something that was found interesting is how snapchat is now a competitor with facebook. Facebook seems a lot more complex than snapchat and a person can do more than just send a picture, only for it to never to be seen again. On Facebook one can submit pictures, videos, and comment on family and friends pages. Though snapchat is worth $860 million, Facebook is worth $75 to $100 billion dollars. Therefore snapchat does not seem like a likely competitor in some eyes of the business world.
ReplyDeleteWow, I had no idea Snapchat had an exponentially growing net worth of 860 million. That's rather impressive if we considering the fact that this app is completely free. I also enjoyed your connection to the opportunity cost vocabulary: the two Stanford students leaving school to pursue a dream. Obviously these scholars had some idea of what they were doing; they're Stanford students! Great blog post, Kelsey.
ReplyDeleteI was particularly interested in this blog post, because I'm a pretty big fan of Snapchat. I had actually heard about the offer that Facebook made to Snapchat, but I wasn't aware that Google had actually made an even bigger offer. Another thing that surprised me was the insane price that is Snapchat's estimated worth. I was also unaware that there has been hacking issues. I can't imagine how less than 40 people are handling such a huge company now. And how they've managed to survive without charging users of the app is a mystery. I hope they find a way to bring in some revenue, but I fear that if they start playing ads that they'll lose some users, and thus some of their popularity.
ReplyDeleteYou picked a topic that really speaks to your audience. Thanks for sharing!
This was really interesting post. I am a very big fan of Snapchat it is a good way to communicate with people. I had already known it was big in the app store but had no idea how much it was worth especially since there is no advertisements on the app which I enjoy a lot actually! One of the surprising things that I didn’t know was that they dropped out of an elite college but I guess that the company is now worth billions of dollars it was kinda worth it...so I guess the opportunity cost out weighted the marginal cost.
ReplyDeleteWho would've thought something as simple as Snapchat could have a net worth of $860 million? It's interesting that such a simple idea can become so popular. This topic is so relevant to students our age not only because majority of us use Snapchat, but with our socially-driven minds, there's potential to create an idea of our own that sparks the interest of millions. Snapchat simply invested in the idea that permanent pictures lead to embarrassment. If we could alter aspects of communication that result in positive externalities, perhaps one day we could create something with a net worth of $360 million. All it takes is creativity.
ReplyDeleteThis topic is fascinating because I probably only heard of Snapchat about a year ago, yet its beginnings go all the way back to 2011. It's amazing that this idea has gone from university students to the top of the worldwide app store. I wonder what investors saw in the company's prospects--what about Snapchat made the potential future benefit outweigh opportunity cost, back in 2011? Also, the explanation as to why this app is so popular (people don't have to worry about maintaining a digital profile of themselves) is very thought-provoking.
ReplyDeleteAs an avid user or Snapchat I am able to attest to the exciting, natural humor and convenience of the program. I could have initially imagined that the creators of the app were making barrels of money but the investments made by other companies in order to increase capital and extend business familiarity is incredible when expressed through numbers. The marginal benefit absolutely outweighs the production and labor costs considering the way such highly-respected business such as Facebook and Google are making offers in order to take ownership of such a successful program. Though it has only been available for a few years now, it is quite impressive the way the exponential growth is inflating, allotting that makers millions of dollars, all thanks to a few college kids messing around in a classroom.
ReplyDeleteI think that this was a really great job of combining the concepts of technology with economic growth. I wish that your visuals would have been visible though. This makes sense though that the demand is increasing therefore potential value is increasing. This is tricky though because concepts of scarcity do not apply, but rather perceived value. It was really interesting though to read about this and also discover how much money those creators have turned down.
ReplyDeleteThis is really interesting. It's too bad that your visuals didn't pop up. I was very surprised and yet perplexed that the owners of Snapchat turned down $3-4 BILLION deal. That is huge especially if this type of app doesn't make a lot of money. If they would have taken the deal with Google, they could have launched drastically. I watched Shark Tank one night and there were two young college guys asking for a certain amount of money for their product/business to grow. They had a bigger deal than what they were looking for and didn't take it because they didn't want the Shark to own a larger part of the company. I wonder where they would be if they did take the deal? (Sorry for tangenting)
ReplyDeleteI can definitely relate to your article since I'm one of those people sending a snapchat out of the 350 billion snapchats sent a day! I think it was really interesting to see how much companies invest into something so small as just an app, just because of the demand for it by consumers. Plus the fact that Snapchat is only valued at $860 million dollars was surprising since investors were putting millions in and companies like Facebook and Google offered more than triple and quadruple what it's worth because they know how much consumers want Snapchat. It was really cool that you chose something almost everyone can relate to and connected it to economics!
ReplyDeleteThis post really caught my attention! I like how you used something so relevant to our lives as teenagers. I have often caught myself thinking about how Snapchat is a free app. I always wonder how long it will take until we have to buy it, or Facebook. It amazes me that Snapchat only has 35 employees while millions of people are using this app daily! It is crazy how much Snapchat is actually worth! This was a great post!
ReplyDeleteThis was very interesting! Snapchat has become SO popular in the last few months/years, but oddly enough no one, including myself, really thought too much into it. For example, the fact that two guys from Stanford dropped out just to pursue their idea is rather inspiring, and luckily for them it paid off. I also like the fact that they don’t want to give into the ads that every other app has become victim too, it makes Snapchat much more user friendly. But honestly, the coolest part about this writing, and the creators of Snapchat, is that they won’t sell. The fact that they have been offered BILLIONS of dollars, but never gave in, shows that Snapchat is in good hands and will continue to build popularity with more time.
ReplyDeleteThat was very cool and interesting to read about! I use snapchat all the time, its crazy to think about all of the background work that is done or needs to be done in order for everything to work and keep the app moving smoothly. This app is constantly growing and who knew that this app could bring in millions of dollars and be so entertaining to so many people. Something as simple as sending a 10 second image is effecting the economy.
ReplyDeleteThis was such an unusual topic but so easy to relate to! I use snapchat all the time but like Leslie said, I never really thought about how the creators of free aps receive their profit. It surprised me how many were willing to invest in snapchat but based on its continually increasing popularity, they definitely made the right choice! Even though snapchat was offered 4 billion dollars to sell, the owners chose to stand behind the company. Although this may not have been the smartest choice from an economic stand point, it's really cool to see entrepreneurs succeed and turn such a simple idea into a nationwide phenomenon. Thanks for making me think! :)
ReplyDeleteI just find it really hard to believe that an app that is free to use can actually be worth $860 million. However, with the amount of investing that has been put into the app, it really is not entirely surprising. Ever since its creation, it has only skyrocketed in use, and in value. The investing made the app even more popular and is one of the most used apps in the world today. It really speaks about how much the owners care about Snapchat, to the point where they would not even sell in for a $4 billion bid. It appears as if there will be even more significant improvements to Snapchat, even though I cannot imagine it becoming a lot more popular.
ReplyDeleteWhen reading your article at first I thought it was going to be more about just what it does and how many people use it, yet when continuing reading it opened me up to see what and how this app that we as people love so much. Your post gave in site into how much people really do use and app and that a dream someone has can be taken on if you put your mind to it. Also it amazed me to see that as time increases the app is still popular most apps end up going out of date and not being used, yet snap chat just continues to grow. Thanks for the in site into a world I would never look at.
ReplyDeleteThis is a very good article! It was defiantly a good topic to write about because a lot of people including me use Snapchat. I never knew that it had a growing net worth of $860 million. That's crazy! I also never knew that Google and Facebook offered to buy Snapchat for billions of dollars. I don't know why Snapchat would put down an offer so good. Snapchat will eventually not be as popular as it is now. I think it would be smart to take Facebook or Google's offer because they have been internet sensations for many years now and I don't think that that's going to change anytime soon. Overall, I was a great topic to write about and I enjoyed learning something new about Snapchat!
ReplyDeleteI always am drawn to relateable topics to read about, and I could totally relate to this. I am an avid Snapchat user, and I never think about what is going on behind the scenes. I feel like Snapchat is here to stay, and I love that the two guys who started it are sticking to authenticity rather than selling the company to Facebook or Google. I was always curious as to how free apps, especially this one, receive their money. It is wild to think about how an app can build such a booming business, employ people, and give investors great opportunities as well.
ReplyDeleteThis article was incredible easy to relate too. I have never really though about how the creators make profit off free app, I just download them without any thinking. I feel like no user thinks about what they are actually doing and the process it takes to send a Snapchat, they just do it. The risks people take like investing money into the app or dropping out of school just invest in something so small is a huge risk. its crazy to think that even though millions of people use Snapchat daily only 35 people are running it. It is crazy to see how much this app is really worth!
ReplyDeleteI also am a snapchat user and it was interesting to learn about some of these facts! I have always wondered how all of these free apps were making so much money. It's crazy how one app could change the economy so much. This app did very well and all of the people and investors that took part in this definitely made the right choice. I love reading things that are so revelant to me, this blog was very interesting. The marginal benefits totally out-way the marginal costs. I knew the app was popular but I never thought it would be doing this well for us.
ReplyDeleteLexi, tell us more about how the marginal benefits outweigh the marginal costs.
DeleteWe get the benefit of having the app without us having to pay for it. We get to enjoy this app for free. It outweighs the cost because for us, it doesn't cost anything. But I guess it was more of the opportunity cost outweighing the marginal cost because they dropped out of school because of this app but now it is a huge success so it was kind of worth it.
DeleteSnapchat is a great topic that combines our economic lessons with modern technology that all high school students can relate to. I thought it was really interesting that there were only 35 people working for this company, considering how many people worldwide use the app -- with technological advances, it seems like less and less people are needed for certain jobs because computers make them more efficient. I wonder if the increase in social media has had an impact on other jobs in areas such as the US postal service which are severely affected by all of this new technology. It's also interesting that the company would not let itself be bought out by a bigger company like Google because although it seems like the founders of the company would make a lot of money, they might see a different path for their company that is more beneficial.
ReplyDeleteThis is such an interesting topic to research because I didn't know there was any huge facts like that behind the app! I never thought that snapchat would become such a popular thing, but after hearing that Facebook and Google want to purchase it for $4 billion is crazy. I never thought this silly free application would lead to be worth $860 million. This was very well written and your facts really showed the dramatics of this app!
ReplyDeleteGreat article and good job picking a topic that is really easy to relate to. I didn't know someone could make so much money from a free app. I wonder if the owners of Snapchat would actually sell the app for that much money. It would take some serious thinking, if they sell the app and it continues to do so well then the owners would lose money. But if they sell it and Snapchat suddenly becomes less popular then it would have been a smart business move. Interesting to think about.
ReplyDeleteThis shows how something so simple can be so successful in the market now-a-days. Games like flappy bird take over people’s lives, and it grows because soon as one person gets the app, all of that person’s friends want it too, so then it becomes a craze and makes millions of dollars.
ReplyDeleteThis is a very good post, because most of us can relate to the topic. If a free app like Snapchat can create such an immense amount of revenue. Think of apps like Angry Birds or Doodle Jump and imagine the revenue that must have been created. Almost every bought the full version of the app or decided to get the free version that had ads within the app. Just recently Flappy Bird's owner took down the app because of issues that I created in society, but it created close to $50,000 a day when it was up and running. The real question would then be what is Snapchat revenue per day. Nice job Kelsey!
ReplyDeleteI'm pretty sure a lot of use teenagers can relate to this post considering that most of use have this app. I really liked the part where it said that the users of snap chat focus on more of what their doing, also how people become so virtual now a days and this app in a way will help eliminate that. I did know that Facebook wanted to buy them out but I did not know that this app was worth so much, I wonder why they refused to sell the app for so much money. Do they have something planed out for the app or is the app just priceless to the two Stanford drop outs. I know that money isn't everything but lets be honest, gaining a lot of money wont hurt.
ReplyDeleteThis is a great topic to address because of its popularity especially for teens. I know that I always want to be in on the newest and greatest thing and obviously this is one of them. The popularity of this app is so big because its international. No fees are applied like many providers have when users want to text or call. This past semester my sister studied abroad in Spain and the only way we communicated was through snapchat because of it being a free app between countries. 1/3 of the people who use this app are from a different country other than just America. Because this app is so versatile between countries the rates of people buying it has increased dramatically.
ReplyDeleteIt is incredible that a free, simple app has grown to a net worth of $860 and even more mind blowing that Google has offered $4 billion for it! With the international growth snapchat is experiencing, soon the 350 million snaps sent daily will turn into billions. The fact that the app is free brings so much more attention to it. After reading this and with my knowledge about the app, I believe it will continue to grow and possibly reach the popularity of the old MySpace or even Facebook. The app can be easily used right in the palm of your hands, for free, so what is stopping people? Nothing, I can't wait to see what snapchat will amount to in the next few years.
ReplyDeleteI found this post really interesting because, like most teenagers, I too use snapchat. I found it fascinating that only 35 employee's work at this multi-million dollar company and that it is worth so much. I was aware that Facebook had offered to buy it, but was not aware that google submitted a bigger price. I also wasn't aware that there have been hacks. That might have been a good thing for them to tell us.
ReplyDeleteI, as many others also seem to, find this topic very interesting as it directly relates to my life. The amount of revenue Snapchat brings in amazes me as it is a free app. I think it exemplifies the openness of today's economy and it's malleability as it appeal to many. Looking towards the future it will be interesting to see if Snapchat continues to grow or reaches a peak and then declines as many fads have in the past. It has definitely served to stimulate both the economy and social network--an interesting combination.
ReplyDeleteFor a free app, a lot of people don't consider the revenue and economics that must take place in order for the developers to make money; obviously, as per the Invisible Hand theory, the developers wouldn't create a free app simply for our personal conveniences. Developing applications for iTunes and Google play can actually be very profitable (like the notoriously viral game of Flappy Bird, which reeled in a whopping $50,000 per week). Communication via internet and cellular phones is a huge deal these days, and with social networking, text, Skype, phone calls, and now Snapchat, the options seem limitless!
ReplyDeleteThis topic is very interesting to me because for it to be a free app. for us, people may wonder how the company can make their money. There are so many users and they are making a huge profit right now because of that. If they charged for the app, think about how much money that company would be making then. Snapchat as of now is just a fad I personally believe, but we will find out in the near future if that's true based on the company's growth. Its crazy to me how this simple app with barely any features can make so much revenue. Also, for having so few employees, it's shocking that this is a multi-million dollar business.
ReplyDeleteIt is always impressive to see social media apps like this take off from seemingly nowhere, but while they are having great success now, I wonder where Snapchat will be in a couple years, if they are even still around. The way social media apps seem to work is that they are popular for a short time, and then they fall off everyone’s radar screen. (i.e MySpace). In my opinion, Snapchat should have sold out to Facebook for the billions of dollars. That’s enough money for a life time, and they have no idea what will become of their business in years to come.
ReplyDeleteAlthough I don't use Snapchat, I know how big it is. Plenty of my friends have it and have asked me to get it. Also, every member of my family has it, except for me. So, even though I don’t have it, I still know how much it affects people, and how big it is. I also know that it’s free, so that's not where they make their money. A lot of things are free like that, and yet still make money. One example would be youtube. The public that uses youtube doesn’t pay for youtube, the makers don’t pay to create and the viewers don’t pay to see the videos. But, there are ads on almost every video. That is where the money comes from. Companies pay youtube to play their ads on videos and then youtube pays people who make videos for incentive to make more videos so the creators of youtube can make more money. This is similar to what would happen with Snapchat.
ReplyDeleteI am really intrigued by this topic although I don’t have much personal connection to it as I have never downloaded Snapchat. However, as I was reading through this I began to wonder why it is still an option to get it for free. To me, it seems like there would be a big benefit in having the app cost money and it would help raise money for the few employees there are. Huge organizations like Facebook and Google seem to think it’s a big trend too because of the generous money amounts they had. Maybe they are just waiting for the right time for the benefits to completely outweigh the costs.
ReplyDeleteWell that is good I hate it when Stanford grads become poor and go hungry. It is amazing how these two guys have became so rich off of a simple college assignment. Most of all it is amazing how the popularity since 2011 has grown with no advertisement. Great articular on how small time innovation has made groups of people rich and successful.
ReplyDeleteThis is so easy to relate to, especially since so many of us use snapchat 24/7. Personally I've never even begun to think for a second about what the outcome of m snapchat addiction is. It was crazy seeing all those statistics. 4 billion just for a simple app! It's insane and also really cool to see how much snapchat has grown in a short amount of time
ReplyDeleteIt it truly amazing how such a little thing can promote and create such growth economic wise. Not only has this app sustained its rank as most popular of apps for sometime now, but at the same time it continues to be the app that is most used, showing that such a small thing is causing much needed progression in our economy. The amounts of revenue can not be grasped at the moment because such funding and investments for this app steadily increases as the app stays so popular, went from half a million to a million and more so easily, and the probability of this trend continuing is simply too great to let pass without acknowledgement.
ReplyDeleteI was interested in this post because I am a fan of snapchat and use it daily. You gave great information and I learned a lot of new things I didn't know like how facebook and google want to buy snapchat but were turned down and just how many investors snapchat has. It seems like snapchat has become extremely successful since just 2011. Thanks for sharing!
ReplyDeleteSo if communication has changed so much over time and he wants people to act more like themselves and not be worried about a saved bad picture, why can we simply sum up a good moment in 10 seconds or less and the picture can simply be saved by screen-shotting the picture sent?
ReplyDeleteSnapchat has become so common that people send some of the most embarrassing pictures of themselves. As a person who uses snapchat, it is fun to use snapchat but is it really worth our time? I mean they got rid of flappy bird and now phones with the app are making tons of money. What if the same thing happened to snapchat? Who would lose money and who would gain money.