There is no market which is more fast moving, nor more ephemeral, than that of social media. Vulnerable to the vagaries of fashion and personal taste, the big players in this field are not known for their stability, but rather for their fortunes fluctuating rapidly, and experiencing considerable skepticism about their market value.
Thus, the original social network website – so notorious that they made a movie about it – Facebook Inc (NASDAQ:FB), was considered grossly overvalued by many analysts when it first floated, and quickly tumbled in value. There were two fundamental problems which Facebook faced.
Facebook’s strategies for generating income
Firstly, it wasn’t entirely clear how the site was going to generate income, except from advertising. Facebook Inc (NASDAQ:FB) tried to attract people to the site with a variety of different approaches, most notably interactive games. But the biggest producer of Facebook games, Zynga Inc (NASDAQ:ZNGA), has largely ditched Facebook games in favor of gambling applications (it never hurts to rely on betting games that are statistically impossible to win at for any significant length of time), and there is no doubt that gaming is a phenomenally competitive arena.
Secondly, as quickly as Facebook Inc (NASDAQ:FB) became the site that everyone had to be part of, so a pretender came along and rapidly became far more than a pretender. Twitter Inc (NYSE:TWTR) caught on like wildfire, and while Facebook remains the definitive social media site in large parts of the world, most obviously the Middle East where Facebook is utterly dominant, Twitter attracted users in the West in particular with its simplicity and unpretentiousness. It was more fun than Facebook, and as this was the overwhelming reason that people signed up to social media sites, Twitter has attracted a vast number of users.
Facebook vs. Twitter users
While Facebook Inc (NASDAQ:FB) still boasts over 1 billion users, far in excess of Twitter’s roughly 250 million sign ups, the feeling persists that the latter retains its users for a much more sustained period, and that Tweeters are considerably more committed to the platform than Facebook users are to the world’s biggest social media site.
[drizzle]But given the fashion element which is so critical to the success of social media sites, both Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) are already monitoring the progress of a new upstart very closely indeed.
Snapchat is an embryonic social media site which is perhaps not the most original idea in the world, but is building on the popularity of sites such as Instagram to gain a great deal of momentum and traction in the social media marketplace. Snapchat has a very simple premise; it enables users to take photographs, record videos and add text and drawings to them, and then distribute them among specified lists of recipients. Every item sent on Snapchat is referred to as a ‘snap’; hence the name of the application.
Of course, Snapchat hasn’t built up the number of users that Facebook Inc (NASDAQ:FB) and Twitter can boast, but it has achieved a dedicated following in a very short period of time. The site takes one of the most popular aspects of Facebook, sharing photos, and then ensures that this remains private between oneself and only the approved few that you wish to see them. This is a nifty idea that has particularly found favor with women, with the company recently confirming that 70% of the Snapchat user base is believed to be female.
SnapChat Facebook’s worst rival?
As aforementioned in this article, it was highly likely that the big guns in the social media sphere would keep abreast with developments related to Snapchat, but this was confirmed beyond all doubt when Facebook Inc (NASDAQ:FB) decided that this was one rival it wished to eliminate from the marketplace. Thus, Evan Spiegel, Snapchat’s 23-year-old co-founder and chief executive, was presented with an offer than many of us wouldn’t mind receiving; a $3 billion buyout offer from Facebook.
In the manner of the most idealistic and ambitious young entrepreneur, Spiegel rejected this offer, obviously considering that the market value of the company was potentially many times that, or at the very least considerably more than that which had been offered. This is a pretty confident act considering they haven’t seemingly generated any revenue yet.
This has been a massive problem for all companies in this high-profile sector. Rarely have there been a collection of companies which are such obvious household names, which attract ten-digit valuations, which attract millions, and indeed billions, of users, yet don’t make any profit.
Twitter focused on attention rather than money
Twitter Inc (NYSE:TWTR) is talked about every day in the media, it attracts an incredible amount of attention, every television and radio program constantly references tweeting and asks for their listeners and / or viewers to contact them via Twitter, and anybody who is anybody in the world of sports, showbiz and music is on there. But they don’t make any money, and seemingly have no clear strategy to do so.
Facebook Inc (NASDAQ:FB) has had similar difficulties, although after a serious plummet in the social media site’s value after its initial stock market flotation, its share price has recovered somewhat. But converting users into sales has been an issue that neither Facebook or Twitter Inc (NYSE:TWTR) has actually managed to achieve, in fact there is little evidence that either site has definitively decided what it is, or should be, selling.
Snapchat may have garnered a lot of attention in a short period of time, and may also have achieved technical accomplishments which are genuinely impressive and popular. But it’s debatable whether its selling points are actually useful to advertisers, who would prefer to have a slower-moving platform in which users can be definitively profiled. The jury is still very much out on whether Snapchat has been overvalued and how it intends to develop revenue streams in the future.