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It’s been about a week since we learned that Snapchat had turned down a reported $3 billion cash acquisition offer from Facebook. Since that time, we’ve seen some reports with regards to Snapchat’s percentage of the photo upload pie (Snapchat can lay claim to 49% of photo uploads, leading Facebook, Instagram and Flickr) and how the “stupidity” on display from the founders may not have been stupidity at all. We’re now starting to get an idea of why Snapchat was valued so high by Facebook in the first place and why the company feels it’s actually worth more than $3 billion. And, right on cue, Business Insider came out with a story detailing the possible paths to revenue for the image sharing startup.

Snapchat's ridiculous percentage of photo uploads.
Snapchat’s ridiculous percentage of photo uploads.

A lot of Web startups start out by trying to accumulate as many users as possible. Then, once all of those eyeballs are on the company’s website or app, they can put some advertising out in front of them and instantly begin making some money. Snapchat has been no different in the sense that it hasn’t focused on revenue — rather, it’s worked solely on improving its product and growing its user base. Word has it that Snapchat will experiment with ads inside the app, and in terms of value, advertisers will gain access to the teen demographic that so many companies are chasing after. The question is, will these same teens be turned off by ads once they start popping up?

Another option for Snapchat is digital goods. A lot of app companies are going this route, giving their product away for free while selling extras like add-on features or game tokens on the side. Zynga is famous for this — its poker apps are free to play, but you can also buy digital poker chips using real money if you want to play at the high roller tables. In Snapchat’s case, Business Insider reports the company could make “emoticons or copyrighted characters” available for users to buy and send to one another. The potential to make real money is there for digital goods, as the cost for storage is basically nothing and the products can be endlessly duplicated and sold.

In my post last week, I pointed to the fact that I didn’t believe Snapchat was anywhere near as useful as Instagram, and I used that as a basis for not buying into the $3 billion valuation. I still feel that way, but I’m coming around to see that while the app doesn’t have “everyday utility” for me, there are a host of teens who see it as a go-to app, and there are advertisers who are willing to pay a pretty penny to advertise to this specific segment of the population. I still don’t know if Snapchat is worth $3 billion, but I think it certainly has a shot at getting there and beyond if it decides it wants to start making money. Will the teens stick around long enough for that to happen? That’s the question, and it’s one we don’t have the answer to right now.


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