Snapchat – Clever Strategy Or Colossal Mistake?

Snapchat is the latest hot startup. It turned down a $3 billion buyout offer from Facebook (NASDAQ:FB). Interesting enough Snapchat hasn’t make any money up till now.

Needless to say, the move triggered a lot of speculation. It was assumed that Snapchat knows something that the rest of the world doesn’t.

Social media consultants and marketers pointing out that Snapchat is a great investing opportunity. However, it’s good to remember that Snapchat is not profitable. Facebook quite likely offered $3B to buy Snapchat in order to eliminate competition.

Snapchat might go down the path of Formspring or Chatroulette. It seems that Snapchat wants to become profitable via advertising. The idea is to make money by selling e.g., virtual goods. It’s doubtful that such a revenue model would match the Facebook offer.

According to The New Yorker's Matt Buchanan, Snapchat turned the money down since it is convinced that Snapchat will be worth more than $3b in the future. Since Snapchat doesn’t want to be another Instagram; it’s convinced that it’s worth more than the $1B.

The target audience of Snapchat is kids, not so much adults, who manage the purse strings.

Although Snapchat is definitely cool, I am not sure that they didn't make a huge mistake by turning down the Facebook offer.

• Snapchat uses your existing address book on your phone until you opt out which is a problem with monetizing. 
• Snapchat's technology is easy to replicate. 
• Introducing ads will alienate users.