Snapchat

Ben and David tackle their first failed acquisition: Facebook's 2013 offer to buy Snapchat. They cover the fascinating story of Snapchat's creation and growth, their blossoming business model, how it would be different inside of Facebook, and what the future holds. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Items mentioned in the show: The Inside Story Of Snapchat: The World's Hottest App Or A $3 Billion Disappearing Act? http://www.forbes.com/sites/jjcolao/2014/01/06/the-inside-story-of-snapchat-the-worlds-hottest-app-or-a-3-billion-disappearing-actInside Evan Spiegel's very private Snapchat Story http://www.recode.net/2016/5/9/11594144/evan-spiegel-snapchat

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  I've noticed our episodes have been getting a little longer.

• 0:04Speaker 01

  Yeah, they have.

• 0:05David Rosenthal?

  Do you think that's a problem?

• 0:07Speaker 01

  Maybe a little.

• 0:24Speaker 01

  Welcome to episode 12 of Acquired, the podcast where we talk about technology acquisitions that actually went well. I'm Ben Gilbert.

• 0:33David Rosenthal?

  I'm David Rosenthal.

• 0:34Speaker 01

  And we are your hosts. This episode, we're going to try and do something a little bit different.

• 0:39David Rosenthal?

  Today, we're going to talk about one that didn't happen at all.

• 0:42Speaker 01

  Dun dun dun. This week, we're going to cover Facebook's attempted acquisition of Snapchat for $3 billion a while back.

• 0:54David Rosenthal?

  In November of 2013.

• 0:57Speaker 01

  Yes, and it'll be cool because we have, not only the deal didn't go through, but we have the benefit of history to help us grade what would have happened if that offer actually went through.

• 1:09David Rosenthal?

  Well, we know for a fact what would have happened otherwise if Facebook didn't acquire Snapchat.

• 1:15Speaker 01

  That's actually a little easy. All right, a few things before we get into it. One, please rate us on iTunes. It's how we grow the show, and it's how we gain more listeners like you. We also really appreciate any social sharing. If you like the show, please shout it out on Twitter or Facebook. And David has an update with a new thing we're trying.

• 1:35David Rosenthal?

  Yeah, we have a new innovation here at Acquired. We just launched a Slack community that we're experimenting with. So if you'd like to join us on Slack, go to our website, acquired.fm, and from there, you can sign up and join our community on Slack.

• 1:55David Rosenthal?

  We're gonna have some fun with it and see, have some fun with it and see where it goes.

• 2:00Speaker 01

  Yeah, we plan on doing kind of like episode discussion in the week following. We get a lot of email from, from people directly to us and we, we figure, you know, that actually could be pretty beneficial to just have that in a group context. And Slack seems like a nice way to do it because a lot of us are already on it for our work day in and day out. We can just kind of passively subscribe and, and, you know, kind of watch the conversation.

• 2:23David Rosenthal?

  Yeah, and we'd love to see where it goes with the community. So you can use it, you can DM us with, with feedback or questions. Or just, just post in the community.

• 2:32Speaker 01

  Yeah, yeah. And also a good, good place for, if you have ideas for future shows that you want us to do. If you think you'd like to be a guest on the show, we've got a few great guests coming up that we're super excited about. So more great stuff to come. All right, time to get into it.

• 2:49David Rosenthal?

  All right. Well, we tried to get guests for today, but both, both Zuckerberg and Spiegel were, were booked up unfortunately.

• 2:55Speaker 01

  Yeah, or so we assumed.

• 2:58David Rosenthal?

  All right, I'm gonna dive in with acquisition history and facts. I'm gonna, this might take a little longer because this is a long story here.

• 3:07Speaker 01

  David, do not scare them away.

• 3:11David Rosenthal?

  All right, so 2010, Evan Spiegel is a sophomore at Stanford. And he has just recently moved into the Kappa Sigma fraternity house that he had joined last year at the end of his, the fraternity he joined at the end of his freshman year. And across the hall, a guy named Bobby Murphy, who's a senior, is living there. And so they, they start hanging out, they become friends and Murphy recruits Evan, Bobby recruits Evan to work on a social app that he had an idea for inspired by Google Plus.

• 3:47Speaker 01

  What?

• 3:50David Rosenthal?

  Unsurprisingly, that goes nowhere. Time goes on and Evan, Evan's still at Stanford and he's actually, he's, he's doing great at Stanford. So he's an undergrad and he ends up majoring in product design and David Kelly becomes his advisor. David Kelly's the founder of the D school.

• 4:10Speaker 01

  IDEO, right?

• 4:11David Rosenthal?

  Yeah, founder of the D school at Stanford and professor there and founded IDEO before that. And the D school, I have a bunch of personal history here, having gone to Stanford for business school. The D school normally only admits grad students, like undergrads can't take D school classes. But somehow Evan manages to get David to be his advisor.

• 4:32Speaker 01

  Wow.

• 4:33David Rosenthal?

  And that's not the only cool thing he does as an undergrad. He manages to find his way into becoming an auditor for a class at the business school, Strategy and Management 354, I believe, called Entrepreneurship and Venture Capital, which was my favorite course in business school. It was awesome. It was taught by Peter Wendell, who was one of the founders of Sierra Ventures and was a longtime venture capitalist, and then co-taught by Eric Schmidt and Raymond Nazir, who was Google's first head of, head of communications and worked for Eric, both at Novell before Google and at Eric. And it was an amazing

• 5:13David Rosenthal?

  class. We had amazing guest speakers come, people like Meg Whitman, like Biz Stone, like Peter Fenton, Scott Cook. And Scott Cook, when he came the year Evan was there, actually was so taken by Evan, by the young Evan Spiegel, that he hired him to be an intern to work on a, on a project that he wanted to launch at Intuit.

• 5:35Speaker 01

  Wow. So, so no doubt a special individual, even before Snapchat.

• 5:39David Rosenthal?

  Even, this was years before Snapchat. You could tell this kid had talent. He was going places. So that summer after, after Evan's sophomore year, he and Bobby team up again. They start a new company. This time, it's a website for aspiring college people, high schoolers navigating the college admissions process. It's called Future Freshmen.

• 6:09Speaker 01

  Why does this story feel super familiar? I feel like I've seen a movie about it, like a kind of a failed idea before the big idea that took off, maybe, maybe went to college together. Something about somebody believing it was actually their idea laying claim.

• 6:24David Rosenthal?

  Yeah, was there, uh, there were some twins who, uh...

• 6:27Speaker 01

  Yeah, they might've used a super similar law firm to the one here. I'm jumping ahead, but...

• 6:33David Rosenthal?

  Obviously referring to the social network here in Facebook. The similarities are eerie. Okay, so the future freshman, that goes nowhere. Again, April 2011, so it's, it's Evan's junior year and Murphy, Bobby's graduated and Evan's hanging out one day and his fraternity brother, also in Kappa Sigma, Reggie Brown, who is a classmate of Evan's and a close friend, he, he comes running up to Evan and he's like, "I've got an idea for an app." Uh-oh, uh-oh. And, and he's like, "I sent this, I sent this picture to this girl last night."

• 7:15David Rosenthal?

  Apparently, this is all, as we will discuss in a minute, this is all in, discussed in the courts in legal filings. And I got this idea for an app that you can make pictures disappear. And supposedly Evan gets really excited and repeatedly calls it a, quote, "million-dollar idea." One million dollars!

• 7:34Speaker 01

  Which he denies, I believe, in the court proceedings, that he ever said anything about the million, but, but did acknowledge that he was very excited.

• 7:40David Rosenthal?

  Yes. So they get really excited, the two of them, Reggie and Evan. They recruit Bobby. Again, at this point Bobby's graduated, he's got a real job. He comes back, he becomes the CTO of the company, and Evan just conveniently happens to be in a design class at Stanford where they build a product and a company in the class and the...

• 8:00Speaker 01

  Wait, was this actually part of his, like, he worked on this in a class?

• 8:03David Rosenthal?

  Yeah, so they, they, they submit this, this idea, this app that they're building, they decide to call it Peekaboo. They submit it as their project for the class, as Evan's project. And the, the final day of the class, there's a panel of esteemed venture capitalists that judge all of these, these projects in the class. And so, you know, they work really hard during the semester, during the quarter and... And they get the, get the app, you get a prototype done. It's actually, at this point, it's a website. It's not even on a phone. You have to submit photo on a website.

• 8:39Speaker 01

  Right. You have to like click the choose file button on your computer. I mean, it's a mess.

• 8:44David Rosenthal?

  It was janky. And, and it goes over like a lead balloon. The, the, the app of esteemed VC judges hates it. Apparently, according to an interview with Evan, one of them suggests, maybe they should talk to Best Buy about a partnership. I don't know what that would be, maybe with like cameras or something. So not, not, not an auspicious start to the early days of Snapchat. But undaunted, they decide to keep working on it. So they spend the whole summer after that quarter, working on the app. And they work really hard and they grow

• 9:26David Rosenthal?

  the app. And by the end of the summer, they have 127 users.

• 9:31Speaker 01

  Which, having worked on a couple of consumer things that, that didn't work, and actually working on one now, it is like so terrifying when you see these kind of like super low numbers. And then everything you're reading about in the press has insanely high consumer engagement. And you're like, I need three to four more orders of magnitude before this is

• 9:55David Rosenthal?

  Anything.

• 9:55Speaker 01

  meaningful.

• 9:56David Rosenthal?

  Yeah.

• 9:56Speaker 01

  And it's like, it's almost inspirational that they only had 127 users.

• 10:01David Rosenthal?

  We're going all summer. So we're now roughly six months into the life of what would become Snapchat. They have 127 users. At the end of the summer, there's also unfortunately, a big argument occurs between Evan and Bobby and Reggie, and Evan and Bobby kick Reggie out of the company. Then, then the summer ends.

• 10:23Speaker 01

  And that, that argument came right around the time, or part of the same discussion is when they're figuring out their equity splits, right?

• 10:28David Rosenthal?

  Yeah, I think it was prompted by figuring out the equity splits.

• 10:31Speaker 01

  Which, boy, is that a lesson for founders out there to have that thing early before people start to feel like they're, they've already, you know, contributed and earned more than, than the rest of the group thinks.

• 10:43David Rosenthal?

  I mean, unless your strategy is really Machiavellian and you want to push your co-founders out of the company and get more equity for yourself.

• 10:50Speaker 01

  Yeah, have that discussion early.

• 10:53David Rosenthal?

  Yeah, we would recommend having it. Pro tip, have the equity discussion early. So the app's still going nowhere. The summer ends, Evan heads back to Stanford for his senior year. Bobby's like, hey, I need a job. So he takes a job at another startup in San Francisco.

• 11:11Speaker 01

  That blows my mind. Like, they left the app in the store.

• 11:14David Rosenthal?

  They literally put it on ice. And around the same time, more bad news. They get a cease and desist order from another startup called Peekaboo that I think is also in the photo space, telling them they need to stop using the name. So Snapchat or Peekaboo is on the ropes at this point. You know, they need to change the name. They come up, they brainstorm, they come up with Snapchat.

• 11:38Speaker 01

  And they kept the ghost. I'm pretty sure Brown actually came up with the ghost logo. That was his contribution before he got kicked out of the company.

• 11:48David Rosenthal?

  Yep, I think that's right.

• 11:49Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 12:09David Rosenthal?

  Yep, your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 12:29Ben Gilbert?

  Right, and that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 12:51David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 13:10Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

• 13:37David Rosenthal?

  So one other thing happens in the fall as Stanford classes are starting again. And it turns out to be really important. And that's that Evan's mom, this is all, this is all according to articles on the internet, including a big, really good profile in Forbes on Evan Spiegel that there's a lot of our source material here. Evan's mom is, tells her niece who's in high school in Orange County. So this is Evan's cousin, who's a high school in Orange County, about this app that Evan's working on. And her niece downloads it and

• 14:18David Rosenthal?

  thinks it's really cool and starts using it with her friends in high school. And, and one of the reasons that they start using it is that you don't need to use it on a phone. You can use it on an iPad because you know, it works, it works on iPads too. And with the iPads that their school, their, you know, Tony, private school in Orange County had given them, they had them locked down. So you couldn't like, you know, text, you know, use iMessage.

• 14:41Ben Gilbert?

  Yeah, I think I read something. They, they also made it so you couldn't install Facebook, which is actually, it's incredibly ironic that the fact that those iPads didn't have Facebook is why they needed a different way to communicate. So they installed Snapchat.

• 14:53David Rosenthal?

  So they installed like this like random cousin's app so that they could, you know, text each other during the day with their school iPads in an Orange County.

• 15:04Ben Gilbert?

  Wow.

• 15:06David Rosenthal?

  Crazy. So it sweeps through this school, then it starts sweeping through other high schools in Orange County. Then it moves up the state and then it moves into other high schools in Northern California and in Silicon Valley. And the growth takes off. So by December of 2011, Snapchat is up to just over 2,000 users. The next month, January, 20,000 users. Couple months later in April, 100,000 users.

• 15:40Speaker 01

  So there's an order of magnitude growth in a month and then another 5X the next month?

• 15:45David Rosenthal?

  In the next two to three months after that.

• 15:48Speaker 01

  Wow.

• 15:50David Rosenthal?

  And this is the proverbial hockey stick. They have found it. So all of a sudden, they need to pay the server costs because they're hosting a lot of photos at this point.

• 15:58Speaker 01

  Well, and the incredible thing, too, I mean, a lot of the time, you're trying to make that product tweak to get you to that hockey stick. But this is truly like, the product was stagnant. And it was like,

• 16:11David Rosenthal?

  It literally didn't change anything.

• 16:13Speaker 01

  Finding the right market. And it's not like they even found it. It's like it finally insidiously

• 16:17David Rosenthal?

  Literally Evan's mom found the right market for them.

• 16:21Speaker 01

  Wow. I mean, these things, it's almost like you shouldn't try to learn lessons from these things as founders because they're such extreme outliers. That it's almost like chasing a unicorn to try and duplicate this sort of success.

• 16:39David Rosenthal?

  Good, good choice of words. So at this point, you know, they're now, it's now April, they're at 100,000 users. They're, I don't know if they're using AWS or Snapchat now uses Google Computer Engine, if they were using that at that point, but they got to start paying the server bills.

• 16:56Speaker 01

  Yeah, they're like by far the largest tenant, I think.

• 16:58David Rosenthal?

  Yep. On GCE, yep. Today, so they raise a seed round, $485,000 from Lightspeed at a four and a quarter million dollar valuation. I think that was the pre-money. So, but effectively Lightspeed gets about 10% of the company for less than $500,000.

• 17:19Speaker 01

  And at which point Evan is furiously refreshing his Wells Fargo app, I think, in class as the story goes. And as soon as he watches it hit, he walks down, he says goodbye to the professor, and he drops out of class, or drops out of Stanford like months before graduating.

• 17:37David Rosenthal?

  Yeah, it's April, graduation is in, is in like May, June. Yeah, he literally drops the mic in the middle of class. This is according to Evan. Once the money hits the bank account and walks out the door and never comes back.

• 17:51Speaker 01

  Yeah. And if you were in that class, we would love you to join the Slack team and let us know how it really went down. But that's what we're going off of.

• 17:59David Rosenthal?

  That's what we're going off of. And so walks out, moves down to LA, convinces Bobby to come down. They shack up at his dad's house in LA. They convince a bunch of their friends from Stanford to also drop out of school, months from graduation, come down, join the company and start working on it. And then for basically the rest of 2012, that's when the core of Snapchat as we know it today gets built. So they shack up in LA, work for the whole summer. In October, they launch on Android. And when they launch on Android, they announced that they are now serving 20 million snaps per day in October

• 18:40David Rosenthal?

  of 2012. December of 2012, they add the next big pillar of Snapchat, which is video. And then also in December of 2012, Mark Zuckerberg has heard about this app, and he sends an email to Evan Spiegel.

• 19:00Speaker 01

  He has, and it does seem that he had had heard of it a little bit earlier since kind of quietly, I almost said Microsoft, Facebook had been working on an app called Poke. They were reviving the old name of the feature that we all know from from early on in Facebook use that really never gets used today to basically create a clone and actually from a UX perspective, a very excellent clone of Snapchat. And when Zuck does does meet with Evan, it's kind of an interesting story of how he how he gets there. Zuck says, hey, why don't you come hang out at Facebook? Evan says, oh, next time I'm up in the Bay Area. Evan, I think, follows up and says something like, why don't you come down here? So Zuck actually flies down to to meet Evan at Snapchat's headquarters.

• 19:43Speaker 01

  I think there's there's a whole story about them them getting like a private, them renting a private apartment to have this thing. But Zuck walks in with a plan and he basically says, hey, here's how I would do Snapchat and sort of how I see your role in the world and how I could could see this all playing out. And it's this grandiose vision and it's quite impressive. And he ends with saying, and we're going to be launching Poke next week.

• 20:08David Rosenthal?

  Da, da, da.

• 20:11Speaker 01

  It's not an offer to buy them. It's not like, it's like, we are going to crush you.

• 20:15David Rosenthal?

  This is not the acquisition offer. This is not the acquisition offer you've been looking for.

• 20:20Speaker 01

  Is not. And so Zuck flies home, you know, Evan, I think as the the story goes, and I feel like this might be overdramatized, but the book is The Art of War.

• 20:31David Rosenthal?

  Yeah.

• 20:32Speaker 01

  Evan gets his whole team a copy of The Art of War and they all are.

• 20:35David Rosenthal?

  Sun Tzu's The Art of War.

• 20:36Speaker 01

  Yes, they all read it.

• 20:37David Rosenthal?

  Evan Spiegel's carve out for the week.

• 20:39Speaker 01

  Yeah, that was the guess we were gonna have on. And and they watch carefully as Poke launches. Evan had deleted his Facebook account, so he goes to Bobby and has him check out Poke. And sure enough, it's it's great, but.

• 20:59Speaker 01

  The thing that's even greater is all the buzz that happens for Snapchat by poke launching.

• 21:03David Rosenthal?

  Yeah, and I believe Evan then is quoted as saying like, this is basically like Merry Christmas to Snapchat when Facebook did this. Because it brought so much attention to the platform, like the second word out of everybody's mouth when talking about this huge launch that Facebook was publicizing was Snapchat.

• 21:24Speaker 01

  Yeah, and a couple of interesting observations here. One, that's a super common thing. I think that a lot of the times, I know this actually firsthand, I made a to-do list manager similar to reminders for the iPhone before reminders launched. And when reminders launched, we were like, oh, my God, we're dead. Apple Sherlocked us and Sherlocking is a reference to Apple back in the day launching an app built into the platform called Sherlock that put all the other search apps out of business. I think I have that story, right? It might have been called, oh, yeah, the app was called Sherlock and then Apple built Spotlight. Anyway.

• 22:00David Rosenthal?

  Ah, yeah, yeah.

• 22:01Speaker 01

  Something like that. The, but what it did for us as a to-do list was make a lot of people realize they needed a to-do list manager. And maybe they didn't like the generic one that Apple launched. Same thing with Instapaper when Apple launched the, what is it, relator service that's built into the OS and Safari. And sales for Instapaper spiked. So it's kind of an interesting, like, don't be so afraid of the big guy launching your feature.

• 22:30David Rosenthal?

  And in this particular case, as is so much evidence, I mean, the reason we're spending so much time on the history and facts here is like, this is amazing, like, you couldn't make this stuff up.

• 22:40Speaker 01

  And it's, this is like wonderfully dramatic and like it couldn't have been scripted any better.

• 22:45David Rosenthal?

  And we know it all from both court cases and interviews that Evan's given with media outlets.

• 22:52Speaker 01

  Yeah, and here's the part that gets me, like. Snapchat is, could, you could argue it's already today, but could at one point be an existential threat to Facebook. The reason they got installed on those iPads was because Facebook was being blocked and they needed something else. And then the reason that they got this huge boost in downloads right before Christmas that year was because Facebook gave them a gift. I mean, they launched like Snapchat and then made everyone go to-

• 23:23David Rosenthal?

  Well, this was such a legitimizing moment for Snapchat because until then, to the extent anybody talked about it, it was like, oh, that's just for sexting.

• 23:30Speaker 01

  Right, right. I remember that. And I remember the turning point too, where I started realizing, okay, we'll talk about this in Tech Trends, but like, okay, my friends are using this for, like, really telling me the story of their life as it's actually happening without trying to make themselves look perfect. And this was before Snapchat Stories. But I remember getting Snapchats and realizing, these are pictures people would never put on Facebook. And yet I'm engaging with these people all day, every day. And none of, like, maybe I'm not cool. I don't know. None of them were sexting. Like, every single one that I would get from someone is just like, this is like a candid, casual peek into my life. And that, I kept trying to tell that narrative. And I was even later, some people were trying

• 24:14Speaker 01

  to tell me that narrative, but I wanted to make the joke. And I remember trying to tell that narrative to people at work and my family. And everyone's like, uh, it was like taboo to have it installed on your phone because it was known as the app for sexting.

• 24:25David Rosenthal?

  Yep.

• 24:25Speaker 01

  And you're right, it's totally legitimized it.

• 24:27David Rosenthal?

  Totally legitimizing it.

• 24:29Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 24:43David Rosenthal?

  Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 24:57Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 25:07David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 25:24Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 25:41David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 25:57Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 26:06David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So just two short months later, February 2013, three huge pivotal pivotal moments for Snapchat. First, they announced that they're now seeing 60 million snaps per day going through the platform. Second, they raised their Series A. They raised $13.5 million from Benchmark at about a $70 million valuation. And interestingly, there was actually Matt

• 26:47David Rosenthal?

  Kohler at Benchmark who first kind of identified Snapchat and started making inroads with them. And then Mitch Lasky ended up leading the deal and joining the board for Benchmark. But Matt had been, well, first he was a very early employee at LinkedIn, but then he was a, I think, one of the first five employees at Facebook. And then when he left Facebook to join Benchmark, his first deal that he did was Instagram.

• 27:15Speaker 01

  And not a terrible track record.

• 27:17David Rosenthal?

  Not a terrible track record. So here's, here's this guy, you know, this firm that has, and this group of people that have such intimate history with Facebook and Zuckerberg and then Facebook's first foray into their next suite in their constellation of mobile apps with Instagram, now leading the Series A in Snapchat.

• 27:38Speaker 01

  This like Shakespearean drama continues.

• 27:41David Rosenthal?

  And so then the third event that happens in February of 2013 is that poor Reggie Brown, the erstwhile third co-founder, suddenly he really, he's moved back home to South Carolina at this point. Again, you can't make this stuff up. And he realizes that Snapchat might be worth a lot of money and he sues the company and claims that he's due one-third ownership stake in Snapchat.

• 28:06Speaker 01

  Which actually does work out pretty well for him. I think he was seeking, it ended up getting resolved. It was seeking damages of, I think, like half a billion dollars. And they settled out of court, but I think it was in the hundreds of millions.

• 28:22David Rosenthal?

  Rumored to be. No, nobody knows.

• 28:24Speaker 01

  Yeah. That is one court case that did not leak.

• 28:27David Rosenthal?

  Yeah. Well, thank you to that court case for happening though, because we got this great story to tell.

• 28:32Speaker 01

  Much like the same thing with the YouTube Sequoia memo. We're getting all kinds of great stuff here from the courts.

• 28:37David Rosenthal?

  So then, you know, after that, it's kind of like, you know, inevitable. So April 2013, 150 million snaps a day. June 2013, which is just, what is, what is that? Four months? Four months after they raised their Series A? There is, there is a Series B of $80 million led by IVP at an $800 million valuation. So literally over 10 times the valuation of the Series A four months later.

• 29:02Speaker 01

  And I remember at this time, people were not sure this was sustainable. People were like, oh, it's gonna be a fad. And I remember making the argument that the UI was terrible and what they were doing was commodity and...

• 29:17Speaker 01

  I remember people talking about like, are they gonna charge for it? Are there gonna be ads for it? And I remember thinking, what they're doing is so simple and easily buildable in a weekend that as soon as somebody clones it and builds one that's free or there's no ads, everyone's just gonna move to that. And that like made sense to me at the time. It seemed like-

• 29:37David Rosenthal?

  Young Ben, you were not yet schooled in the power of the network effects.

• 29:42Speaker 01

  Yep, yep, yep. Boy, it is a mighty moat.

• 29:44David Rosenthal?

  Oh, boy, is it ever. So that was June, August of 2013. Facebook is getting desperate at this point. They release a feature in Messenger that allows you to post to Instagram from Messenger.

• 29:58Speaker 01

  Oh, yeah.

• 29:59David Rosenthal?

  Like, this is gonna, you know, like, take down Snapchat. September 2013, 350 million snaps per day. Snapchat announces. October 2013, they launched Stories, which are incredible that we'll get into later.

• 30:14Speaker 01

  That was game changing.

• 30:14David Rosenthal?

  Totally game changing. And then finally, November 2013, rumored, but leaked to many, many press outlets, including the Wall Street Journal. Mark Zuckerberg makes an offer to buy Snapchat for $3 billion.

• 30:32Speaker 01

  He does. And, you know, there's no... Nobody knows exactly where the leak came from there. I think Zuckerberg sort of alleged, and we know this from the Sony email leaks, Zuckerberg alleged that it was a tactic by Evan. You know, Evan throws back that it could have just as easily been Zuckerberg to try and dampen their fundraising efforts rather than bolster them. But anyway, there's no... It never really comes to fruition and all we know is that the offer was made.

• 31:08David Rosenthal?

  It didn't. We know the offer was made. We know it didn't happen. But it's pretty... I mean, you both have to put yourself in Mark Zuckerberg's shoes here. Less than a year ago, he flew down to LA and he basically sat there, you know, according to, you know, what we've... What's been disclosed and what we can read about. He sat there and he told Evan, you know, how to build Snapchat and how he would do it and what the right way to do it is. And oh, by the way, Facebook was just gonna do it. So, you know, good luck with your little app. And then less than a year later, he's again sitting there offering to pay $3 billion in cash for this little app.

• 31:45Speaker 01

  Which is three Instagrams. Keep in mind WhatsApp hasn't happened yet. So this seems absolutely preposterous. I mean, I, I'm just sitting there thinking, you know, later on, we're gonna kind of judge like, should they, should they have offered more? Or, you know, what should they have done after, what should Zuck have done after it was declined? But, you know, it seems crazy.

• 32:08David Rosenthal?

  Yeah.

• 32:08Speaker 01

  And at the time, you gotta think like, okay, why does, why does Facebook need to do this? What is Facebook's core competency that is the mighty mote that they can't have upended? And, you know, that's, that's effectively owning your attention. Because then they get to choose what to do with your attention, how much to, to use for advertising, where to point it in terms of articles or friends, how to wait, all that. But Facebook, their number one holy grail metric is engagement. And how much can they keep you engaging and hold your attention in a day? And Snapchat is, is just like the, the perfect storm of more engaging.

• 32:49David Rosenthal?

  Yeah. And that's, you know, um, well, we'll jump into acquisition category had it happened in a minute. But, um, you know, fast forward to today and in May of 2016. And it's interesting, you know, Snapchat, um, is growing super fast. And I'm sure will reach a large number of users at some point, but their, their DAU, the, the daily active users that they report is about 100 million now.

• 33:12Speaker 01

  Which is about a 10th of Facebook.

• 33:14David Rosenthal?

  About a 10th of Facebook, um, and is, I believe, smaller than Twitter. Well, Twitter's MAU, I think is like 300, 400 million, maybe?

• 33:23Speaker 01

  It's like 300 and whatever it is, it hasn't grown meaningfully in a while.

• 33:26David Rosenthal?

  Yeah. Um, but, but, you know, Ben hit on engagement and that, that is the key here with Snapchat. I mean, so today, um, they're closing with 100 million daily active users. They are closing in on about, just about 1 billion snaps every single day. So that's for every active user on the platform, that's 10. Snaps per daily active user per day.

• 33:51Speaker 01

  And 60% of people who use Snapchat daily snap every day themselves.

• 33:57David Rosenthal?

  So this totally Snapchat totally blows up the, you know, the old paradigm that, you know, 90% of your users on a social platform, you know, won't create content and 10% will and 1% will be super users, like 60% are super users.

• 34:11Speaker 01

  Yeah, like if you think about like a Reddit type website or something, you're gonna get 90% lurking, just, just being the consumers, 9% are, are commenting and then 1% are, are actually originating the content that creates the, the, the conversation on the site and, and, you know, what? They just completely upended it by making it stupid easy to create.

• 34:35David Rosenthal?

  Literally stupid easy.

• 34:37Speaker 01

  Yeah, like I remember, it actually works to their advantage that it still looks like this and it's sort of their brand, but I remember thinking that it was like, kind of hackish and amateurish that the best way that they could think to overlay text over any image was by just like, ah, screw it, we'll make the whole line dark behind there and like, ah, ship it. It just, it just felt so crummy to me, but like now it's, it's become, if you see that anywhere, you're like, oh, that's a, that's a screenshot in Snapchat. They should just do billboards of that because that's their brand at this point.

• 35:08David Rosenthal?

  Yeah. Well, and it's interesting, you know, I mean, this is one of the reasons why we spent so much time on the history, A, because the story's amazing, but B, I mean, it's clear that Evan is an incredibly talented, you know, product visionary. It's not like, you know, Snapchats, Snapchat's look and feel and brand in a lot of ways is, as Ben, as you were saying, super janky, but like, it's intentional, right?

• 35:36Speaker 01

  Or is it pioneering, David? I mean, they really do. All these, all these UI paradigms are like so foreign the first time you use the app and we're having so many people now that they're kind of breaking north of their, their, their stereotypical age group into, into more adult usage. People like saying, I don't know how to use Snapchat and I need my kids to teach me. And, you know, that's always true with any new technology, but.

• 36:03Speaker 01

  Putting on my iOS developer hat, the easiest thing to do when creating an app is to create a table view with a navigation bar at the top and then a little drill down, just like when iPhone OS launched in 2007.

• 36:15David Rosenthal?

  Yep.

• 36:16Speaker 01

  And what Snapchat's really done is say like, nope, you open it up and it's in camera mode and then everything is just drill from there. And once you learn it, you get incredibly fast at that and it's like its own language and grammar.

• 36:27David Rosenthal?

  Yep. And, and one of the things, there was a, a great article, shoot, I can't remember where, we'll find it in the, and link to it in the show notes that just came out. Another, one of many profiles of Evan and of the company. And one of the things it talks about, you know, it's notoriously been hard to work for Evan and there's been a lot of employee turnover at Snapchat. But one of the things it says in there is that like the, any discussion of like, well, we need, we have problem X or we need to do thing Y. And so we should just look at what, you know, other people have done on that. Like what did Google do? What did Facebook do? Like, what did Instagram do? Like, like that'll get you fired like right away. Like the culture they have and that Evan tries to cultivate there is like, I don't care what other people have done in the past.

• 37:12David Rosenthal?

  Like we're doing things our way here. Um, which I think you, I mean, you really gotta admire and like it's what's, it's what's gotten Snapchat to where it is.

• 37:20Speaker 01

  Yeah. And this is, I'm gonna, I'm gonna pull forward my tech trends, but uh, there's some interesting things there because they're doing a lot of things mobile first in a way that I wouldn't have known the current users or the current products weren't doing mobile first. One of their big sells, and we'll talk about their revenue model right now is um, vertical video advertising. And for the first time, they're forcing content creation to appear in the way that is the most immersive on your phone. And I think if they're looking at others, they say, okay, well, how do people do ad units? Oh, it's a feed or oh, they repurpose, you know, letter boxed video or they make people turn it sideways. And that wouldn't be as engaging.

• 38:03Speaker 01

  It's a harder path to go this way, but it's, you know, I think it's fair to say product visionary that everything is completely rethought in this

• 38:10David Rosenthal?

  In vertical.

• 38:10Speaker 01

  Absolute mobile first way. They also have basically, I mean, they, they changed the way that they, they um,

• 38:18Speaker 01

  Do user growth and adding your friends with Snap codes. I mean, that is the first time I've seen QR codes used effectively in the wild. And I think that, you know, if you go get a Facebook product manager, or you go and get, you know, someone who's worked at LinkedIn or Google, you ask like, oh, how should we do like an invite system and an adding friends system? There's like a templated way to know how to do that. And this is so different. It's like, what do you mean? They're probably right next to each other. So will it be easy to just show the screen to the other screen? Yeah, okay, cool. Snap code accomplished.

• 38:52David Rosenthal?

  And interestingly, that was an acquisition. They acquired the technology behind the QR code.

• 38:58Speaker 01

  Oh, nice. Well, I guess good on them for, for, you know, seeing the opportunity to do something new and novel there rather than re-implementing the playbook.

• 39:06David Rosenthal?

  But it's a really good point, Ben, and I think that's something that you could almost say is like a dirty little secret of Silicon Valley. Like, there's actually not that much innovation that happens, you know? It's really rare. I mean, I was-

• 39:19Speaker 01

  Yeah, somebody in the Facebook or the PayPal mafia figures it out once and then everyone does it after.

• 39:23David Rosenthal?

  And then that playbook gets disseminated to everybody. And like, it's, it's really hard. I mean, I was emailing with the founder I work with today and we're facing a problem. And I was like, oh, well, we should, let's look at how, you know, Stripe dealt with this because like they dealt with this problem. So we should probably like do what they did, you know? And like, it's really dangerous thinking.

• 39:43David Rosenthal?

  But it's also difficult to know and it's difficult to know how to do what's right when, when you're doing something new and how much to take from the playbook because it is the right thing and how much to be the innovator.

• 39:57Speaker 01

  Yeah. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 40:12David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 40:28Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 40:43David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 41:07Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 41:26David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 41:56Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 42:21Speaker 01

  Okay, so I think for the structure of the show, what we'll do now is we'll dive into category. What would have happened otherwise, we can talk through a little bit. And we'll kind of wait all the way till we get to render conclusion to talk about their current business. So that sound good to you?

• 42:36David Rosenthal?

  Sounds good to me.

• 42:36Speaker 01

  All right, sweet. So acquisition category. I was torn on this, and here's how I'll frame it. If they had actually gotten the acquisition done when they did, it would have been, or when they made the offer, that would have been a product acquisition. They were buying one single product that people all over the place were using in the exact same way. At this point, it would be a business line. It is many products rolled into one. I mean, they've got stories and discover and the traditional Snapchat model. And they have several different ad units that they sell in there. And those are all different products for advertisers.

• 43:18Speaker 01

  And I think that at this point, it would be like the Snapchat business unit of Facebook. Rather than, hey, we bought this one-off app. It has a lot of people using it, like WhatsApp. It would truly be like they would need their own ad sales team. They would need a lot of things that wouldn't be able to be factored into Facebook.

• 43:36David Rosenthal?

  Yep, I think that's right. The only counterpoint I'd offer is maybe this would be, had this actually happened and had Facebook done its thing and just left it alone, and all of the growth and innovation that's happened at Snapchat had also happened. I think you'd almost argue that this would be a new category, which would be like a wholly independent company within another company.

• 44:03Speaker 01

  Yeah, and then, okay, so-

• 44:05David Rosenthal?

  Because it's all of it, right? Like, it's the people, it's the technology, it's the product, it's the way the business operates. All of these things are just wholly different from Facebook.

• 44:15Speaker 01

  Yeah, and this is-

• 44:17David Rosenthal?

  In a way that Instagram and WhatsApp really aren't.

• 44:21Speaker 01

  Yeah, so let's play that out. So now we're into what would have happened otherwise. If the acquisition had gone through, this is pre-revenue for Snapchat.

• 44:32David Rosenthal?

  Yep.

• 44:33Speaker 01

  Does Facebook-

• 44:36Speaker 01

  Kind of have their way with it and start gathering more information about the Snapchat user, or even better yet, they probably find a way to just tie those together on the phone, where they say, "Oh, this person's logged in as Facebook here." They ask you to log in as Facebook with Facebook once in the Snapchat app, so they can tie it together. Much like with Instagram, then an advertiser can target you in multiple ways and can say, "You know, I'm going to use the same ad dashboard. I get the same targeting capabilities, and I'm going to target this Snapchat user," as if they were any other Facebook user, "but I want to reach them when they're having this aha moment, instead of when they're in the Facebook app, you know, reading about XYZ." I think that's absolutely what would have happened, because they would have used that

• 45:21Speaker 01

  common ad platform and continued to leverage it and make it even easier for advertisers to advertise on multiple mediums. And that is very different than the ad strategy that Snapchat is doing now.

• 45:31David Rosenthal?

  Yeah, this is what makes this, well, listeners are the judge of whether this is interesting or not. But to me, what makes this so interesting is like, since the Spurned acquisition offer, Snapchat has really like, totally gone off and become the anti-Facebook. And that goes not just through the product and the consumer-facing aspects of it, but through the whole advertising platform as well. I mean, Evan talks about and promises that they will never do creepy targeting. You know, Snapchat is a brand advertising platform, and they will not track users, they will not collect data. Privacy is core

• 46:15David Rosenthal?

  to what Snapchat is. And that's just anathema to the Facebook and in a lot of ways, the Google way of doing advertising.

• 46:26Speaker 01

  Yeah. And as you bring that up, something we were talking about earlier, it makes me think about, okay, so they're not going to have a million checkboxes and drill downs like I can use on a Facebook ad dashboard. And I was looking into it, all you can target on Snapchat is geographic location, age, you get reporting on how many people opened your Snap, and...

• 46:58Speaker 01

  Then you get to choose if you appear in a live story or what discover channel you appear on. So you basically get live story program, discover channel, location and/or gender, and then you get number of people who opened. It's pretty primitive. So if I'm trying to do any conversion-based advertising, it's right out. It's extremely expensive and I can't quantify it. And I don't know if I'm actually reaching my core to customers. But if I'm Coca-Cola, that sounds like a killer brand advertising platform. I can make sure people see it. They're like in this moment of discovery when they're looking for it. It's fully immersive on their screen. You know, I designed it-

• 47:35David Rosenthal?

  And I can target based on content.

• 47:38Speaker 01

  Right. That's the other thing. So that you have contextual-

• 47:40David Rosenthal?

  And location.

• 47:41Speaker 01

  Yeah, contextual targeting. Location is like getting a little bit into the, you know, it would be more interesting to me from a conversion perspective, but also interesting from a brand perspective.

• 47:52David Rosenthal?

  Yeah, but I mean, things like, like I think about, you know, Snapchat, like one of the places where it's really flourished is Coachella and places like that.

• 47:58Speaker 01

  Right.

• 47:59David Rosenthal?

  So like, I can target people who are at Coachella.

• 48:02Speaker 01

  Right, right. And the, and the big obvious thing here is there's no links on Snapchat, so I'm never leaving the platform. It's not like they could link me out to go buy a product anyway. It's, it's purely one directional television style advertising.

• 48:14David Rosenthal?

  Yep. And this is like, this is the kind of stuff, like, let's say I'm, you know, Coca-Cola again. You know, if I'm advertising on Facebook, I'm just blasting, I can target super granularly in the heck out of people, but like, they're probably not that interested in drinking a Coke while they're on Facebook. But like, if I target people who are at Coachella, like, and it's hot out, you know, maybe they want to drink a Coke, you know, or, or when I target based on, that's location, which is secondary, but, but content wise. So like, all the discover channel, you know, ESPN or Taste Made, you know, I want to advertise

• 48:54David Rosenthal?

  to people who are interested in cooking. I'm a, you know, I'm, you know, Betty Crocker or whatever. Like, I could advertise on Facebook to people who list cooking as one of their preferences, but they're not cooking when they're on Facebook. But when they're watching Taste Made and watching cooking shows-

• 49:12David Rosenthal?

  Then I can, then they're in the mode for-

• 49:14Speaker 01

  I don't know if the context is better. I look at it like you're not, the nature of brand advertising is that you're not going to go and like transact on that and close the loop at anywhere near that moment. It's that it's like stored in your head. And I think that the context doesn't matter, but the richness of the ad does.

• 49:36David Rosenthal?

  You don't think there are psychological associations between content and advertising?

• 49:41Speaker 01

  I do. I just don't think that seeing an ad on Facebook is contextually worse than seeing it on Snapchat. I'm already in entertainment mode. I could see that if you're, if you're advertising to me when I'm on a Google search and I'm on a quest for an information and I'm like Coca-Cola, get out of here right now. But on Facebook, like, you know, I'm open to being entertained. Anyway, I guess the point I'm making is, I think the context of Snapchat isn't necessarily any better, but since they're doing brand ads and you have the opportunity to create a much more rich advertisement, that it makes it a more valuable brand platform because you don't actually care about that granular of targeting.

• 50:22David Rosenthal?

  Fair enough. I still think like, you know, when I'm on ESPN and Discover and I get Axe body spray, I would never wear Axe body spray, but so I claim on the internet.

• 50:37David Rosenthal?

  But like, I don't know, I like, to the extent you could make an argument that television is still very valuable, it's like, this is the argument.

• 50:46Speaker 01

  Which you absolutely can. So here's, here's, we're getting into my render conclusion, but I think Snapchat's opportunity is enormous because brand advertising currently is and has always been much larger than, than transaction-based advertising. I'm not sure, conversion-based advertising. I don't know-

• 51:05David Rosenthal?

  Direct response.

• 51:06Speaker 01

  Direct response. That's, yeah, there you go. And advertising stays relatively fixed as a percentage of the GDP. It's between 1 and 1.4% of the GDP ever since the notion of, of, you know, advertising was, was invented in the United States. And so-

• 51:26Speaker 01

  With that staying about flat, you know, the GDP will grow some, but with that staying, you know, about fixed, it's about allocation. And if brand advertising is, is, is and sort of will always be more significant than direct response, right now, a lot more brand dollars are spent on television still than anywhere else. And now it's a race to what platform can effectively steal from television advertising. And that's where I think Snapchat's real opportunity is. It's can they be, you know, the television of the future?

• 51:59David Rosenthal?

  There's no good place really to do it online right now. I mean, we, we did a past show on YouTube, you know, YouTube's kind of the best place to do brand advertising online right now. And it's still got a bunch of problems and people skip ads and all that stuff, you know, whereas, you know, yes, you can skip ads on Snapchat, but like just the whole modality of the product is so much more immersive and so are the ads.

• 52:25Speaker 01

  They're 10 seconds and you kind of want to skip them less. Like I want to skip an ad when I'm watching Discover as much as I want to skip one of my friend's stories that I'm not interested in. Basically like, I've got 10 seconds. If you can captivate me, I'm good for 10 seconds. Whereas on YouTube, like running a pre-roll for a minute where I have to wait five seconds, I'm just going to skip after five seconds every single time I possibly can, because it's not designed to be watched all the way through for the impatient person.

• 52:51David Rosenthal?

  Especially not on mobile.

• 52:53Speaker 01

  Especially not on mobile. Great point. And Snapchat is like totally piggybacking, now we're in tech trends, but totally piggybacking on our completely, you know, our, our culture that is not able to pay attention to things for very long. And we end up watching, I was talking to someone else today, watching a snap for 10 seconds, watching another snap for 10 seconds, and maybe like 10 minutes go by, and you end up completely immersed in, in something where you could have watched a whole television show in there, but it was cut up in small enough content where I was continually entertained.

• 53:29David Rosenthal?

  And again, back to like even Instagram and, you know, as our listeners know, we're big fans of Instagram, but like, you got to scroll through the damn feed.

• 53:38Speaker 01

  You do, you do. And God, as a, as a completionist, it kills me that it snaps to the top every time. So I have this like fear of opening Instagram now because what if I get partway down? And then there's some pictures that I missed. Like Snapchat doesn't have that because everything in it, the understanding is like it's sort of unimportant and it'll go away anyway. So I can just check it at my leisure.

• 53:57David Rosenthal?

  And literally you just open the app and maybe you like, you know, you, you open the app, you swipe left, you tap, and now with stories auto playing to the next story, that's all you gotta do.

• 54:10Speaker 01

  Yeah, I think their average time viewed an app right now is like 30 minutes. I mean, they command a tremendous amount of attention.

• 54:16David Rosenthal?

  30 minutes with two taps and one swipe.

• 54:20Speaker 01

  Yeah. I mean, it's, it's, it's the attention war. I mean, that's what this really comes down to from between Facebook and, and Snapchat. And I was actually, this is another great conversation I was having earlier this week. Instagram redesigned and boy, is it gorgeous. It just shows off just the content. We won't talk about the icon, but inside it is like so nice.

• 54:40David Rosenthal?

  You're not digging the pink?

• 54:40Speaker 01

  No, but somebody raised a great point to me that the world sort of shifted and now Instagram is a museum. Instagram inherently, I put less content on it because it's like a showcase and it reflects on me forever. And when you, when you go to Snapchat, my response was Snapchat's like a crowded bar. Like there's, you know, there's content flying everywhere. It's, it's, it's loose. It's fun. And like, that just creates a platform that is just commanding of way, way more attention than that museum feel.

• 55:13David Rosenthal?

  How much relative time do you spend in museums versus bars?

• 55:17Speaker 01

  Yeah, well, I might be non-representative, but maybe not.

• 55:21David Rosenthal?

  Maybe not. Anyway, all right. Um, let's, uh, let's, let's start driving this towards home. Um, okay. Uh, tech trends.

• 55:29Speaker 01

  Uh, you know, I think we, we touched on all mine.

• 55:33David Rosenthal?

  Yeah, mostly mine too, but I'll just call it out again. We've talked about this on the show. I think it's maybe been one of my tech trends in the past, but perfect example of start small, you know, like they started with nothing, but start small, nail it for one audience and grow from there. And I mean, they didn't even do this intentionally, but like, you know, the use case of I want to text with my friends and Facebook is blocked on my iPad, like solve that, then solve the next thing. Classic case.

• 56:04Speaker 01

  Yep, yep, yep. And as Paul Graham says with that, try and get to the next order of magnitude of customers and don't focus on the far future because contrary to what you might think in startups, you can implement a hill climbing algorithm and there are not local maxima. So don't be afraid that you're going to hit a false peak. Just keep hitting the next peak and you'll be able to get to the higher peak.

• 56:30David Rosenthal?

  Especially in consumer facing.

• 56:32Speaker 01

  Yes.

• 56:32David Rosenthal?

  Companies.

• 56:33Speaker 01

  Yes. Yeah, I guess it's probably.

• 56:35David Rosenthal?

  Probably not the same in enterprise, but.

• 56:36Speaker 01

  Yeah. And I'm not sure I totally agree with that premise, but I sure like it from a inspirational perspective.

• 56:42David Rosenthal?

  All right.

• 56:43Speaker 01

  Conclusion. So normally we would, we would throw out like, was it a good decision to make this acquisition? And so I was thinking for this one, you know, was it a good idea? If you're a Snapchat shareholder to, you know, decline this offer? And David has a more interesting framework, I think, because, because that one's, that one's just a sure thing, right? It's like, oh, I'm a Snapchat shareholder. Do I want to be worth $3 billion or the $16 billion it is valued on paper today and will likely continue to grow? So David, what's your, your framework?

• 57:12David Rosenthal?

  So I thought we could do grade Mark Zuckerberg and Facebook for the decision to walk away after the $3 billion versus trying harder to make the acquisition happen likely at a higher price.

• 57:30Speaker 01

  Yeah. And this one's interesting because I think it presents a little bit more than just like obvious shareholder value. It gets into, you know, the more you're sending offers back and forth, the more likely to leak, the more you worry about your team back at Facebook, like we saw with the WhatsApp acquisition being like 19, wait, $19 billion we paid for what? And then sort of having to justify that. There might be like a personal pride thing on the line there.

• 57:58Speaker 01

  At the end of the day, like I'm, as I'm talking through the, all this, I think none of it really matters that much. And it was still, Facebook needed to offer more. Like it was, I, I give Facebook an F on not going and bidding higher. I, I think this one is like so clear cut at this point.

• 58:17Speaker 01

  I would love to hear your thoughts though.

• 58:19David Rosenthal?

  Yeah, um, I've been thinking about this.

• 58:24David Rosenthal?

  I actually, I'm going to be, I'm going to be, our listeners are going to love this. I'm going to be divisive here. I'm going to give them an A. And the reason I'm going to give them an A.

• 58:34Speaker 01

  Lay it on me.

• 58:35David Rosenthal?

  Is because especially with the direction that Snapchat has gone. I was thinking about this when we were talking about the category. And I was like, oh, it could be like a company within Facebook, like never would work. Like, these are just two companies that cannot exist together. And so if I'm Mark Zuckerberg and I'm Facebook, uh, this, this crystallized when you were talking about like the reaction within the company of Facebook. Like, okay, let's say he had bid Snapchat, Snapchat up to, I don't know, $15 billion or $19 billion WhatsApp territory. And then come back in, and then this guy Evan would come into the company and basically be like, you know, F you, everybody. Like I do things completely differently here.

• 59:18David Rosenthal?

  I stand for everything that you are not, you know? What would that have done, right? And like Facebook has been super successful in the, in the two and a half years since this time. And I think in a lot of ways really crystallized what Facebook is and, um, and what their, you know, growth potential is going forward. And they're now what, like a 300 ish billion dollar market cap company?

• 59:46David Rosenthal?

  I don't know.

• 59:47Speaker 01

  Yes, I was thinking about digging in here, but I'm, I'm trying to think through if Facebook did what I was talking about earlier and kind of like flattened it onto the same platform and made it easy for advertisers like Instagram. If to your point, what if they bid it up to $15 billion? Would they in any reasonable time period have gotten $15, $15 billion of advertising revenue out of it? Or would there just have been this implosion beforehand, like you say, of like culture mismatch, a lot of the value that people are attributing to Snapchat right now is because it's on this unique and different trajectory that's more like television advertising than direct response?

• 1:00:29David Rosenthal?

  And could that have existed within Facebook?

• 1:00:31Speaker 01

  Right, that's, that's a really interesting question.

• 1:00:34David Rosenthal?

  What would Snapchat be like if you logged in with Facebook? That'd be weird.

• 1:00:39Speaker 01

  Yeah, yeah, I mean, they're only, they're only, they're projected to get, earn about $300 million of revenue this year. So, I mean, their, their valuation is, is like not, not really based on their current revenues at all. It's, it's based on the promise of the future that it can replace television brand advertising.

• 1:00:58David Rosenthal?

  Yep.

• 1:00:59Speaker 01

  And I don't know what I would change my grade to, but I totally, totally see your argument that, that, you know, if Facebook continued to bid this up, they may actually not be able to get that much value of it internally, or as much as they can do as an external company. And that's why we need new startups to come and create value that incumbents never could create.

• 1:01:24David Rosenthal?

  Yeah, I mean, this seems like a classic case of, you know, we saw it with Poke, like they recreated it, you know, pixel for pixel, and it just doesn't work inside Facebook.

• 1:01:35Speaker 01

  No.

• 1:01:36David Rosenthal?

  I mean, yeah, there was the network effect mode too, but like,

• 1:01:39Speaker 01

  Right, right.

• 1:01:39David Rosenthal?

  It was still so small at that point. All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 1:01:48Ben Gilbert?

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• 1:01:59David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 1:02:19Ben Gilbert?

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• 1:02:31David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started. All right.

• 1:02:43Speaker 01

  Any interest of time skipping the carve out today?

• 1:02:46David Rosenthal?

  Uh, yeah, we can skip the carve out. If you want to discuss more, join us on Slack in our Slack community.

• 1:02:53Speaker 01

  Yeah, because God only knows my opinions are going to continue to waver on this. So we'll see you in there.

• 1:02:59David Rosenthal?

  All right, till next time.