Turning down a $3bn offer made Snapchat famous for its bold vision. But now Facebook is catching up, leading some to predict a ‘long and painful death’

Genius or hubris? Why turning down Facebook may be Snapchat's big mistake

Genius or hubris? Why turning down Facebook may be Snapchat's big mistake

For years Snapchat was seen as David to Facebook’s Goliath, but it looks as though the underdog has lost its swagger.

Shares in the messaging app’s parent company Snap fell sharply this week after one of the investment banks that helped to take the company public downgraded its stock.

Morgan Stanley had initially been bullish about Snap’s stock price, suggesting it would be worth $28 per share within 12 months, but five months on, and with concerns over Instagram, it has revised the price to just $16 – sending ripples of concern through the market.

“Snapchat was executed over the last year with a treasure chest of self-inflicted blunders caused by big egos and a lack of strategic focus,” said Eric Schiffer, CEO of private equity firm The Patriarch Organization.

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In the last twelve months, Facebook has made a concerted effort to lure Snapchat’s target audience to Instagram by cloning many of Snapchat’s unique features, including animated face-altering filters and stories that disappear after 24 hours.

At first the mimicry seemed awkward and desperate, but Instagram persisted and within less than a year Instagram’s copycat stories feature has overtaken Snapchat in daily users (250m compared to 166m) and the latter’s user growth appears to have slowed.

There’s no denying that Snapchat has been a thorn in Facebook’s side. The ephemeral message app was heralded as the cooler alternative, attracting a young, active audience that was tantalizing to advertisers.

Snap’s CEO, Evan Spiegel, developed a reputation as a visionary leader who wasn’t intimidated by the competition. He famously turned down an attempt by Facebook to buy the company for $3bn in 2013. Since then Facebook appears to have been on a mission to copy Snapchat to death.

In the early days, Facebook failed to make a dent on its plucky adversary, launching a string of unsuccessful standalone ephemeral messaging apps including Slingshot and Bolt in 2014. The company then started introducing Snapchat-like features to its flagship social network, again with limited impact.

It wasn’t until August 2016 when Facebook focused its efforts on Instagram, which had developed a reputation for a very curated, polished social network that lacked Snapchat’s rawness and honesty.

“What made Snapchat appealing is that it’s raw and unfiltered and people feel very comfortable sharing in a very honest way – something they don’t do with Facebook or Instagram,” said analyst Jan Dawson.

Snapchat still wins on intimacy and engagement. That’s why I can’t leave completely yet CyreneQ, Snapchat artist

Instagram gained that rawness through the introduction of features Snapchat had already popularized, including self-deleting stories, face filters, live video and disappearing messages. The cloning was so blatant that on April Fools’ Day, Snapchat returned the favour with a filter that looked just like Instagram’s interface.

“Facebook as a company is a great imitator and has never been able to come up with anything unique. They are using Snapchat’s features as a product road map and doing it a little bit better, and at faster speed,” said investor Om Malik, a partner at True Ventures.

Facebook’s strategy has finally paid off, with Instagram’s user base soaring as Snapchat’s growth slows.

“The unique reasons you went to Snapchat in the past are no longer unique. The value proposition of raw, personal sharing is something you can now do elsewhere with a bigger audience and more of your friends,” said Dawson.

Popular Snapchatters like Cyrene Quiamco (CyreneQ) have noticed Instagram’s rapid growth and started posting there more regularly. “You’ve got to go to where your audience is,” she said.

Facebook Twitter Pinterest Evan Spiegel, Snapchat’s CEO, developed a reputation as a leader who wasn’t intimidated by competition. Photograph: Jae C. Hong/AP

However, Quiamco believes there remains something special about Snapchat’s users that Instagram hasn’t yet captured. When she recently posted a link to a hotdog-themed game she had created to both platforms (where she has similar follower numbers) she found the Snapchat audience to be much more responsive, sending her their scores and commenting on the game.

“Snapchat still wins on intimacy and engagement,” she said, “and that’s why I can’t discount and leave Snapchat completely yet.”

Instagram has also worked hard to make it easy for creators and advertisers to make money and access detailed data about their audience, something Snapchat has been slow to do.

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At the same time, Snap’s attempt to diversify into hardware with Spectacles generated barely any revenue.

“It was pure craziness for Spiegel to have rejected the sale back in 2013,” added Schiffer, who compares Snap’s fate to that of defunct social network Myspace.

“Facebook will continue to pile on. Advertisers won’t bail right away but they didn’t with Myspace. There was this long and painful death.”

Dawson disagrees. He believes that although its user numbers are unlikely to grow to Facebook levels, there’s still room for it to make more money by selling more ads to raise revenue per user and increasing the amount of time people spend in the app through TV deals. Just this week Formula 1 motor racing signed a global deal with Snapchat to create exclusive content from its Grand Prix races.

“If Snapchat gets stuck at 200m daily active users, it’s still quite an achievement, but it’s not what they or investors will have hoped for,” said Dawson.