Aug 16, 2017 · 9 minutes

Well that didn’t take Snap very long.

At least Twitter had a fleeting, ascendant post-IPO honeymoon period. Remember when Twitter seemed like the well-executed social media IPO compared to Facebook? For the first two months it was public, its market cap surged from around $15 billion to peak at nearly $40 billion.

Of course that surge in value turned out to be a blessing and a curse: It ultimately only intensified Twitter’s valuation trap. Twitter is today around $12 billion-- way too expensive for anyone to buy it especially now that it’s one of the remaining sites still solidly on board with spewing nazi hate speech into the world, refusing to evenly enforce its own terms of service.

But for Twitter to even approach a price worth someone else paying, it would have to decline in use substantially more. Which would then, make it too expensive at that reduced price. This is why we’ve argued for two years every rumor to buy Twitter was bullshit, wishful thinking or just initial tire kicking.

At its current valuation, Twitter is about where secondary shares were trading pre-IPO-- a heady amount for the time.

Compare that to Snap’s first six months as a public company. It also sought to go public in about the same range as its pre-IPO valuation…. Only that was nearly double Twitter’s price nearly four years earlier. Snap’s post-IPO honeymoon was mostly concentrated on its IPO day, when it surged some 44% to close the day worth some $33 billion. After last week’s disappointing earnings… it’s just over $15 billion. Substantially less than its pre-IPO valuation, it’s IPO valuation, and just a few billion larger than Twitter. It fell 18% after its earnings last week, presumably sending a chill through the rest of the deca-corns that weren’t even this differentiated as businesses.

More than a year ago-- long before Snap’s IPO-- we said the company was making decisions that would destine it to be more like the new Twitter than the new Facebook. Maybe we were too bullish.

Snap has increasingly made snide comments about Facebook copying it, and some have joined in crying foul. Some on Twitter even argued that the Department of Justice never should have approved the Facebook Instagram merger. That, of course, is absurd. At the time of its purchase, Instagram had a handful of employees, no monetization and well under 100 million users. And pre-IPO Twitter and highly-valued Pinterest represented two other large social media players.

That’s to say nothing of the history of acquisitions in tech. Only a handful actually wind up being more valuable as a result of being part of a larger company. Instagram was the first Facebook acquisition that was left separate-- before Instagram, Facebook’s playbook was buying smart teams, taking out competitors, and folding those teams into the big blue desktop borg.

There was no indication in the industry’s past, or Facebook’s past, to think Instagram would represent so much value for Facebook-- pretty much saving it with teens, celebrities and mobile-- and that Facebook would cause such a surge in Instagram’s user base. It did two other things as well for Facebook: It was an example other founders could look at to prove Facebook would keep it’s word if they said they were going to let you run your business independently.

Indeed, five years later, Instagram’s CEO Kevin Systrom is still at the company. It’s hard to imagine companies like WhatsApp or Oculus Rift sell to Facebook without that, or perhaps, Facebook would have had to spend even more to get them. Perhaps David Marcus-- then President of PayPal-- wouldn’t have taken what seemed like a step down to run Messenger.

Even more crucial and less predictable, perhaps, was what Instagram became as Mark Zuckerberg’s copy cat engine of choice. When Facebook’s desktop app tried to copy Snap, we got Poke. It was a punchline. But Instagram Stories has knocked the wind out of Snap’s sails. It only took a year for Instagram Stories to surpass Snap in terms of daily usage.

So no crying, no blaming the DOJ. None of this should have worked so well. A $1 billion purchase never should have amounted to this much value, not only for Facebook but in decimating competitors. This was just straight up foresight, paranoia, and execution. And no more whining about how unoriginal it all is. This is the history of the consumer Internet, and desktop software and devices for that matter. Facebook has simply done what every other large incumbent has tried to do better.

Here’s the interesting thing that occurred to me last week: Facebook has copied better the larger it has gotten. When Facebook was still a private company, yunno when it was supposed to be more “nimble” and yet still has massive scale and resources, it still aggressively ripped off competitors -- particularly those it couldn’t buy. We just don’t dwell on it, because it didn’t particularly work.

It would do this whenever other consumer companies would get even the slightest amount of heat, when they should have been far more vulnerable than a Snap is now.

It did this to Quora, before mostly giving up. It changed its status messages from completing the sentence, “Sarah is….” to open status messages once Twitter was getting heat, in one of several attempts to out-Twitter Twitter. It aggressively sought to destroy Foursquare, Dennis Crowley talked about the impact that had on his company at an early PandoMonthly.

I recalled the popular view at the time Places launched, that it was the death knell for Foursquare. I asked how worried Crowley was back then:

I would say that was one of the toughest days of the company… we were talking a lot with them in 2010 and then they announced they were going to announce something in September… and I think it was a TechCrunch story. And everyone in the office was like reading the story and people were second guessing, “Oh my God, should we have sold….What happened?”

And I remember I had to get up in front of everyone in front of Curbed and everyone because we all shared office space together. And I was like, “Foursquare! Stop reading TechCrunch! Seriously! This is madness! The only way that we beat these guys and that we own this space is if everyone stops reading the blogs and we just build this stuff we want to do. Build the stuff we’ve been talking about all this time. The stuff that’s on the whiteboard. We are the only people who are going to build this. .. Having to rally people at that moment… it was a cool moment to look back on. We were 15 people at the time and we look back on it nostalgically at the time, but that was tough. 

(Watch the full clip here.)

Imagine the days when you could “look back nostalgically” on the time Facebook tried to kill you!

Sure, Foursquare’s hype wore off, and the business has proven to be more of a slog than the hype machine once expected. But it wasn’t Facebook that did it to Foursquare. Facebook pretty much gave up on Places.

And as I mentioned above, even Facebook’s attempts to copy Snap early on were laughable failures.  

Not to take anything away from the remarkable focus and leadership Crowley describes, but back then, it was a different Facebook. Just as Zuckerberg himself is a self-learning organism who sets out new goals for self-betterment every year like speaking Chinese, Facebook itself is a self-learning organism that has cracked copying in a way it couldn’t when Foursquare was just 15 people and a fledgling product.

It’s hard to imagine a company that has gotten scrappier, more nimble and better able to compete with startups the larger it has gotten. That’s typically the secret sauce of a startup. And if you think it’s simply Facebook’s scale and not uncannily good execution, I invite you to remember the ill-fated Google+ developed by the much larger Google. Google, which even broke one of its central tenants, and messed with search results to artificially boost Google+. Scale usually isn’t nearly enough.

Sure, as I wrote at the time, Google just didn’t have  “social” in its algorithm-heavy DNA, but Facebook wasn’t oriented as mobile company either, or a video company, or as a property that stood for ephemerality. Snap was created as a reaction to Facebook, which is why Facebook’s initial attempts to copy it fell so flat. It has since figured it out.

But not without Snap’s help. That’s right: This isn’t all about poor Snap being a victim. Afterall, Facebook is also gunning for YouTube and hasn’t come close to wounding it. Snap in large part brought this on itself. How: It changed its early focus of becoming a utility, by becoming obsessed with being a media and entertainment company for Western teens and millennials instead.

This was a clear detour several years ago from the initial way Evan Spiegal talked about Snap in his first interview with Pando. Back then, he spoke about Snap as something that would necessarily transcend his generation, even talked about how parents and older generations were getting onto Snap because that’s how they were communicating with their kids. That’s very similar to how Facebook evolved.

From that interview:

"It makes complete sense that my generation would be the early adopter of something like this, but from what we've seen it's relatable for anyone.”

Something changed around 2015, when products like Discover and deals to introduce old media to young kids explicitly sent the message that if you weren’t a teenager this product simply wasn’t for you. This wasn’t a market misunderstanding: Spiegel did everything he could to embrace that differentiation. He bragged at how concentrated its user base was geographically and age-wise, arguing those demographics were the most desirable ones. During the IPO Snap explicitly pitched itself as the anti-Facebook who didn’t need 1 billion users.

Guess what? If you are going to consistently send a signal that your service is too cool for the vast majority of the world’s population, you leave billions of people wide open for a Facebook clone to gobble up. What’s worrying Snap analysts most? Growth is already falling short of estimates just two quarters in. Guess you needed more than just hip millennials and teens...

Twitter at least tried to be global. Twitter at least tried to be a service for everyone. Snap tried to be a glorified VICE instead. It was as big a gift to Facebook as the DOJ not meddling in any of its acquisitions.