Instagram & Snapchat Are Lucky Jackpots
Instagram was purchased for $1 billion. Snapchat was offered $3 billion (maybe even $4 billion by Google) and turned it down. Both have tons of users and incredible growth stories.
Both companies have a few dozen employees at most. Both companies have very little expenses relative to their big userbase. Instagram had no revenue before its acquisition. Snapchat has no revenue.
In my head, I’ve always categorized those two startups as different than other rockstar successful startups (e.g. Uber, Airbnb, Dropbox, 23andme, etc), but I had never really articulated why.
The articulation of why came as I was reading 37 signals recent post on their $100 billion valuation. For me, the issue boils down to the feeling that neither of these services actually demonstrates great inherent value other than their luck in building a big user base. Their stories don’t speak to hard work, smarts, innovation, or fortitude. None of the great human virtues that are typically associated with great startups are big parts of the stories of these two.
Instagram and Snapchat are super simple apps. Any routine developer could have built them. Instagram and Snapchat never had to build and launch a marketing and sales organization. The building stuff and selling stuff that they did was weak compared to most successful startups.
Rather, they both had a great idea at the perfect time and were super lucky in leveraging phenomenal network effects. They hit the luck jackpot. Luck overshadows everything else about them.
I don’t have any problem with companies and individuals in a free market making an obscene amount of money. Instagram and Snapchat are valuable; no denying that. They’re just the story of launching impressively lucky ideas which generate billion dollar jackpots based primarily on the idea alone. Pure luck-based jackpots are not interesting to me.
What are your thoughts on Instagram and Snapchat?