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Snapchat – From “that sexting app” to the billion dollar advertising darling

Snapchat – From “that sexting app” to the billion dollar advertising darling

Now this is some “story” to be told times and again – how the humble beginner (as a sexting app) Snapchat evolved as today’s $31 billion public company. It sounds like a dream, but the reality is a dream-come- true for every startup. Snapchat is worth the hype today and its story needs to be heard with élan.

The notoriously secretive company is now a publicly listed one and to mark the occasion we explore its journey to date, analyzing whether it will emerge as a serious player in the digital arena or do a disappearing act?

Snapchat began much like Facebook (refer “The Social Network” and you’ll get what I mean!). In Snapchat’s case, it wasn’t two ousted cofounders (the Winklevoss twins) against Mark Zuckerberg. But still, it featured the backdrop of an elite university – Stanford versus Harvard – and ended up in litigation, with Snapchat cofounders Evan Spiegel and Bobby Murphy against Reggie Brown.

Having been founded in 2011, Snapchat spent the first three years of its life without a robust commercial model, but co-founder and chief executive Evan Spiegel has always been adamant that ads on his platform should buck the digital trend and serve up formats that are native to the experience rather than “creepy”.

At stake was the founding story of a social network to make photos disappear. Snapchat’s founders ended up paying $157.5 million to settle the case. Snapchat survived its rocky starts to make its debut on Wall Street, where it closed on Friday with a $31 billion market cap. Here’s how Snapchat went from a million-dollar idea about disappearing photos to the giant social media company called Snap today…

Like many other startups, ground zero for Snapchat’s story is Stanford University, where a young Evan Spiegel from Los Angeles befriended Reginald (Reggie) Brown. The pair decided to join Kappa Sigma fraternity — where they would meet Snapchat cofounder Bobby Murphy — although it would be a few years before they turned the idea of disappearing photos into a business.

Snapchat wasn’t Spiegel’s first startup. Murphy had recruited Spiegel, a Kappa Sig brother one year younger than him, to help with an idea he had about a social network. In 2010, they then launched FutureFreshman, a site meant to make applying to college easier. It never really took off, but Spiegel had caught the entrepreneurial bug.

It wasn’t until Spiegel’s junior year that the idea for Snapchat was born. “I wish these photos I am sending this girl would disappear,” Brown told Spiegel in April 2011. His friend immediately got excited about the concept of disappearing photos and told Brown that this was a million-dollar idea. Five years later, that idea would now be worth billions.

In Summer 2011, Snapchat was born — except it wasn’t called Snapchat at first. When it launched in the App Store, it was called Picaboo. Brown, Spiegel, and Murphy spent the summer working on it. Spiegel even drew the now famous Ghostface Chillah ghost icon.

But Picaboo wasn’t a smash hit. By the end of the summer, it only had 127 users. Then Brown, Spiegel, and Murphy had a fight over the startup’s ownership. It ended up in Spiegel hanging up the phone and locking Brown out of all the startup’s accounts. The move would later cost them millions.

The now-duo changed the app’s name to Snapchat in September 2011, its official birthday. It still wasn’t a smash hit, but it started to slowly catch on when Spiegel’s cousin started using it at a high school in Los Angeles. Teens had found a way to send photos and messages that would disappear seconds after opening.

By spring 2012, the app that once had just over 100 users now had 100,000 daily active users. That also came with a problem: rising server costs. Spiegel and Murphy were paying nearly $5,000 a month to keep the app going, and just as they were about to run out of money, Lightspeed Venture Partners Jeremy Liew found Spiegel and gave Snapchat its first check.

When the money hit his bank account, Spiegel walked out of school. He was just three credits shy of graduation from Stanford. He and his team (which had then expanded to two other developers) moved into Spiegel’s dad’s house in Los Angeles. By the end of 2012, Snapchat had hit a million daily active users.

That’s when Facebook gave Snapchat a huge gift. In December 2012, it launched its own Snapchat competitor, Poke. At first Spiegel was worried it was going to crush his app, but Snapchat quickly surpassed Poke. Spiegel now calls it the “greatest Christmas present” to Snapchat.

The app continued to grow and only attracted more attention from venture capitalists. But that’s when Snapchat’s story turns into a founder drama like “The Social Network.” In February 2013, Reggie Brown — the guy who came up with the idea for disappearing photos — sued Murphy, Spiegel, and Snapchat for cutting him out of the business.

Still, the trial didn’t slow Snapchat’s growth down. In Fall 2013, the company unveiled Snapchat Stories — its first step to making things less ephemeral. Snapchat users could upload their snaps to a story that would last 24 hours. It’s the closest Snapchat would come to recreating the Facebook timeline.

Snapchat’s fast rise — and seeming defeat of Facebook Poke — soon gained the attention of Mark Zuckerberg. The Facebook CEO came to Evan Spiegel with an offer: $3 billion for the company. Spiegel famously played hard to catch before turning Facebook down.

There was also a rumor that Google tried outbid Facebook and pay $4 billion for the company. Either way, it stayed in Spiegel’s hands.

A month later, Snapchat was hacked. The username and phone numbers of more than 4 million accounts were exposed and people were furious. After all, the app still had a reputation for sexting at this point — and people were afraid what else might leak. At first, the young CEO didn’t see the need to apologize, but the backlash was swift. The company settled a few months later with the FTC over charges that it misled its users.

Sleazy emails from Spiegel’s Stanford days were then posted by Valleywag, a Silicon Valley news site, in May 2014. With subjects like “F– – b– — — get laid,” the emails shined a negative light on the CEO who was already drawing comparisons to Steve Jobs.

But that didn’t slow Snapchat’s success. It finally added a chat function, and launched Live Stories, or curated perspectives from thousands of people. By July 2014, investors valued the company at $10 billion. In three years, it had gone from a million-dollar idea to a $10 billion dollar one.

According to Nick Bell, Snapchat’s Live Stories feature was inspired by a visit from illusionist David Blaine to Snapchat’s headquarters. He watched as all of his friends were recording video of the magic trick, and he wanted to put the different perspectives together to see if he could figure it out. That’s when they realized that you could tell a better story by having the viewpoints of thousands of people on an event instead of just one.

The company started expanding from outside the Venice Beach bungalow where it moved after leaving Spiegel’s dad’s house and picked up more office space. It also started hiring a bunch of senior leaders to help the then-24- year-old CEO. Its Chief Strategy Officer, Imran Khan, joined in January 2015 from Goldman Sachs. Snap’s CFO, Drew Vollero, joined from Mattel in August 2015. Still, Spiegel was the one clearly in charge — and mapping where it would go next.

Snapchat also started welcoming outside content in. In January 2015, it added the Discover section, which allowed publishers to post Snapchat-friendly news items. The app became not just about sharing photos with friends, but sharing everything from Discover articles to chats to life in the moment.

Snapchat also found a way to make money — much to the relief of its investors. It started out by adding ads in its geofilters. So if you were in a McDonald’s, you could Snapchat a photo of yourself covered in fries. Geofilters were just the start though. After Snapchat acquired Looksery, it added those famous

lenses (like the barfing rainbows) that helped turn Snapchat into the sensation it is today. By the end of 2016, 300 million people were using it every day.

Snapchat had also secretly bought Bitmoji, a popular cartoon-figure app that had once blown up on Facebook. This was only confirmed though when Spiegel got engaged in July 2016 to Miranda Kerr, an Australian model he’d been dating for a year.

While Snapchat the app took off, Spiegel and Murphy had actually started working on a new secret project: sunglasses. It was revealed in the Sony Hack of 2014 that the company had purchased Vergence Labs, the maker of Epiphany Eyewear smart glasses. The division of the company called Snap Labs was so secretive that only a few people knew that it was working on a hardware project at all.

It was only revealed in June 2016 that Spiegel had been photographed by the paparazzi wearing an early prototype while on vacation with his girlfriend Miranda Kerr. It was only when Snapchat finally unveiled the Spectacles — a surprise to employees internally — that it also revealed that it changed its name to Snap Inc. in September. The change name also came with a changed motto: Snap Inc was now “a camera company.”

The name change was a clear sign that the company was ready to go public: “You can search Snapchat or Spectacles for the fun stuff and leave Snap Inc. for the Wall Street crowd :)” the company said in a blog post.

On February 2, 2017, Snap Inc. finally filed to go public — ending a drought in tech IPOs. More than 158 million people use the app daily, something the company attributed to the fact that “we eat, sleep, and poop with our smartphones every day.” And in the filing we finally learned how much Snap paid to make Reggie Brown disappear: $158 million.

“When we were just getting started, many people didn’t understand what Snapchat was and said it was just for sexting, even when we knew it was being used for so much more,” the company wrote in its filing. Its journey from a million-dollar disappearing photo app to the publicly-trade camera company proves that people don’t have that problem today. They’re expecting it to be worth much, much more.

On March 2nd 2017, Snap officially began trading on the public markets. It had originally priced its IPO shares at $17, but the stock started trading at $24. Its initial public offering netted the company $3.4 billion.

Thanks to its IPO, Snapchat’s twenty-something founders are each worth more than $5 billion — more than Facebook offered to buy their whole company 4 years ago, and a long way from the days in the Stanford dorm.

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