What’s On

Why Yahoo would invest millions in Snapchat?

The answer is not too tough if one has to see the evolution graph of the digital media space – from the rise of websites that offered mail and chat services, social media players became the go-to platforms for consumers and brands alike. The recent surge of the mobile first (in some cases, mobile only) social media messaging apps then steadily made their place. The perception, that is validated by research agencies, of younger TG using messaging apps more than other platforms only make these platforms even more attractive.

It should be recalled that before Facebook acquired WhatsApp, it was eyeing SnapChat, even though it had its own messenger service. “It’s fascinating that Snapchat turned down a reported USD 3 billion offer from Facebook just last year and have now apparently accepted an undisclosed offer for a part share of the business from Yahoo based upon a USD 10 billion valuation, which puts it in the same territory as Dropbox and Airbnb,” observed Steve Blakeman, CEO, OMD APAC.

Speculations are rife that soon after Yahoo announced the acquisition of MessageMe, touted to be in the vicinity if USD 30-40 million, it is in advanced stages of discussion to invest USD 20 million in Snapchat. The figure has not been confirmed by either of the players but has been cited by sources familiar with the development.

A good deal?
A question on an investment strategy versus a buyout strategy does surface here but if Yahoo’s history is observed, the deal should come as no surprise. Yahoo has benefitted from its investments in Alibaba, and hence no stranger of knowing that good investments do pay off. That being said, the current proposed deal with Snapchat appears to be more financial benefit at a later stage. This is unlike the MessageMe acquisition. The MessageMe platform will cease to exist in a month now post the Yahoo acquisition, but the MessageMe team would work with Yahoo’s mobile products as part of the deal.

In the case of Snapchat, some might even argue that Yahoo is not an obvious partner for the chat app. “Factor in that Snapchat’s valuation is fairly lofty given that it has yet to make it clear how they are going to make money and the proposed deal may seem somewhat hasty. That said, Microsoft’s initial USD 240 million investment in Facebook back in 2007, which also included an advertising partnership, has paid off quite well – Facebook’s market capitalisation now stands at circa USD 200 billion,” explained Mr Blakeman.

What makes Snapchat interesting is that over 50 per cent of its audience is in the 16-24 age bracket, as per data from Global Web Index. A point that the industry players have taken note of. Mr Blakeman added, “The 100 million+ user base of Snapchat is predominantly young and that simple fact is absolutely critical. Millennials are precisely who marketers are keen to reach and Yahoo will be banking on that ‘element of cool’ to lure users and advertisers alike. Yahoo certainly has the ‘cash to spash’ following the initial public offering of Alibaba, which Yahoo owns 40 per cent of although it is still struggling to an extent with the core advertising business. Snapchat may well turn out to be a part of the solution to that problem.”

Noor Fathima Warsia

A veteran journalist in the Indian marketing, media and advertising fraternity, Noor Fathima Warsia took on the role of Group Editor -– APAC for Digital Market Asia in May 2013. Noor has focussed on tracking trends and developments in the Indian media industry.