Facebook and Snapchat IPO’s – The Tsunami of Scale (and PPI Claims on Social Media).
So the Snapchat flotation went well – very well.
It put social media back in the spotlight. As we at www.maplefinancial.co.uk do increasing levels of claims business through social media (not Snapchat, but definitely Facebook, LinkedIn and such) it’s interesting to understand what’s going on there (see us at https://www.facebook.com/mapleleafPPI/).
- Snapchat had hopes of achieving $20billion, perhaps even $25billion tops.
- It actually achieved $26billion – for a 5 year-old photo-sharing app company.
- It turned Evan Spiegel, the Founder, into the world’s youngest billionaire. He’s 26, with a $6bn fortune.
- When Facebook floated in 2012 it too turned its founder Mark Zuckerberg, into the world’s richest man under 30 – he was 28 at the time.
If those numbers feel unreal, it’s because for us they are. Scale is unreal. Scale isn’t built for people; it’s built for systems and processes and size, and for money and investment vehicles like Hedge Funds.
If the ocean was money…
- Hedge Funds are feeder fish to Bank’s sharks – Hedge Funds clean up behind Banks’ books of defaults and bad loans and debt and son on.
- Sharks feed in an endless ocean; Banks have access to endless and almost free (because it’s nearly interest-free) money from Governments.
- That’s basically how it works, and why there is always investment.
Facebook, Snapchat, and similar companies are interesting in the way that they’ve harnessed, to an extent not previously seen, the conflict of scale v detail. They’re built for scale, but harness incredible width of detail.
The similarities between Snap (that’s the official name for the company that owns Snapchat – did you know that?) and Facebook are striking, and have got many financial analysts and advertising experts asking if Snapchat is a new Facebook.
And here – advertising – is the reason why Snapchat’s valuation was so unreal.
Facebook and Snapchat are not free social media.
They are vehicles for gathering DATA, via free social media.
Like a car dealership chain doesn’t sell cars, but rather sells finance packages that come with a car (manufacturers know this, and increasingly it is suggested dealerships may soon not exist, as manufacturers increasingly go direct to market).
Data is of prime importance. Data is ‘distribution’. It’s all very well having a great service or product but without data you can’t take it anywhere and nobody came come get it.
DATA is a real problem now
The thing about data is, it’s been tied down very strictly in a short space of time. Only a few years ago in the UK, you could beg steal or borrow a list and call, mail, email or text that list. Simple and proven. Now you cannot. It is governed very tightly indeed, and rightly so.
It was instrumental in helping to get rid of all the PPI cowboy companies, and the ones that are left are very good partly because they understand and adhere to the new realities. At https://www.facebook.com/mapleleafPPI/ we actively support this.
Phone, Mail, Email or Text – it’s all changed, and it’s a nightmare of a challenge for companies and marketers.
Phoning; Remains the least problematic method, relatively speaking, but even this method is far more difficult than it was a few years ago. It also remains the costliest to use per customer acquisition – it needs a human being, constant equipment and telephony cost whilst burning through the high refusals, no answers, hang ups and such for every acceptance. And now you must adhere to very strict governance on who you can call, when you can call, what you can say, how many times you can call, who you must not call… and on it goes.
Mailing: Broadly similar to Phone, but you can only introduce a similar or same product that the client is already on a list for – and that list has to have been on an opt-in basis in the first place.
Email and Text Marketing: Much smarter way to go, where the acquisition cost per customer is far less. Pinging out electronic marketing messages was astonishingly cost-effective. But these methods have been marginalised in the extreme. You simply cannot do it now unless they are already your clients, and have already opted in. Hardly a growth model! And it’s far easier to police and track than you may imagine, so it’s absolutely not worth taking any liberties.
Newspapers and TV were always different, in that they were not targeted and are incredibly vague in regards to results focused advertising.
So this is why alternative methods of data harnessing, on large scale, backed by statistics of modelled behaviour – which you’ve kindly provided whilst using the free social media service – is incredibly valuable to the commercial market.
With ‘scale’, loss is part of the journey.
Snapchat’s IPO is wildly successful even though it is a MAJOR loss maker. Casual readers who dip into the business news will shake their heads in disbelief at this. It seems mad. Of course, it IS mad in ‘normal’ life. It’s also completely irrelevant. Perhaps even offensive.
But scale isn’t normal life. Scale was modelled for loss, and loss is a barometer of scale. Losses are made whilst the scale is built, and that’s ok as it’s in the model, it’s the nature of the game.
Losses in a normal business will kill it, but losses in an investor backed business won’t, whilst it operates to – or not far from – the original model and its timelines. Investment always has access to more investment, and if the model shows that the losses are acceptable, the losses will not kill the business.
A Wave and a Tsunami
There’s a natural element to this. Sticking to the sea theme, here’s the metaphor.
- With a wave, the amount of water moving OUT to then build for the next wave coming IN is similar.
- With a Tsunami, the whole sea appears to disappear OUT… but that’s because an immense scale is already in motion, and at the right moment it comes thundering back in. That’s scale.
I mentioned at the start that a really interesting element is the harnessing of the conflict between scale and detail. There’s also a harnessing of another conflict – that between data and nature.
The nature of social media data makes the data stronger, more meaningful. Think about every time a person joins, or makes a new friend, or likes a service or product, and so on… each little action the celebration of a new relationship, a new interest, a new like and so on. NOT the closing of a sale!
The old way is dying, is already dead.
This way is so much more, well, natural.
Like those waves, it lends itself to soft and effective advertising, and more repeat business, too. After all, people who were attracted to a thing in the first place tend to go back to it don’t they?
It applies to PPI Claims too. Trust levels are so much higher when the relationship comes via social media. After all, do a bad job and the backlash can be immediate. So spending a few seconds, or a minute, on Facebook for example and accessing our https://www.facebook.com/mapleleafPPI/ page could net you £thousands! So that’s an example of where scale touches you, where scale becomes real rather than unreal.
When scale is unreal #1
Mark Zuckerberg Lost a Record-Breaking $3billion in One Day, In Nov 2016.
How? Simply due to concerns that Facebook wouldn’t be able to maintain its incredible rate of growth, and that the likes of Google would erode its lead in the mobile advertising market. So the stock ‘downturned’.
Even though at this time Facebook posted a third-quarter sales increase of 56%; made progress putting video first across apps; and executed their 10 year technology roadmap.
$3billion loss – in a day.
When scale is unreal #2
In 2012, four Wall Street companies brought claims against Nasdaq over Facebook’s troubled IPO. A technical glitch delayed Facebook’s market debut by 30 minutes; many client orders were delayed, giving some investors and traders significant losses as the stock price dropped.
Knight Capital, Citadel Securities, UBS AG and Citi’s Automated Trading Desk brought the headline claims (there were many other smaller ones).
Losses were referred to at the time as likely to exceed $100million.
30 minutes delay; $100million loss.
When scale becomes real!
In March 2017 Simon Chiu, the president of Saint Francis High School in Mountain View, California, wrote a letter to parents of the kids who went to the school, giving an update on a little decision they had taken back in 2012.
In 2012, a cool new app was being used incessantly by Andrew and Natalie Eggers, two siblings who attended the school. It just so happens that their father Barry was a partner at Lightspeed Venture Partners, a local investment firm. He saw how excited the kids were with the app, learnt that their friends were also obsessed, and decided to get involved.
The app was, of course, Snapchat.
Barry Eggers met with co-founders Evan Spiegel and Bobby Murphy who worked out of a dorm at Stanford. Mr Eggers was impressed enough to get Lightspeed to lead a $500k investment round – Snapchat’s first. The firm invested $485k, but Mr Eggers also convinced Saint Francis High School to throw in $15k from a school development fund set up in the 1990s.
And so, back to the letter; Mr Chiu wrote “The school’s investment in Snap has matured and given us a significant boost as we continue our work towards realising the bold vision and goals.”
How much did the school earn? It’s unclear exactly; it sold many of its shares in early March 2017 at the $17 opening price. That gleaned a healthy $24m. It kept hold of a third. And at the close of play on the Thursday, Snap’s stock was up by 44%.
$24million made in a day, and more to come.
Facebook and Snapchat – the same but different?
How many users do they have?
Facebook had 900m users as it prepared for its 2012 flotation. Since then the social network has grown to 1.86bn monthly active users – more than half the world’s population that has access to the internet. About 1.2bn check their Facebook accounts every day.
Snapchat has far fewer users, but the company claims they are much more engaged than Facebook’s. Snapchat had 158m daily users at the last count. Two-thirds of them check the app every day – and the average daily user visits the app 18 times a day, spending an average of 25-30 minutes a day sending snaps and watching snaps from their friends, celebrities and advertising brands.
Snapchat is only accessible via mobile phone. Snapchat claims to reach 41% of all 18- to 34-year-olds in the US each day.
Facebook has a clear scale advantage over Snapchat in Daily/Monthly Active Users (MAU’s/DAU’s).
Facebook – 1.86billion MAU’s/1.23billion DAU’s
Snapchat – 160million DAU’s just before its IPO.
WhatsApp – 1billion MAU’s
Messenger – 1billion MAU’s
Twitter – 319million MAU’s
Instagram – 600million MAU’s
How much are they worth?
Facebook was valued at $104bn when it floated at $38 a share on the NYSE on 18 May 2012. Today the shares are changing hands at $131. Facebook has a market value of $373bn. More than twice that of IBM.
Facebook tried to buy Snapchat several times. The last $3bn takeover attempt in November 2013 was rejected. Facebook, which also owns Instagram, has since developed versions of a few of Snapchat’s features, around 15 at last count.
Snap’s IPO achieved $26billion.
How much money do they make?
Facebook made a profit of $10.2bn in 2016, up 177% on 2015. Its total advertising income was almost $27bn. But Facebook only turned its first profit in 2009.
Snap, which is spending a lot of money on expanding its user base, made a net loss of $515m in 2016 – up on the $373m it lost in 2015.
So both have excelled at losing money thus far! Even Facebook is still deeply in ‘potential’ mode as far as realising revenue goes. It’s that potential that makes both companies so valuable.
Where does the income come from?
Both companies make their money from advertising at the expense of traditional advertising markets such as newspapers and TV, and increasingly fill the gap where data has become the number one challenge.
WPP is the world’s largest advertising company. In 2016 their clients alone spent;
- $1.7bn advertising on Facebook.
- $5bn on Google ads.
- $90m spent on Snapchat.
So clearly, this tells us that there is scale… and there is scale!
There is speculation and commentary that Snapchat is likely to be on a faster growth path than either Google or Facebook. If so, the opportunity is enormous and just starting. But that’s the trouble with speculators and commentators – they get it wrong a lot too, they just never put their hand up to it. Remember the doom stories regarding Facebook earlier in the blog? And yet there they are, still treading their way forwards…
Snapchat has tried to differentiate itself from Facebook by NOT allowing adverts targeted directly at users’ interests or browsing history.
When you get an ad in the morning for something you thought about buying the day before, it can feel annoying, creepy even.
Facebook’s advertising is sold entirely by computer program. Advertisers can visit the ads part of Facebook, plug in payment information, and create the advert. Ads can be targeted as narrowly or broadly as desired, and billed as flat-fee per thousand views; to pay per click; per like; and such.
Think about that distribution model, ticking away ferociously, across all time zones, the next time you ‘like’ something.
Perhaps think how a tiny part of scale might work for you. For example, go to https://www.facebook.com/mapleleafPPI/ and see what we might do for you.
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