Tech giants Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL) made waves this week, but not for their usual reasons. As has been widely reported, both Facebook and Google reportedly attempted to buy out the new kid on the block of social networks, Snapchat, for a reported $3 billion and $4 billion, respectively.
Seeing both Facebook and Google bidding for Snapchat makes it clear that many of the smartest players in tech are taking this new social upshot seriously. Keeping that in mind, let's look at four things that tech observers should know about Google's and Facebook's most recent acquisition target, Snapchat:
1. It's still extremely young
Snapchat was officially launched in September 2011, making it still an extremely young company, even by Silicon Valley standards, where dog years might be a more appropriate way to measure a company's age.
The parallels to Facebook and Google are also many, giving it a great "start-up story." Like Facebook, Snapchat was founded by undergraduate college students Bobby Murphy and now-CEO Evan Spiegel. And, like Google, those students attended Stanford University -- although it's worth noting that Google co-founders Larry Page and Sergey Brin were both pursuing graduate studies at Stanford when they launched Google.
2. It still isn't making any money
This probably shouldn't come as much of a surprise either. We've seen countless examples (including Facebook and Instagram) of how early investors in private companies typically emphasize developing a winning product over driving immediate financial results in early stage growth companies like Instagram.
Facebook actually serves as a great example here. It had long been assumed that Facebook would use some kind of an advertising-based monetization strategy. However, as CEO Mark Zuckerberg made clear, his primary focus in Facebook's really early years was creating a sticky service and growing its user base. The logic here is that, for the most part, experienced, savvy businesspeople can find a way to make money off of a user base in some way, shape, or form. However, in order to even arrive at that point, they first need those users.
This bodes well for Snapchat because it's like Google and Facebook in their early years, but...
3. It's growing like a weed
User base figures for new private companies like Snapchat are hard to come by. However, data produced by well-respected market research firm Nielsen showed Snapchat had over 8 million unique users as recently as this past May.
A mobile application by nature, Snapchat has steadily increased its popularity on both iOS and Android. In August, Snapchat was the eighth most popular iPhone app with an impressive 20% share of iPhone users. This still sits well behind Facebook's 73% iPhone penetration rate, but it's certainly respectable for such a young company.
However, one of the key selling points for Snapchat isn't necessarily the size of its user base, but the insane engagement levels of those users. According to reports, Snanchat users reportedly send over 350 million pictures daily, up from 200 million in June.
It's this stickiness, and the potential network effects that should result from a growing user base, that have tech names like Facebook and Google taking the service seriously. And while the engagement figures are certainly compelling, it's perhaps the fourth reason above all else that really has Facebook's and Google's attention.
4. Younger users love it
The potential for a "next big thing" type service to come along and disrupt a Facebook has long been discussed as a potential weakness for social networks, or for a company with clear aspirations in the social space like Google. It appears Snapchat might just be that "next big thing."
Snapchat's user base is exceptionally young and engaged. As a demographic, younger users are the most likely to gravitate toward an emerging platform, especially as older social networks like Facebook lose their cool factor. Why should you be on Facebook, where your mom can find you, when your mom doesn't even know what Snapchat is?
It sounds foolish to discuss from an investor's perspective, but this shouldn't be underestimated. One of the driving factors for Facebook's initial round of torrid growth was its exclusivity. And, in a world where Facebook users number in the billions, Snapchat's relative obscurity could serve as a kind of differentiator to today's youth.
Foolish bottom line
I'm not here to say Snapchat's worth $4 billion, or even $3 billion. By any reasonable metric of valuation, both are absurd numbers.
However, it's clear from the recent interest that Snapchat has received from the likes of Google and Facebook, that there's clearly something significant at work here. It may be some time before the company cashes in on its billions of dollars of potential, if it ever does. However billion-dollar buyouts don't happen every day, especially for a company as new as Snapchat.
If its recent treatment is any indication, we very well might be witnessing the next great social upstart taking shape. And if that's the case, Snapchat is very much a company worth watching.