Snapchat co-founder and CEO Evan Spiegel will turn 24 next month. Leading one of the fastest-growing social networks in the world, he's worth quite a bit of money. In fact, Spiegel believes his photo-sharing social service is worth more than $3 billion, based on Facebook's (NASDAQ:FB) rejected offer of that amount to acquire the company. But did he make a mistake in dismissing those billions? Now Spiegel may have to fend off an upcoming competing app from Facebook, internally named "Slingshot," in order to maintain his app's dominance.
How strong is the network effect?
Facebook has been working on a video-sharing app that is positioned to compete head-to-head with Snapchat, the Financial Times reported, citing "people familiar with its plans." The "top-secret" project is headed by Facebook chief Mark Zuckerberg himself and could be launched as early as this month, according to FT. Slingshot will reportedly "allow users to send short video messages with just a couple taps on the screen."
The app would be in line with the company's efforts to push stand-alone apps. Zuckerberg has emphasized that he sees big potential for Facebook's business in finding new ways to create value out of its user base in more personalized applications.
"We just think that there are all these different ways that people want to share, and that compressing them all into a single blue app is not the right format of the future," Zuckerberg told Bloomberg Businessweek in a January interview.
But Slingshot will have a tough obstacle ahead. Zuckerberg knows better than anyone how strong a network effect is. He cited users as a major competitive advantage when he was attempting to justify the $19 billion valuation Facebook gave the multiplatform messaging service WhatsApp. "WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," Zuckerberg said in the press release announcing Facebook's acquisition of the service.
Sure, Snapchat's niche market of teens and college students may limit its potential to less than 1 billion people, but Zuckerberg did acknowledge the network was worth a considerable sum when he offered $3 billion for the service. With Zuckerberg himself recognizing the value of Snapchat's fast-growing user base, don't expect the photo-messaging app's selfie domination to be defeated by Facebook's Slingshot project anytime soon.
A more shareholder-friendly approach?
The best news out of all of this is that Facebook is relying on internal innovation instead of spending billions. After recent big-dollar prices to acquire WhatsApp and Oculus VR, it would be extremely reaffirming for Facebook shareholders if the social network can show it can innovate without paying speculative amounts.
News of the Slingshot project doesn't alter the outlook for Facebook's business. At this point, the secret project is nothing more than a hopeful and unproven aspiration. Even if the company eventually manages to eventually trample over Snapchat, a $150 billion market capitalization for Facebook stock seems to have mostly priced in such triumphs.
Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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