The SnapChat IPO and What the Press Didn’t Tell You

The Snapchat IPO has again rocked the tech world by setting a monumental value on a seemingly silly app whose user base is largely horny 11 - 18 year olds. Founders Spiegel and Murphy became instantly worth an estimated US$5.4 Billion!  But this is much more than another tech/ lottery story where the lucky win big, it also has the David and Goliath angle where they rebuked Facebook’s hostile (not in the traditional financial sense, but in the Mark Zuckerberg saying I am going to fuck you up way) takeover offer of US$3 Billion. But all this is well known. What is less well known is some of the underlying reasons why this IPO is epic and a game changer.

CEO’s, CMO’s, Media Gurus and other buzzword soundbite banter artists have mentioned that “it is good to have other options other than Facebook, Whatsapp (Facebook 2nd) and Instagram (Facebook 3rd). But there is a far more interesting story to tell. A story that makes a shiver run down Zuckerberg’s spine; China!

China powerhouses Tencent and Alibaba have been early investors in Snapchat with Tencent pumping in millions back in 2013. Why would China tech be investing in a silly little app that is banned in China? One word: Payment Gateway.

Purchases through mobile payment is growing rapidly and there is no place on the planet that has proved that social apps rule in driving online sales better than China . However, outside of China Snapchat is about the only connection China has with the pockets of rest of worlders. Most all social apps being owned by a small group this provides little opportunity for China tech companies like Tencent and Alibaba to tap into the vast and lucrative potential of social media apps as sales portals. Even highly successful apps in China such as WeChat (Weixin) do not cross borders well. Snapchat is the only app of promise to provide an opportunity to revenue flow for China tech companies in the “rest of world” market.

China has not changed its strategy in 1000’s of years. Everything in China stays in China. Everything outside of China stays outside of China and everything outside of China that China wants it infiltrates. It is a sound philosophy that has served well and has not required an update in 1000’s of years. If it ain’t broke don’t fix it. Facebook beware.

Much success,

Doug