January 06, 2014

The Inside Story Of #Snapchat: The World's Hottest App Or A $3 Billion Disappearing Act? - Forbes

Will they become two of the youngest billionaires ever–or fade quickly into business infamy?

The Inside Story Of Snapchat: The World's Hottest App Or A Billion Disappearing Act? - Forbes

Bobby Murphy, 25, and Evan Spiegel, 23, have turned Snapchat and its disappearing photos into the hottest app in America for teenagers. Will they become two of the youngest billionaires ever–or fade quickly into business infamy?
THIRTEEN MONTHS AGO Facebook’s Mark Zuckerberg, the richest twentysomething in history, reached out to Snapchat’s Evan Spiegel, who oversees a revenue-less app that makes photos disappear, with an invitation, delivered to his personal e-mail account: Come to Menlo Park and let’s get to know each other. Spiegel, now 23 and the brashest tech wunderkind since, well, Zuckerberg, complete with his own legal battle against a college buddy who helped him start his company, responded to his role model thusly: I’m happy to meet you… if you come to me.
And so, armed with the premise of meeting with architect Frank Gehry about designs for Facebook’s headquarters, Zuckerberg flew to Spiegel’s hometown, Los Angeles, arranging for a private apartment to host the secret sit-down. When Spiegel showed up with his cofounder Bobby Murphy, who serves as Snapchat’s chief technology officer, Zuckerberg had a specific agenda ready. He tried to draw out the partners’ vision for Snapchat–and he described Facebook’s new product, Poke, a mobile app for sharing photos and making them disappear. It would debut in a matter of days. And in case there was any nuance missed, Zuckerberg would soon change the large sign outside its Silicon Valley campus from its iconic thumbs-up “like” symbol to the Poke icon. Remembers Spiegel: “It was basically like, ‘We’re going to crush you.’ ”

Spiegel and Murphy immediately returned to their office and ordered a book for each of their six employees: Sun Tzu’s The Art of War.
Snapchat represents the greatest existential threat yet to the Facebook juggernaut. Today’s teens have finally learned the lesson their older siblings failed to grasp: What you post on social media–the good, the bad, the inappropriate–stays there forever. And so they’ve been signing up for Snapchat, with its Mission: Impossible style detonation technology, in droves. FORBES estimates that 50 million people currently use Snapchat. Median age: 18. Facebook, meanwhile, has admittedly has seen a decline among teenagers. Its average user is closer to 40.
Zuckerberg understood this, which might explain the gamesmanship. When Poke debuted, on Dec. 21, 2012, Zuckerberg e-mailed Spiegel, telling him that he hoped he enjoyed it. Spiegel, who had deactivated his Facebook account, frantically called Murphy for his review. It was, Murphy responded glumly, a near-exact copy.
But a funny thing happened on the way to obsolescence. The day after its launch Poke hit number one on the iPhone app store. But within three days, on Dec. 25, Snapchat had pulled ahead, boosted by the publicity, as the Facebook app disappeared from the top 30. Laughs Spiegel: “It was like, ‘Merry Christmas, Snapchat!’ ”
Which helps explain what happened in the fall when Zuckerberg reengaged Spiegel, basically ready to surrender on terms so generous, on paper, they seemed preposterous: $3 billion in cash, according to people familiar with the offer, for a two-year-old app with no revenue and no timetable for revenue. (Facebook refused to comment for this article.)
Even more preposterous, of course: Spiegel turned Zuck down. It was the most scrutinized business decision of the past year, complete with head-spinning math. FORBES estimates that Spiegel and Murphy each still owned about 25% of Snapchat at the time, which means they were both forgoing a $750 million windfall. “
I can see why it’s strategically valuable,” one leading venture capitalist tells FORBES. “But is it worth $3 billion? Not in any universe I’m aware of.”
The roots of that decision, however, were obvious to anyone who knew about the primer that Spiegel and Murphy had bought for their team. Chapter 6 in the Art of War specifically addresses the need to attack an enemy where and when he displays weakness. Spiegel and Murphy sense an opening and insist that rather than selling, they’re aiming to upend the social media hierarchy, armed with a $50 million war chest raised in December at a lower (but still heady) valuation of just under $2 billion. “There are very few people in the world who get to build a business like this,” says Spiegel. “I think trading that for some short-term gain isn’t very interesting.”
For those keeping score, a “short-term gain” for a 23-year-old who still lives in his dad’s house now apparently equals three-quarters of a billion dollars. In going for the long gain, Spiegel will either become the next great billionaire prodigy or the ultimate cautionary tale of youthful hubris.
A LANKY 6-FOOT-1, dressed in a button-down shirt, designer jeans and plain white sneakers, Evan Spiegel hasn’t quite molted the carapace of an awkward teen. Sitting at Snapchat’s new Venice Beach headquarters for his first-ever in-depth media interview, he shifts abruptly from raucous laughter to icy glares, constantly grabbing fistfuls of gummy bears and Goldfish crackers. His conversation is pocked with plenty of examples of “like” and “whatever.” And while Spiegel proves extremely opinionated on subjects like politics, music and other techies, he’s reluctant to discuss even the most basic CEO topics, like his ideal management team or his long-term vision for Snapchat.
If you’re patient enough, however–one of my conversations with him lasted two and a half hours–you’ll get the full backstory, one that shares an uncanny similarity to that of his frenemy, Zuckerberg.
Like Zuck he was a child of relative privilege, the first-born child of two successful lawyers (mom Melissa went to Harvard Law and practiced tax law before Spiegel was born, while litigator dad John, a Yale Law grad, has represented the likes of Sergey Brin and Warner Bros.), living in tony Pacific Palisades, just east of Malibu. And like Zuck he was a middle school nerd who found refuge in technology, building his first computer in sixth grade, experimenting with Photoshop in his school’s computer lab and spending weekends at a local high school’s art lab. “My best friend was the computer teacher, Dan,” Spiegel laughs.
In high school he began to display the moxie that Zuckerberg would later exhibit, promoting Red Bull at clubs and bars and using his parents’ divorce as a leverage tactic. He first moved in with his dad when he gave him a free hand in outfitting his room and who could come over. “I had some notorious parties,” he smirks. But when Pop reportedly refused to shell out for the lease on a BMW 550i, he moved in with Mom. Days later the BMW was his. Except for college, he’s been based in his dad’s home, a stone-faced mansion a half-mile north of the ocean, ever since. “A lot of things have changed very quickly, so it’s nice to have that one constant,” he says by way of justification. “It’s also pretty grounding.”
He entered Stanford’s product-design program and in 2010, during his sophomore year, moved into the Kappa Sigma fraternity house. Bobby Murphy, a senior major in mathematics and computational science, lived across the hall. “We weren’t cool,” Murphy says of the fraternity. “So we tried to build things to be cool.”

Read the rest of the story online here:  The Inside Story Of Snapchat: The World's Hottest App Or A $3 Billion Disappearing Act? - Forbes

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