That Snapchat has reportedly turned down a $3 billion all-cash offer from Facebook means the rapidly growing free service must have a plan in mind to make money. Logically, it should run ads. Yet Snapchat pursuing an ad-supported model could be one of the worst business decisions any billion-dollar company has ever made.
First, consider the perception gap. A lot of advertisers and journalists perceive Snapchat as a place where teens engage in a more graphic form of sexting. When you hear that, that's basically a coded way of saying, "I don't understand this, so I'm going to think the worst about it." Saying Snapchat is for sexting is like saying Google is for searching for porn. Yes, people use the technology for that purpose all the time, but it's a pretty small part of what's going on. As more stories and studies come out about how and why people use it, the more salacious associations will fade.
The far bigger concern is the values gap. People using Snapchat have entirely different values from how most marketers would want to use it. The crux of this is that Snapchat users value privacy, while marketers value publicity.
Snapchat isn't the most secure service ever invented, though Anthony Weiner's political career may not have flamed out as fast as it did if he used this disappearing messaging service rather than Twitter. Snapchat is more like Las Vegas; some of what happens there gets out to the public, but most of it stays there. There's a general understanding among users that it's designed to be private, and most people don't want to violate their friends' trust.
Valuing privacy leads to other consequences. Snapchat users don't want to be tracked. They don't want to be analyzed. They don't want to be targeted. On the internet, no one knows you're a dog, but on Snapchat, you'll share with a few of your close friends that you're a dog. When you do that, you won't expect to see any dog food ads from Purina or pet-friendly hotel ads from Travelocity. And you won't want to wind up in any reports showing the age, gender, location, interests, and species of Snapchat users.
Snapchat users collectively stick up their middle fingers at everything marketers value. If marketers start targeting, tracking, and advertising to them, the $3 billion offer will soon seem like $3 billion too much. Especially since people don't interact with all the thousands of their supposed friends on Snapchat, the barriers to leave that service and move to another are particularly low. And there are also fast growing, formidable competitors in chat services such as WhatsApp and WeChat, both of which are also riding the wave of interest in private rather than public conversations.
Conversations have typically been private. History should prove Facebook and Twitter to be exceptions to the rule. Marketers haven't been able to insert ads in the middle of phone calls or water cooler conversations, and Snapchat users are taking an even more aggressive stance in favor of privacy and anonymity. Concerns about governments tracking and monitoring conversations -- regardless of whether you're a citizen of the U.S. or China or practically anywhere else -- will only fuel more interest in privacy. Privacy is and should be one of advertisers' worst nightmares.
So, Snapchat, you better be ready for paid upgrades, subscription services and other models. Advertising isn't for you, and it isn't for your users.