I have it, and if you have a smartphone, chances are you have it too. The little app that allows you to send timed photos to each other. But wait! You can also view little articles on Snapchat too, some can even be interacted with on the most basic level! Truly revolutionary. In all fairness, I don’t think there are a whole lot of people who would disagree with me. Yes, I suppose Snapchat is technically affecting the way we communicate, and I have no doubt someone’s writing a paper about it right now. But let’s be honest, no one ever sends anything worthwhile (I don’t care how important you think your memes are) and it was invented so people could send nudes to each other with a marginally lower chance of them being saved by the recipient.
My gripe isn’t with Snapchat as an app, but with how it and all other similar apps are perceived in the market. Snapchat is currently valued at $28 billion, according to a report by The Guardian.. Let that sink in. That little white and yellow rectangle you use to send bunny ear selfies to your friends is worth more than the GDP of Armenia. Snapchat makes up an elite group of startups known as “Unicorns,” fast growing, private companies that are valued at one billion dollars or more. Other notable Unicorns include Uber, Airbnb, SpaceX and Stripe. In fact, there are a couple hundred Unicorns around the world with hundreds of millions of users total. A decent number of these companies are mobile based apps, the sort we use everyday. And while the tech industry is currently booming with all these new companies, Unicorns or no, how long can it last?
There is good reason to hold reservations about the current tech boom. Yes, Silicon Valley is thriving right now because of these new startups, but what is the long term? Some of the darlings of the tech industry, including including Uber (valued at around $62 billion last year) and Airbnb (valued at $30 billion as of 2016), haven’t even gone public. Snapchat (under Snap Inc.) only recently went public, and while its stock enjoyed a momentary jump, it has since dropped below its original share price. In addition, despite its massive billion dollar valuation, Snapchat has only pulled in a couple hundred million in revenue. Substantial maybe, if it were not valued for far more. Even more damning is that the company has yet to turn a profit according to Forbes.
An alarming number of these Unicorns have no real means to generate revenue. Yes, Uber and others have actual means to generate income, but not nearly enough to warrant their estimated market value. Take Spotify: it may have a large user base and premium subscription plans, but it has to pay massive licensing fees. And what does Snapchat have? Advertising, and that’s it. No subscriptions, no micro transactions (perish the thought), even the app is free. Snapchat doesn’t sell anything; even Facebook gets by with selling our data.
Enthusiasm is at an all-time high for the startup industry, but the numbers aren’t keeping up. This should concern everyone because something similar happened around twenty years ago: the dot-com crash. Back when the Internet was brand new, everyone was rushing to invest in all the new websites springing up. However, it seems the dot-com companies simply couldn’t meet the astronomically high expectations. We’re seeing the same thing happen right now.
So while Silicon Valley may be essential to the economy of the United States, we need to be cautious moving forward with investing in these startups. While these companies may have shown they can attract a massive user base, they have yet to demonstrate that they can convert that into profit. I may continue to use Snapchat, Evernote and other Unicorn apps, but until they prove they business models are actually viable, I won’t be staking my life savings on their success in the public market.