Oh Snap! Why the Snap IPO is the height of arrogance and a repeat of history

Credit: dennizn / Shutterstock, Inc

Did you know that Snap is a hardware company? Nor did we until we started seeing the analysis and reports about the company’s impending IPO. They have launched Snap Spectacles as a cooler version of Google Glass (no, it would not be difficult to be cooler than Google Glass) and they say that this is the first in the line of hardware products that Snap is planning. Maybe they have seen Facebook usage trends and have decided to panic early.

There are many interesting things that we have discovered about Snap. They do not have an HQ, instead they are spread over residential properties in Venice Beach, California. They do not measure monthly average users (yet), rather Daily Average Users. They instill a culture of kindness (the tough-love kind, where you tell your friend they have spinach in their teeth). They are giving loads to charity, but more arts than famine.

The most interesting thing about this very private company that is going public is their arrogance.

The IPO document does not promise profits. The IPO document says that new investors will have no say in the direction of the company (so did Facebook’s, to be fair). And only some investors got a look at the document in good time to make informed decisions about whether they wanted to be on the ticket.

In the late 1990s, there was a boom in point billing solutions for telcos. The opportunity for vendors arose because legacy systems meant that implementing a new product or tariff and integrating it with that legacy system took too long, was too risky and too expensive to contemplate. Instead you bought a new system to support a new product.

The result of this was that some telcos had dozens, if not hundreds, of billing systems (the prize went to a telco with 149 of them). This meant that if you had something that could produce a bill, you had a chance of becoming a successful billing software company. At the height of the billing boom, there were 150 such companies.

That boom also drove something else. Ridiculous valuations.

The publisher of this very site remembers very well standing up in the High Court in New Zealand and describing to a very silent courtroom an American billing software company that was valued at just over $1 billion. It had no customers, and a consultant privately described the product as being “flexible, in the same way that a blank Excel spreadsheet is flexible”.

What happened to that company – and most of the 150 other “billing” companies – is a matter of history. Suffice it to say that by 2006 or so, there were just 14 firms that could call themselves billing companies. The rest had gone bust or been bought for a fraction of the value they once dreamed they were worth.

What, you might ask, does this have to do with a social media company that has 158 million young (and therefore perhaps fickle) Daily Average Users?

When companies get cocky enough to make unrealistic demands of Wall Street, bad things usually happen. You do not cross Goldman Sachs and get away with it. Valuations of $3 billion can disappear just like software companies’ valuations. And if Snap lays down these conditions, and fails, then Wall Street will be even more unforgiving than usual.

But hey, Snap and its Chat is a social media site for fickle young people, based on advertising.

What could possibly go wrong?

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