Gamble behind Snapchat’s $3 Billion Number
Throughout the past decade, technology has been a huge component of our lives. Our 5-inch phone happens to have every small piece of information that is part of our lives. Apps like Snapchat, Facebook, twitter, tinder, help us connect each other easier by being part of the social media world. The purpose of Snapchat is to have a disappearing photo-sharing app, so once you open it, it’s gone. It has turned into one of the most popular apps, and is something that is my personal favorite. There was a time last year that Facebook was about to acquire Snapchat, two social medias that are most common in current day society. In the article “The Gamble Behind Snapchat’s $3 Billion ‘No’”, the start up Snapchat, refused to be acquired from Facebook. There is actually a game theory behind this decision.
John Nash explains the logic behind game theory. He says that there is a Nash equilibrium in a game if there is a best response to each player’s strategy. Using game theory to make this decision, the Snapchat gamblers created their own game theory. The timing of a startup is extremely important, lucrative, as the article said. If you wait too long, you could miss the peaking value, but if you accept an offer too early, you could have missed an even better offer. The best timing for a startup, as this article states, is being sold at the peak of their value, weeks or days before growth declines. This is optimal for a short-lived startup. According to the article, there were four possible outcomes for this game.
The startup could have sold, the startup didn’t sell, the startup was a fad, and the startup wasn’t a fad. These requirements had predicted outcomes of very good, very bad, pretty good, or extremely good. With using the Nash equilibrium in mind from what we have learned in class, assigning these payoffs to these actions and outcome should predict the best response / best strategy. In this game, there were two ways to win, the start up was sold at just the right moment (the peak before the decline) or the company grows so much and you’re still rich.
The owners of Snapchat believe that their start-up isn’t just a fad, and will be like Facebook, lasting for at least 10 years. This became their dominant strategy in the game. They also could sell and not sell. They believed that the start up should not sell and have the owners continue to keep the money and be come rich. Siegel and Murphy, the owners of Snapchat, are remaining solo and turned down Facebook’s acquisition of $3 billion dollars. From research and expert opinions of others, they believe that Snapchat will be just as long lasting and famous as Facebook. They turned down even more acquisition offers and believed that they would end up in the lower right quadrant of doing extremely good, than the upper right of very bad. An incentive to this decision could have been that Facebook itself had turned down a $1 billion acquisition from yahoo. Either way, Snapchat remains on it’s own and continues to grow. The help of the game theory and through simple networks made this decision. The next time a decision has to be made, there can always be a game theory involved and finding a best response or dominant strategy.