This week, Snapchat released its latest update, which features two highly demanded services, and officially takes the app beyond just the realm of photo messaging. Despite its name, Snapchat only began offering text messaging yesterday as part of its Version 7.0 update. Additionally, the photo-sharing app, which destroys photos within second after they’ve been viewed, has added a video calling feature, allowing users to carry out face-to-face conversations via the app.
This significant update repositions Snapchat as a more direct competitor of popular cross-platform chat apps like WhatsApp, which was acquired by Facebook in February for $19 billion. Last fall, The Wall Street Journal reported that Snapchat declined a $3 billion acquisition offer from none other than Facebook.
Snapchat was first released in September 2011 by a pair of Standford University students. At the time, Evan Spiegel, now Snapchat’s CEO, was a product design major and began developing the app with the help of Bobby Murphy for a class project. In April 2011, Spiegel presented his final project to his product design class, only to receive an onslaught of negative feedback.
“Everyone said, ‘That is a terrible idea,’” Spiegel told Forbes about the reaction his photo-sharing app with self-destruct functionality generated. “Not only is nobody going to use it, they said, but the only people who do, will use it for sexting.”
Today, Spiegel and Murphy’s app handles 400 million “snaps” per day for over 30 million monthly active users. The app has approximately 60 million total installs, making it larger than Instagram when it was sold to Facebook in 2012 for $1 billion.
Interestingly, Snapchat generates no revenues. Instead, the company has relied on venture capitalists to fund its growth and operations, and has raised around $125 million to date. In June 2013, Snapchat raised $60 million in a Series B funding round led by Sand Hill Road-based venture capital firm Institutional Venture Partners. Last December, Snapchat raised another $50 million from Coatue Management in its Series C round.
Despite its no-revenue business model, some analysts have valued Snapchat in the billions of dollars. Last November, Spiegel and company reportedly turned down a $3 billion acquisition offer from Facebook, opting to further build the Snapchat brand and grow its user count in the hopes of upping the app’s value before agreeing to an acquisition.
It seems Snapchat’s strategy for growing its user count was revealed yesterday when the company rolled out its latest update. By entering into the text messaging and video calling market, Snapchat is now competing directly with other messaging giants like Skype and WhatsApp. Skype has approximately 300 million users while WhatsApp boasts 450 million active users. If Snapchat hopes to win over some of those users, it will likely have to rely on the added appeal of its self-destruct functionality for pictures and now chats, something that most other chat platforms don’t offer.
Whether the move will add at least a few billion dollars to Snapchat’s valuation – as Spiegel hopes – remains to be seen. But early buzz from the online community regarding the major update is generally positive.