How Evan Spiegel bacame a billionaire at 28!
Snap. Chat. Delete.
In the blink of an eye, you have shared a picture. A message. And as soon as you release the screen, it is all deleted automatically. Whereas all the other internet-based services earn their money based on the basic concept that all images and information should be stored forever, Snapchat is a social medial platform that was simply created to delete messages and images as quickly as you have seen them. And that simple idea is worth more than DKK 150 billion.
To say that the idea that occurred to Evan Spiegel when he went to the party in the student association Kappa Sigma at Stanford University in the spring of 2011 has made him rich, is a gross understatement.
He is ranked at number 525 on Forbes list of the world’s richest people, and last year he was actually ranked at 248. In the technology industry, share prices can swing a lot on a regular basis.
It sounds like a little bit of a cliché, but at 28, Evan Spiegel won both the princess and half the kingdom because in 2017, he married the Australian supermodel Miranda Kerr – and together they have purchased a house in the extravagant Brentwood area in Los Angeles.
Who is Evan Spiegel?
He was born in Los Angeles on 4 June 1990. Both his parents are lawyers, which means he comes from a relatively wealthy family. Wealthy enough according to internet sources like thefamouspeople.com, that he could receive a weekly allowance of USD 250 - equivalent to DKK 1,500 a week.
Spiegel was – and most likely still is today – the kind of person who refuses to take a no for an answer. One story has it that after his parents divorced he asked his father to buy him an expensive BMW. When his father refused, Spiegel moved into his mother’s house and she promptly leased the USD 75,000 car to him. After he finished high school, he was accepted at the prestigious Stanford University in Palo Alto, where he studied product design. He was accepted into the famous/infamous student association Kappa Sigma, where he met his future colleague and founder of Snapchat, Bobby Murphy.
A funny remark made at a party at the Kappa Sigma student association was the beginning of what would become Spiegel’s entry into the social media scene. A fellow student expressed a wish for an app that selfdestructed pictures. Spiegel and Bobby Murphy ran with the idea – and presented it as a study project to their fellow students. The other students laughed. They thought it was a crazy idea.
But Spiegel and Murphy refused to take no for an answer and worked on a prototype of the app, under the name Picaboo. The final app was launched in September 2011 with the name Snapchat, which had become a picturemessage and mobile multimedia system for the iPhone and Android smartphones. Already in 2012, users were swapping 25 pictures a second. And by the end of the year, over a billion pictures had been shared.
The idea of non-permanent pictures is still the basis for Snapchat. Evan Spiegel has been quoted as saying: “One day you are online, you log in and realise: This isn’t me. Everything you put on the internet is based on what you previously put on the internet. Let’s delete everything. Save what’s really important. So all you need to is organise the 1% that is worth saving.”
Zuckerberg received a polite “No thanks”
By as early as 2013, Spiegel already had about 20 million daily users – other social media platforms were seriously interested in Snapchat, especially Facebook’s famous founder Mark Zuckerberg. Early in the autumn of 2013, he offered to buy Snapchat for USD 3 billion despite the fact that the company at that point was valued at a much lower value.
But even though the two founders could have walked away for about USD 750 million each they still refused to sell and Zuckerberg received a polite “No thanks!” Afterwards, Spiegel said to the media “There are only a few people in the world who get the chance to create a company like this one. To exchange that for a short-term gain is not very interesting.”
The sky is the limit – or is it?
All the signs are that Spiegel’s personal fortune and Snapchat’s success can only grow and grow: from 50 million daily users in 2014 to 175 million daily users in 2017. In 2016, Snapchat introduced their glasses with a built-in camera, with an expected annual income of nearly USD 400 million.
At the end of 2017, the goal was to list the company on the stock exchange and the company was valued at the dizzying amount of USD 24 billion. At that point Spiegel’s personal fortune was enough to put him at 248 on the Forbes list of the world’s richest people.
But Snapchat’s growth faltered. Mainly because the company’s earnings did not match expectations. But also because of the hard competition, especially from Facebook, which now had incorporated a number of Snapchat functionalities into their app. Perhaps the initial interest and excitement in Spiegel’s app had also waned.
From nerd to celebrity
In many ways, what happened to Spiegel is similar to what happened to Facebook’s founder, Mark Zuckerberg, As a child, Evan Spiegel was shy and a bit of a nerd; part of a wealthy family who liked to take expensive holidays in Europe, Maui or the Caribbean.
He matured as a teenager and as a high school student, went to the college preparatory school, Crossroads School for Arts and Sciences. He studied to be a graphic designer and became a student at Stanford University. However, and against the good advice of his parents, the talented student dropped out of university when Snapchat took off. But the 28-year-old entrepreneur will do okay; with DKK 20 billion in the bank he could choose to live the life of a rock star or something even grander.
How does Snapchat earn money?
From a student project to a company listed on the stock exchange, valued at USD 24 billion in just seven years. But how does it make money?
When you consider that Snapchat is mainly used by teenagers and it is free to download and use, you have to wonder how does it make money? How can a single app that is used to send pictures that are automatically deleted offer gigantic earnings to the owners and to the founder Evan Spiegel in particular?
Snapchat allows users to send and receive text and pictures and video clips (known as snaps) with other Snapchat users. As a user you can also choose to add pictures to your ‘history’, which everyone who follows you can see. Alternatively, as a user you can also choose to send private snaps directly to specific users. In both cases, the pictures and the video clips can be displayed for a maximum of ten seconds.
Snapchat was first used by young teenagers, who started sexting each other. Today, the app has over 200 million users. If you compare this figure with Instagram’s 700 million users, Twitter’s 400 million users, LinkedIn’s 530 million users and Facebook’s 1,7 billion active users, then you can see there is plenty of room for growth and potential earnings.
Marketing via Snapchat is not yet very widespread in Denmark. But according to project manager Mads Haulund from the agency Spinnaker Nordic in Copenhagen, it is only a matter of time. He sees three obvious platforms that advertisers can use for their marketing – and of course it is also here where Snapchat earns its money: “There are three possible earning platforms on Snapchat: The first is that Snapchat has a number of filters, where the user can swipe to the right or to the left. This brings the user to a new layer, where an advertisement can be displayed, for example, a company logo.
The advertiser can purchase a Geo-fence, which limits the geographical area where the swipe action is active. Typically a small advertiser – a baker, local shop or cafe – can purchase a smaller geo-fence for DKK 40-50 a day. But if the area has many users, it costs extra. For example, imagine that you make a Geo-fence around the Royal Arena in Copenhagen. The price rises to DKK 10,000. Simply because of the many potential users in the area,” explains Mads Haulund.
“The second possibility is the advertiser can purchase “Lenses”. It is one of the basic Snapchat functions, where you can on-the-fly take a picture and apply drawings or other effects on it. It can be an interesting way for a number of advertisers to brand products or services – but it requires resources in 3D graphics and animation. “The third platform is more along the lines of advertising you see on Google or Facebook. But in the form of a video clip of up to ten seconds,” says Mads Haulund.
More branding than sales
According to Mads Haulund, Snapchat is a media that makes high demands on the advertisers. “You have 10 seconds. So it’s more suitable for branding campaigns. But Snapchat is moving in the direction of more ‘normal’ advertising. For example, today you can swipe up and this will take you to a specific website,” he says.He emphasises that one of Snapchat’s weaknesses is that everyone thinks that only teenagers use it. “But in Denmark, 27% of users are 25-34 years old, and 28% are over 35 years old. So it looks as though the young continue to use Snapchat as they get older,” says Mads Haulund.
Other studies have shown that 45% of American students are willing to open a snap from an unknown provider, a number that rises to 73% if they know the provider – which means the Snapchat app is especially interesting for many companies’ marketing strategies (2017 figures from Businessinsider.com).
So Snapchat shows it has market potential that has not yet peaked. With many hundreds of millions of users who use Snapchat daily, you do not need to crunch the numbers or make much effort to imagine the vast sums of money that flow into Evan Spiegel’s pockets. And with the extra bonus that Snapchat glasses are expected to generate annual turnover of USD 400 million.