Two days ago the parent company of the popular messaging application Snapchat, ended its first day of trading on the New York Stock Exchange 44 per cent above its initial offering price. This placed Snap’s value at US$34 billion. That number may prove to be a bargain. Five years ago Facebook was criticised when its IPO failed to live up to the hype – but the stock is now ten times more valuable than it was then. Instagram, a company Facebook acquired in 2012 for $1 billion was worth thirty times as much just three years later, and its user base had expanded to an astonishing 300 million users.
In 2011 Snapchat reportedly turned down a $3 billion takeover from Facebook. Today that number looks much smaller than it should. Facebook’s brand identity alone was recently estimated at $62 billion and many analysts believe that its $134 stock may soon be worth $150, pushing the company ever closer to the stratospheric valuations of tech giants like Google and Apple. Before long, one of these behemoths will be worth more than a trillion dollars.
What do these numbers mean, and how do purveyors of digital ephemera generate such lavish profits? Snapchat lets its users send electronic messages that disappear after transmission – a feature that appeals to the company’s predominantly adolescent user base. Snapchat users often send material that may subsequently prove to be embarrassing or compromising, so they prefer it not to have a digital afterlife. As with a lot of social media hype, however, the company’s promises of privacy and security have not quite lived up to their billing.
In 2014, Snapchat settled with the US Federal Trade Commission (FTC) following a complaint that a data breach had allowed hackers to retrieve usernames and phone numbers for 4.6 million users. The FTC also found that messages could be retrieved if users connected their phones to a computer and browsed through the right folder. Later that year, Business Insider reported that hackers had collected 100,000 Snapchat photos and videos and leaked them via the 4chan chat forum. Nevertheless, the Snapchat user base has continued to grow – its 300 million active monthly users exchange 2.5 billion messages each day.
The obvious and somewhat ironic explanation for these outlandish valuations is that these companies are not being bought for the information they share but for the information they collect. Google and Facebook have amassed staggering amounts of user data which allows them to analyse our interests, prejudices and – most importantly– our susceptibility to advertising, and they have mined this data to a hitherto unimaginable degree. Coupled with the personal details we provide when signing up, their insights are the equivalent of gold mines or oilfields in the new digital economy. As with other extractive industries, the big players go to great lengths to show their devotion to a common good – free email, better search, social networking, connectivity – otherwise the public might see them for the massive surveillance engines that they really are. Whenever hackers or foreign nations capture intrusive information about us, we call it espionage, but when a social media service or online retail company does the same thing, we either pay no attention, or appreciate the way that their services seem to grow more responsive to our needs.
Amongst the success stories of this brave new era, Twitter has become a cautionary tale. During the last decade it has lost $2 billion, a quarter of this in 2015 alone. Ironically Twitter has probably done more than any other company to facilitate freedom of expression and to encourage global transparency and accountability, especially in countries with traditional media monopolies. Notwithstanding facile claims that the uprisings of the Arab Spring were due to Facebook and Twitter, it is clear that both companies have made it easier to coordinate and pursue democratic advocacy. Consequently the digital ecosystem that enables them has continued to expand, especially as less developed parts of the world close the digital divide. Nevertheless it is a chastening thought that these companies now have user bases that are larger than most nation-states, and that their transnational privacy and usage policies are subject to the whims of a tiny handful of individuals.
The Snap IPO is yet another striking example of our changing zeitgeist. At a moment when fake news and hacking have become daily concerns, it stands out as a perfect embodiment of our hopes and anxieties. A company that specialises in evanescent communication is now worth ten times what it was six years ago, and more than fifteen times as much as the company that owns the New York Times, America’s 150-year-old newspaper of record.
