Poor Snap Decision

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Who made L.A.’s biggest business blunder of the last year?

My vote is for Evan Spiegel and Robert Murphy, co-founders of Snapchat. They turned down a $3 billion offer to buy their company.

I mean, c’mon. We’re not talking about tens of millions of dollars or even a few hundred million, which is the kind of offer you’d expect for a two-year-old, 35-employee company that has a popular app but no revenue. We’re talking about $3 billion. That’s more than the market value of most established L.A. enterprises, including Skechers, Cheesecake Factory or DreamWorks Animation. That’s 50 percent more than what the Guggenheim guys paid for the Dodgers, and that price was considered crazy.

Forbes magazine last week reported that Spiegel, 23, and Murphy, 25, each own about one-quarter of Snapchat. That means each turned down $750 million. That’s the payday of a hundred lifetimes, snubbed by two young guys; Spiegel reportedly still lives in his father’s house in Pacific Palisades.

But walking away from all that money is not the blunder. Actually, I admire them for leaving the offer on the table. You see, Spiegel explained that he wants to see through this one opportunity – his chance of a lifetime – to build his company into something special. Money wasn’t the object. The two guys made a brave stand. Noble, even.

And Snapchat could indeed be something special. The company’s app allows users to send photos and messages that self-destruct after a few seconds, finally granting privacy to Internet users. It’s enormously popular – supposedly used 350 million times a day – and especially has caught on among youths. If Spiegel and Murphy play it right, Snapchat could be the next Facebook. (Indeed, it was Facebook’s Mark Zuckerberg who made the $3 billion offer. Facebook has tried but failed to replicate Snapchat.)

But something important happened. On New Year’s Day, hackers matched the phone numbers with the user names of 4.6 million Snapchat customers. That meant privacy – so important to Snapchat users – was endangered.

That’s when the blunder happened. Spiegel and Murphy, who had been warned in August that Snapchat was hackable, did very little after the hack was revealed. They didn’t explain much. There was no immediate apology. Their attitude struck many as cavalier at best, dismissive at worst.

Customers were outraged. Farhad Manjoo, a tech columnist with the Wall Street Journal, called for a boycott of Snapchat. To be hacked is one thing, he said, but it’s another for managers to seemingly shrug it off.

“I really can’t see how Snapchat’s handling of this issue should inspire confidence that it can appropriately manage the data it wants us to send through its system,” Manjoo wrote.

Finally, an apology came last Thursday – eight days after the hack. The apology struck some as tepid in tone and, because of the delay, grudging. Who knows? Maybe this episode will pass, but maybe it has done lasting damage.

Look, if you pass up an immense payday because you want to build up a company, that’s great. It’s admirable. But that means you’ve now taken on the responsibility of properly managing your company. If you ignore the concerns of your customers, if you maintain silence while your aggrieved users wait and wonder, if you generally express hubris, well, that’s reckless. It’s stupid.

It makes you wonder if Snapchat would be better off with Facebook. Yes, it’s the blunder of the year.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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