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The Billion Dollar Battle for Snapchat
  • February 25, 2014 : 07:02
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The culture of the start-up, of dreaming up the next big thing and then cashing in on your invention, was already part of the curriculum at Stanford’s business school, where Spiegel audited classes his freshman and sophomore years. Stanford Research Park, founded as Stanford Industrial Park in 1951, on Page Mill Road just off campus, is the crib of Silicon Valley. It is where William Hewlett and David Packard developed the audio oscillator that became the first product of Hewlett-Packard. Among the tech firms that have been started at Stanford or launched by Stanford alumni in the years since are Google, Sun Microsystems, Yahoo, LinkedIn and Cisco. While Spiegel was a junior, two Stanford grads launched Instagram, which Facebook acquired in 2012 for $1 billion. Under Stanford president John L. Hennessy, an electrical engineer and tech entrepreneur who sits on the boards of Google and Cisco, the college has become so intertwined with tech culture that Hennessy has been called the “godfather of Silicon Valley.”

For bright students like Spiegel, Hennessy had practically built a start-up assembly line. All Spiegel had to do was come up with an idea, find programmers to build it and then use his Stanford professors to introduce him to investors and venture capitalists. He was sitting in classes next to visiting tech moguls such as Eric Schmidt from Google and Chad Hurley from YouTube, was given a part-time job by Scott Cook, founder of Intuit, and was introduced to potential investors by professor Peter C. Wendell, founder of Sierra Ventures. It was inevitable Spiegel would launch his own business, and by the end of sophomore year he believed he had found the next big thing, starting FutureFreshman.com, a college guidance and application website, along with math wiz Murphy.

“We had identified the problem that kids and parents didn’t know what to do in applying for college. We had this thing where you could click on which schools you wanted to apply to, and it made you a massive to-do list,” Spiegel says. “But nobody used it. Still, we learned a lot about what not to do.” Spiegel designed the website and Murphy built it. Working on the project over a summer, both realized two important truths about start-ups: Don’t get into a space where well-funded competitors (in this case a website called Naviance.com) could outspend you into oblivion, and make sure your idea is truly disruptive—a new idea, not just another good idea. The idea has to be killer, or no matter how well designed the product (and Spiegel still believes FutureFreshman.com was an impeccably designed website), the business will die.

Brown spent the fall of 2010 in Oxford, U.K., while Spiegel went to Cape Town, South Africa—typical of Stanford juniors, who often spend at least one quarter abroad. Spiegel had visited Cape Town before, helping locals get jobs by teaching them how to dress and how to conduct themselves during interviews. When he returned during his junior year at Stanford, he realized that the jobs he had helped the young men from one township secure had come at the expense of young men from another township. “I hadn’t created jobs; I simply took jobs from students in other townships and gave them to mine. I was devastated.” Life, Spiegel realized, wasn’t fair.

While Brown and Spiegel were abroad, their fraternity had been kicked off campus for one year for serving alcohol during a dry week. Brown and Spiegel returned to the dorms, this time on the same floor of Kimball Hall, and the two took up their friendship where they had left off, frequently dropping by each other’s rooms or hanging out with fraternity brothers. Spiegel was increasingly frustrated, worried that his time at Stanford was coming to a close and he had yet to come up with a killer idea. Meanwhile, the tech world had changed, and many promising new start-ups were now built around mobile applications instead of websites—Instagram being a prime example. Apple’s iPhone 4 had further changed the tech industry, putting phones with front-facing cameras in everyone’s pocket and demanding more user time than computers. Spiegel knew from his d.school classes that venture capitalists were looking for mobile apps that capitalized on this new technology, but he had yet to come up with a product he felt passionate enough about to develop.

One afternoon in April 2011, Brown was hanging out in a Kimball dorm room with two frat brothers. The three were watching television when Brown began to lament that he had sent a provocative photo of himself to a female acquaintance and now wished he could somehow unsend it. In fact, he observed, it would be awesome if you could do that with photos and sexy text messages. Or how about making any message or photo disappear?

“That could be a cool app,” Brown said.

He paused, waiting to see how the idea played in the room. The other brothers, not seeing the potential, dismissed it as a sexting app. “Brown ran out of my room after he thought he had struck gold and went to Spiegel,” says a fellow member of Kappa Sigma. “He just knew Spiegel would take him seriously and move forward.”

Brown found Spiegel in his room and told him the idea, which Spiegel, according to Brown, exclaimed was a “million-dollar idea.” Spiegel excitedly asked Brown if they could work on the project together, and Brown agreed. The two set off to seek a fraternity brother who could program the app. They recruited Spiegel’s former partner Murphy to join them and, in an “explicit oral agreement,” divided the venture into thirds, according to the complaint Brown filed in February 2013. Brown was to be chief marketing officer, Murphy chief technology officer and Spiegel chief executive officer. Why did Spiegel automatically take the preeminent role even though, as he acknowledges, the idea wasn’t his? Because Brown was an English major and therefore didn’t add as much value as a product-design major like Spiegel, who had already started and failed at one business. Spiegel has said in his own depositions that Brown was eager to participate so he could learn from Spiegel. In Stanford’s culture, the humanities have been undervalued in the face of supposedly more practical majors such as computer science and engineering, something even university president Hennessy has lamented. This may be the ultimate expression of the new hierarchy: An English major, it goes without saying, is not qualified to be CEO, even if the whole damn thing was his idea.

Brown’s idea was the seed for one of the fastest-growing companies in tech history. The app’s usage expanded from a small group of high schoolers in Orange County, California—the school Spiegel’s cousin attended turned out to be a key catalyst—to virtually every teen in America. While Instagram and Facebook tap people’s vanity by offering them “likes” and “hearts” on their best photos, Snapchat taps their insecurity by offering them the freedom to send a picture they know will self-erase in a few seconds. And while Facebook and Instagram allow for the passive posting of photos, Snapchat allows users to push photos to whomever they like. “Our application makes communication a lot more human and natural,” says Spiegel. “Our goal is to make communication fun again.” That mantra seems to be working, as the company has gone from 40,000 users in February 2012 to more than 26 million U.S. users today, according to a Pew Research Center study. “Snapchat stopped being just an app and turned into a culture, a phenomenon,” writes Chloe Drimal, a Yale senior, in a Yale Daily News op-ed. “It’s basically Twitter combined with texting combined with crack. Twitter gives you 140 characters to say your thought or what you are currently doing; Snapchat gives you 31. A text is permanent; a Snapchat is gone within 10 seconds.” In many ways Facebook has become too grown-up, too neat and tidy; Snapchat is where kids can go to goof off.

By the time Snapchat added video capabilities in December 2012, the rest of the tech industry was playing catch-up. Facebook scrambled to launch its version of Snapchat, called Poke. The project was built by Facebook engineers in just 12 days, with no less than CEO Mark Zuckerberg writing code and serving as the voice for the “Poke” notification. Spiegel retorted to Zuckerberg’s panicked response with “Welcome, Facebook. Seriously,” an homage to a 1981 Apple ad challenging IBM. “The idea of sharing your life in snippets of video has been transformative,” says Yosef Solomon, a digital-marketing strategist. “The growth potential is based on Snapchat going from a mobile chat platform to a mobile social platform.”

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read more: News, magazine, issue march 2014

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