Snapchat Might Have Just Made a Fatal Mistake

Jacob Harper  |

In November the upstart start-up Snapchat thumbed their noses at a $3 billion takeover offer from Facebook Inc. (FB) . At the time, pundits scoffed. Who was this company that was barely two years old, turning down three billion dollars? Who the hell did they think they were?

They thought, well… that they were Facebook. By the numbers, Snapchat was not entirely crazy. Their explosive user growth, especially among teenagers, made Snapchat look pretty much just like Facebook in 2005, albeit even hotter.

The comparisons don’t end there. Facebook as well spurned their own lucrative buyout offer from a larger competitor, turning down a $1 billion bid from Yahoo Inc. (YHOO) in 2006. Seven years later, Facebook is worth over $110 billion. If one is going off of pure growth rates, Snapchat was right to turn down Facebook. That $3 billion now could be peanuts by the 2020s. Why sell out when one day you could be the one doing the buying?

And so Snapchat turned down the Facebook offer, and kept growing. And growing, logging 400 million “snaps” a day, and becoming the hottest rookie in the social media game.

But the thing about rookies is they tend to make rookie mistakes. On January 1, an anonymous hacker published the user names and partial phone numbers of 4.6 million Snapchat users. The kicker is, Snapchat knew there was a security problem, but chose to ignore it.

The publication of only partial phone numbers was wholly deliberate: a partial phone number being of little use, the hackers were merely proving a point. When it comes to protecting user privacy, Snapchat does not have their act together.

Granted, even the big players in social media play a little fast and loose with user data. Facebook has been accused of using private message user data to increase the effectiveness of their lucrative targeted advertising. Likewise, in September LinkedIn Corporation (LNKD) was sued for allegedly mining user data for profit.

But Facebook, as to this point, has never had a privacy snafu of the magnitude. Even LinkedIn’s slip-up that saw the publication of millions of user’s passwords didn’t shake out too bad for them. But Snapchat’s whole appeal is its anonymity and ethereal nature. Teenagers flocked to Snapchat because unlike Facebook, it doesn’t leave a trace or a record.

The only thing kept on record (supposedly) are the usernames and phone numbers – and Snapchat couldn’t even protect those. Users tend to be comfortable with a bit of privacy invasion, but when literally the entire system is compromised, it doesn’t bode well for your future.

This is all skirting around the nature of those 400 million daily snaps. What exactly do they contain, and how scared are users that they could be exposed by an unscrupulous hacker? As to the contents, that’s anyone’s guess. But certainly at least a large amount of pictures of… um, comprimising content.

Snapchat CEO Evan Spiegel admitted that when he was demoing Snapchat on the Santa Monica Pier, people immediately assumed the app was for sexting, or sending naked pictures to another person. While it is quite a stretch of the imagination to assume that all 400 million snaps are dirty, it’s not too farfetched to assume a healthy amount of snaps users assume will stay private. Perhaps on the Snapchat servers, somewhere, but certainly not in the hands of hackers.

At this vital point in their growth cycle, Snapchat can’t afford to lose user’s trust. They made a big gamble when they spurned Facebook to try to go toe-to-toe. At the time, it was a smarter decision than most analysts gave them credit for. This security breach, though, could be a crippling blow to Snapchat.

Certainly, LinkedIn suffered a comparable security breach. But LinkedIn also doesn’t truck in millions of nude selfies. Snapchat’s service is truly interesting, and shows a lot of promise. But so did Friendster’s, which didn't stop more nimble competitors (MySpace, then of course Facebook) from overtaking them completely.

While those snaps, dirty or otherwise, remained out of hacker’s persusal for the time being, the Snapchat snafu “exposed” that this nascent big league company just made a crippling – and possible fatal – amateur mistake.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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