Why Disappearing 'Snapchat' Apps Are Here to Stay

Another big name out of Silicon Valley is looking to enter the world of the elusive disappearing messaging app, further underscoring the resiliency of the niche market dominated by Snapchat.

Facebook (NASDAQ:FB) is secretly developing an ephemeral messaging app known internally as Slingshot, according to the Financial Times. If launched, it would be Facebook’s second attempt to compete with Snapchat.

News of the reported app comes a week after Yahoo (NASDAQ:YHOO) bought Blink, an app that allows users to send photos and messages that disappear, and as entrepreneur Mark Cuban undertakes a big media push for his ephemeral app, Cyber Dust.

“This is definitely a hot space,” said Amish Shah, managing partner of Sierra Maya Ventures, the 12-month-old angel that invested in drone startup Skycatch.

While Yahoo’s buy was mostly for the talent (it plans to shut down the service), don't expect the market for disappearing chat services to fade anytime soon.

“Everybody and their brother is convinced they need that next-in-messaging to remain relevant,” said Rob Enderle, a tech analyst and principle at the Enderle Group.  “Each is using this as a potential competitive advantage.”

Facebook has been chasing the idea for at least a year. It paid $19 billion to buy mobile messaging app WhatsApp earlier this year, and offered a reported $3 billion for Snapchat last year after its rival app, Poke, failed to gain traction.

While Facebook pulled Poke from the App Store last month, it could launch Slingshot, which allows user to send short video messages, later this month, according to the Financial Times. Of course, there is no assurance it will move forward with the project,and Menlo Park, Calif.-based Facebook declined to comment.

What seems to be attractive is the large user base and level of engagement of messaging apps.

Mark Zuckerberg specifically cited WhatsApp's user base -- on the fast track for a billion users  -- for the $19 billion price tag, the largest-ever of a venture capital-backed startup.

“All these guys have lots of money and are facing limits to their market growth,” said Roger Kay, president of Endpoint Technologies Associates. “If this looks like a promising area, they want in.”

Making Money

Kay says Snapchat’s technology is relatively easy to replicate, and thus an attractive target of copycats. However, the ultimate test will be how these apps make money.

“As an investor, it’s cool to have millions of users, the challenge is figuring out how to monetize,” Shah said.

At this early stage it’s a race to get in early and build as big a user base as possible. Figuring out how to make money – and how to utilize that big base of engaged users – is on the backburner, for now.

“It’s a very new space – they’re all trying to get in and do [what Snapchat does] with a twist,” Shah said.

But when the time is right, Kay says there are a number of potential ways to drive revenue growth. Some apps can take a page from the subscription model of WhatsApp, which offers the service for free for a year before introducing an annual fee of 99 cents.

Some might offer premium packages to larger enterprises attracted to the confidentiality offered by of these ephemeral apps, while others might sell digital ad real estate to brands.

“When you start seeing eight figures [of user growth] within a few days of launch, that’s like every company’s dream,” Kay said. “You just figure out monetization later.”