What could you buy with $19 billion? Well, according to CNN, 12.6 billion hot dogs; 4 World Trade Centres; 198 million years’ worth of Netflix; or relief for the Philippines 3 times over. Few companies can afford to splash that amount of cash, however Facebook can count themselves in that small bracket. Instead of keeping Mark Zuckerberg in hot dogs for the next few millennia though, Facebook decided to spend it on WhatsApp. The $19 billion price tag shocked many, however there must be some reason that Facebook valued the app so highly.
WhatsApp is a messaging app which replaces conventional SMS messaging by allowing users to send text, images, video and audio recordings for free, via the internet. The app itself is free for one year, after that a 69p yearly subscription fee is required.
The app links your phone number and contacts, easily connecting you with all of your friends also using it. While free online messaging is nothing new, WhatsApp provides a very streamlined experience and is cross OS. The big selling point for the app though is the fact that it is ad-free; a feature that the company prides itself on.
Where Did It Come From?
WhatsApp is currently the most popular 3rd party messaging app in the world, with over 450 million users worldwide. While not as popular as Facebook messenger in the US, WhatsApp leads the way in Europe, South America and Australia. It was created in 2009 by young entrepreneur Jan Koum, who initially struggled to finance the project. The app is now worth $4 billion in cash, with the remainder made up in Facebook shares and restricted stock units. Not too long ago the company was valued at $1.5 billion, so the question remains, why did Facebook pay so much?
Why Do Facebook Want It?
Speaking at the Mobile World Congress on the 24th February, Zuckerberg said
[WhatsApp] is a company by itself and what it's going to be worth, and then there is the strategic value. ... I think that by itself it's worth more than $19 bn.
Social Media Today highlight the two schools of thought behind the deal. The first is that Facebook are simply buying out their competition. They realise Facebook messenger cannot compete with WhatsApp and considering its growth in markets they wish to reach, they can simply absorb the company and subsequently their customers. If you take a more paranoid slant on this argument, it might appear that Facebook are looking to gain access to the millions of phone numbers and contact lists linked to WhatsApp too. Or even introduce adverts in order to monetise it further.
The other point of view is that they aren’t looking to eradicate their competitors at all - they are trying, of course, eventually to make profit but to use their market presence to take them to the next level. If you take Instagram as an example, Facebook haven’t make any radical changes to it at all. The infrastructure of the company was there, much like WhatsApp, Facebook just took over the reins.
Facebook A Mickey Mouse Company?
Kara Swisher writing for Re/code says that Facebook are effectively like Disney, “owning all the good content brands”. Disney have bought numerous big companies such as ESPN, ABC and Marvel. While this isn’t a secret, I certainly didn’t realise they were owned by Disney. They have all kept their identity, and it appears Facebook will do the same with their assets. Kara also says that the high cost can be attributed to the fact Facebook don’t have a mobile operating system, and need to find some way into the mobile market without starting from the ground up.
It isn’t clear what Facebook’s plans for WhatsApp are just yet, although the first development to be announced is voice calling which will appear on the app over the next few months. It hasn’t been a smooth transition so far though, as there were four hours of downtime on 22nd February leading to lots of users venting their frustrations.
Ultimately, it appears that Mark Zuckerberg sees WhatsApp as a crucial jigsaw piece in the puzzle of how to connect the world. Internet.org is an idea that is being worked on in order to bring internet connectivity to every single person in the world. Speaking at the Mobile World Conference he said:
If they did this as an independent company they would have had to focus on how to build the company out, to scale it, but now they can focus on how to connect the one to two billion people.
So it appears that WhatsApp will remain separate to Facebook to a point, but have access to their resources. If Zuckerberg makes good progress with his internet.org vision though, expect him to have access to WhatsApp’s (two billion) resources.
Sources: WhatsApp? 10 Other Things Facebook Could Have Bought With $19 Billion | CNN Facebook Acquires WhatsApp: Buy The Competition or Diversify? | Social Media Today WhatsApp will add voice calls in Q2 2014 after passing 465 million monthly active users | The Next Web WhatsApp founder apologizes for 'our longest and biggest outage in years' | The Verge WhatsApp Is Actually Worth More Than $19B, Says Facebook’s Zuckerberg | TechCrunch