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Yesterday Mark Zuckerberg’s Facebook announced it has agreed to acquire messaging start-up WhatsApp for the enormous sum of US$19 billion. Admittedly only US$4 billion is to be paid in cash and the rest in Facebook’s own shares. An additional US$3 billion of Facebook restricted stock units are being issued as well vested over four years.
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WhatsApp has 450 million users around the world, particularly outside the US, and has had many Facebook users beginning to turn to it as an alternative to the 1.2 billion visitor annually site “their parents now use”.
Facebook has thus now become the new establishment and is rapidly evolving its strategies to adapt and continue to grow. The cruelest comment could be they are simply buying up their competitors; more deeply though they are starting to put forward the idea of Facebook being a portfolio of social related apps beyond just Facebook itself and WhatsApp certainly fits into that kind of schemata.
WhatsApp founders, Ukrainian born Jan Koum who came to the US with his mother as a child to escape an anti semitic environment there, and Brian Acton whom he met when they later worked together at Yahoo for a while, insist that What’sApp will continue to run completely autonomously and independently now it is under Facebook ownership. They also insist WhatsApp will continue to avoid carrying advertising which has been a feature of the startup since its inception.
The secret of WhatsApp’s success lies in the greed of mobile carriers, particularly in emerging markets, who sometimes charge large amounts for conventional short messaging services, or SMS as they are known.
Early on in the game Blackberry started to offer free text messaging around the world to its subscribers using BBM, and later Apple offered a similar free service to iPhone users called iMessage, utilizing the data segment of its signals to send messages and avoid the mobile carriers meters. iMessage though so far only works between iPhone users however and not to everybody.
WhatsApp found a way to do this universally, and across platforms, and still stay within the data portion of the signal thus avoiding carrier charges entirely for the most part. Once it finally took off it went viral as an alternative to the big guys and is now used all over the world, including by being able to follow Apple’s lead and send images and other files as well. Skype and Viber all operate in the same space as well, Skype now owned by Microsoft and Viber just acquired by a Japanese company for much less, for “only” US$900 million.
Accordingly Facebook felt the need to add WhatsApp to their portfolio. They will leave it alone initially as they did with Instagram which they bought in 2012 for Us$1 billion, though even there Instagram today does carry adveritising.
Even so, there are clearly some nervous types on Wall Street who feel we may be close to bubble territory here, and who ask what is the point of Facebook’s own high P/E ratio if they have to buy their future growth instead of continuing to create it internally? Maybe that is double counting, somehow, could be the slightly uneasy feeling there. Still with a market capitalization of over US$170 billion currently Facebook has time to get it right.
