Facebook-WhatsApp deal: Despite no ads, the $19 bilion sum might be worth it

For Facebook, this is clearly the biggest tech deal.


It's finally happened. Facebook has managed to acquire the popular messaging app, WhatsApp. The price:$19 billion dollars only including $4 billion in cash and approximately $12 billion worth of Facebook shares. Add $3 billion in restricted stock units to WhatsApps founders to that list and you get your grand total. This is the biggest tech deal in the world to date.

 

When compared to recent tech deals and acquisitions, what the WhatsApp buy also demonstrates, is the kind of worth that social messaging has acquired in recent times. Facebook has effectively paid more for an app than what Google paid  for an entire mobile manufacturing company. ($12.5 billion for Motorola Mobility) It then sold it to Lenovo for $2.91 billion. Even Nokia, which was the world's leading mobile phone manufacturer, sold its devices and business services unit to Microsoft  for $7.2 billion.

 

In terms of sheer numbers, it's clear that a social-messaging app is much more important than actual device manufacturers. So what does Facebook plan to do with WhatsApp? For investors, the question remains as to how Facebooks plan to monetise WhatsApp.

 

 

Remember the app is free for the first year on Android and iOS and after that comes a $1 charge per year. More importantly the app has always been ad free, something to which both founders remain deeply committed. In fact, CEO and co-founder Jan Koum from the other co-founder Brian Acton, has taped a note to his desk that reads “No Ads! No Games! No Gimmicks!”  

 

The big question is whether there will be ads now that Facebook has acquired the app. According to CEO Jan Koum, not really.

 

In fact in the investor call, Facebook CEO Mark Zuckerberg said,"There are many clear ways in which we can monetise," but didn't specify on what these would be. Instead he said, "We need to concentrate on growth and we believe we can help out WhatsApp with growth. Personally I don't think ads are the right step to go for monetising messaging app." 

 

Jan Koum added that this wasn't a short term investment for mobile. "We have strong innovation system in place that helps us create a strong relationship with our customers. We are thinking of mobile in the long term and not just for the next two years. We're looking at this from how it would affect mobile in 5 to 10 years from now. Mobile in 2020, 2025," he said in the call.

 

For Facebook, the road has been pretty clear. It intends to go all out on mobile, given that smartphones are becoming ubiquitous and will continue to grow. Zuckerberg himself declared in 2012, "We are a mobile company." With the Facebook app, Instagram and now WhatsApp, Facebook can claim to occupy the three most important spaces in mobile. (Social media, photographs and social messaging). The only thing that's missing is mobile navigation.

 

As Kara Swisher points out in this piece in Re/Code, the deal has "now established a price floor for what it costs not to have a mobile operating system in a world in which having a mobile operating system counts for an awful lot these days." She adds, "But a mobile presence is a must-do in the current digital environment, and this massive acquisition makes it clear that Facebook has decided that its core strategy will be to create or buy up must-have apps that consumers demand to have on their mobile devices."

 

In short, Facebook never had its own mobile OS, (Facebook Home for Android was a failure by all means) and now it is trying to recapture that space by getting one of the biggest instant messaging services that exists in the world today.

 

However ,WhatsApp is not without competition. While it may be growing fast in India, South East Asia, Africa, United States, there's also massive competition. One of the biggest in the US is Snapchat, which is seeing nearly 400 million snaps daily and has a user base ranging from ages 13 to 23. Of course, close to 80 percent of users are in the US, and it has only 36 million users globally but there's no denying that when it comes to the younger crowd Snapchat is seeing increasing popularity.

 

Add to that you have competitors like WeChat, the app by Chinese firm TenCent, which could soon over take Facebook in terms of sheer numbers. WeChat also gained over 100 million international users outside of China within months of going international.

 

Will the Facebook-WhatsApp deal pay off in the long run? That, only time will tell. For now, it's definitely a big boost for Facebook, given that it now controls some of the biggest names in mobile app space.

 


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