Facebook just stunned the tech world by announcing that it would buy messaging service WhatsApp for a whopping $16 billion.
And while some may wonder about the price tag, for Facebook it may well be worth every penny. The reason? Young users.
The declining number of pre-teen and teenage users who were using the social media site has been perceived as a problem for Facebook for quite some time now. When Facebook CFO David Ebersman announced a decline in the daily usage from its teenage market segment in October 2013, investors showed flailing confidence in the company which resulted in the volatile share prices.
Investor confidence hinges on the revenue potential from all demographic segments; however, the youthful consumer spending is a large source of earnings for any online platform.
Promoting products such as fashion, technology and other lifestyle brands on its platform builds Facebook's credibility for advertisers. The youth consumer spending market makes up more than $200 billion in the United States alone and is of significant interest to investors and companies everywhere.
According to Gartner analyst Brian Blau the acquisition is "a bet on the future for Facebook". In stark contrast to Facebook, the youth engagement on WhatsApp has only been growing, because as far as teens are concerned, messaging apps are far cooler than Facebook which is being overrun by the old, older and oldest. And that is just not cool.
According to the Guardian:
Part of the reason is that gradual encroachment of the grey-haired ones on Facebook. Another is what messaging apps have to offer: private chatting with people you are friends with in real life. Instead of passively stalking people you barely know on Facebook, messaging apps promote dynamic real-time chatting with different groups of real-life friends, real life because to connect with them on these apps you will typically already have their mobile number.
According to WhatsApp's own figures, it has over 450 million people using the service each month and they are growing. According to Facebook, 70 percent of these people are active on the app on a given day, which shows very high user engagement.
The acquisition also makes sense, given Facebook's strong focus on mobile. CEO Mark Zuckerberg was famously quoted as saying that Facebook was a 'mobile company now'. And an inside report which was accessed by TechCrunch, shows the break up of how Facebook is growing on mobile in certain countries
The report said, “the numbers show that Facebook is successfully making the shift to mobile in Europe and parts of the Middle East, with all the listed countries seeing well over 50% of total users accessing from mobile and that Facebook’s small-screen interface is especially popular in Sweden where over 81% of users are on mobile.”
And of course there is also the data aspect.
According to Blau, "They know they have to expand their business lines. WhatsApp is in the business of collecting people's conversations, so Facebook is going to get some great data."
In that sense, the acquisition makes sense for 10-year-old Facebook as it looks to attract its next billion users while keeping its existing 1.23 billion members, including teenagers, interested. The company has said it will develop a "multi-app" strategy, creating its own applications that exist outside of Facebook and acquiring others.
"Facebook seems to be in acknowledgement that people are using a lot of different apps to communicate," said eMarketer analyst Debra Aho Williamson. "In order to continue to reach audiences, younger in particular, it needs to have a broader strategy...not put all its eggs in one basket."
With inputs from Associated Press
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Updated Date: Feb 20, 2014 09:08:48 IST