Thursday, February 20, 2014

Facebook Buys WhatsApp for $19 Billion, But Why?

A couple of hours ago, Mark Zuckerberg made an announcement on Facebook saying that WhatsApp's entire team will be joining the Palo Alto outift. 
This snippet from Zuck's post stuck out for me.
WhatsApp will complement our existing chat and messaging services to provide new tools for our community. Facebook Messenger is widely used for chatting with your Facebook friends, and WhatsApp for communicating with all of your contacts and small groups of people. Since WhatsApp and Messenger serve such different and important uses, we will continue investing in both and making them each great products for everyone.
But we'll get to my interpretation of that later.
With a little over 450 million people using WhatsApp each month, and 70% of them active every single day, WhatsApp has one of the highest daily active user bases in the world. The messaging volume on WhatsApp is fast approaching the entire global telecom SMS volume. WhatsApp users share 400 million photos and 10 billion messages each day.
Yes. I said 10 billion messages.
As the graph below illustrates, WhatsApp has grown faster in a span of four years than Facebook, Gmail, Skype and Twitter - names that are much bigger than WhatsApp today.
WhatsApp has been my choice of instant messenger for the last few years, primarily because their CEO Jan Koum believes that WhatsApp was never meant to be, and will never be an app that makes money via games or advertising. In his own words, "We want to let people have a conversation."
Thank you Jan. My initial fear was that WhatsApp would seen see the odd ad become part of its network. Since I quoted Zuck earlier, it's only fair that I give Koum some time in the spotlight too.
This will give WhatsApp the flexibility to grow and expand, while giving me, Brian, and the rest of our team more time to focus on building a communications service that's as fast, affordable and personal as possible. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product.
No ads. Key takeaway.
But why did Facebook buy WhatsApp for $19Bn? I mean, they could have bought 32 Hawaiian islands, about 880 million Honda Civics, 15 NBA Franchises, Instagram 19 times over or 82.5 million bottles of Johnnie Walker Blue instead.
Because Zuck isn't as stupid as I am perhaps.
For marketers, this doesn't mean very much right now. We don't have enough information about the acquisition, and we don't know how WhatsApp is going to change in the coming months. So for now - don't start thinking about marketing strategies for WhatsApp just yet.
This does raise the question though - is WhatsApp really worth $19Bn? No one has seen WhatsApp's books as yet, but given that Twitter is currently valued at $20.45Bn with an estimated 600 million users, it's not absolutely insane (in terms of sheer corresponding numbers) to valuate WhatsApp at $16Bn. I say $16Bn because $3Bn was given to the WhatsApp's owners and employees, and wasn't part of the valuation of the company.
Many believe that Facebook just bought out a competitor. That begs the question that does it make business sense for Facebook to simply start buying out any competitors in the industry that arise? First Instagram and now WhatsApp?
The picture is a little bigger than that. While to most it would seem this is just a simple grab for one of the hottest mobile apps in the world, the reality is that Facebook sees itself as becoming a conglomerate in the future. Each company that Facebook buys (in this space) adds to the knowledge and data Facebook has access to about the ways in which people choose to communicate.
Yet, looking into how WhatsApp has made money so far, it's only by having users pay for using WhatsApp. And while it costs as little as $0.99 to use WhatsApp for a year, WhatsApp would generate $450million in revenue a year. During a call to discuss the merger with investors, Zuck said WhatsApp was on track to reach a billion users. However - the more interesting aspect of this comes into play when you think about Facebook's project.
It's Facebook's mission to provide access to two-thirds of the world that's not yet connected to the web, and that's exactly where a service like WhatsApp will boom. A billion users might actually be a low-estimate for WhatsApp in the coming years.
And think about this. In many developing countries, the primary reason why a number of people upgrade from feature phones to a smartphone is because they want access to WhatsApp. Period. They don't want to pay their carriers exorbitant fees for a single text when they can pay for internet on the whole, or even subscribe to a service that just connects to WhatsApp and pay a very tiny amount to send unlimited messages on WhatsApp.
The more you think about it, the more it makes sense that Facebook most definitely needed to buy WhatsApp, it's their stepping stone into the markets in Asia and Africa that are about to explode with smartphone usage. Smart buy Zuck, smart buy.

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