Friday Feb 21, 2014

Why Facebook Buys Things Like WhatsApp

In 2009, some guy named Brian Acton was rejected for a job at Facebook.  In 2014, that same guy is worth at least $3 billion because Facebook bought his and co-founder Jan Koum’s 5-year-old startup, WhatsApp, for $19 billion.

Many were stunned by Facebook’s purchase of Instagram in April, 2012 for $1 billion. How could it possibly be worth it? Those same jaws have now dropped through the floor, past the basement, and are tunneling deep into the ground.

Here’s what turned Mark Zuckerberg’s head when he looked at WhatsApp:

  • 450 million users
  • That number reached faster than any company in history
  • A platform adding 1 million users per day
  • 70% active daily use
  • The most popular messaging app for smartphones
  • Message volume approaching the entire global telecom SMS volume.

And here’s what Zuck wants for Facebook:

  • To truly be a mobile and apps company, as declared.
  • To keep time engaged online focused on Facebook properties.
  • To be where messaging on smartphones happens.
  • To capitalize on emerging markets.
  • To keep growing and adding, not losing, younger users.
  • To eliminate a possible rival and keep it out of competitors’ hands.
  • To have additional potential revenue models.

When you find something that gives you everything you want, and you’re Facebook, the wallet comes out.

Look at the $3 billion failed offer for Snapchat. If people are going to real-time message via something other than social nets, Facebook wants that bet hedged. Messaging results in enormous time-spent-on-platform, and Facebook wants to be that platform. It’s said their focus is on mobile and apps, spending $100 million on an analytics service to track apps and surface winners.

Where does Facebook look if it wants to keep growing? 1.23 billion monthly active users is nothing to sneeze at, but it starts to represent saturation in the developed world. That leaves emerging markets, where messaging apps are a prime motivator for even getting a smartphone. Japan’s Line, South Korea’s Kakao, WeChat…all examples of priority going to messaging. Plus, if Facebook can’t draw younger users one way, it can get the job done another way.

But is it worth it?

WhatsApp’s model is free use for year 1, then 99-cents annually. Facebook sees the user count going to at least 1 billion, so that’s $1 billion a year without ever even going to ads, which Facebook doesn’t rule out eventually doing. And users don’t mind paying, happy to avoid telecom text fees, especially for overseas contacts. Then there’s the value of keeping eyes in Facebook’s world, and keeping a tool with explosive growth out of the hands of entities like Google.

Who should be scared? Other social nets like Twitter might not need to be scared but should certainly be aware of changing messaging preferences. Telecom companies probably need cheering up most. Internet-based services overtook carriers in text volume back in 2012, a big moneymaker they’re increasingly getting squeezed to offer free.

Time will tell how Facebook’s 45th acquisition, the 4th-largest tech acquisition of the past decade and one that’s given WhatsApp a greater value than Coca-Cola Enterprises, pays off…or doesn’t.

Photo: stock.xchng


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