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March 31, 2014

WhatsApp with the $16B Acquisition, Facebook?

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When mega- social media platform Facebook purchased messaging app WhatsApp in February, much was made of the price paid for the company. Depending on how you look at the numbers, WhatsApp was purchased for somewhere around $16 billion to $19 billion. Much was also made of one of the WhatsApp founder’s rags-to-riches story as well. Jan Koum went from waiting in line for food stamps as a newly arrived teenage immigrant from Ukraine to billionaire — not overnight, but the story is still pretty incredible.

Why did Facebook want, need, so badly had to have WhatsApp? Here are three reasons.

Messaging

Facebook wanted a messaging platform, and messaging volume on WhatsApp is “approaching the entire global telecom SMS volume,” according to a Facebook press release. The company had been trying to get in the game by reaching out to SnapChat, but SnapChat wasn’t selling.

“Facebook now has a messaging platform, which will allow them to compete better with — or you can even imagine, kill — Twitter,” said Vaclav Vincalek, president of Pacific Coast Information Systems, Ltd.

He believes the acquisition puts Facebook now well ahead of Twitter. “The battle is over mobile devices,” he explained. WhatsApp not only offers messaging but also groups. Users can send unlimited images, video and audio messages.

Revenue and growth

Silicon Valley business strategist Chris Maresca pointed out that with the acquisition comes millions of subscribers.

“Most people are ignoring the tremendous revenue potential with WhatsApp’s current business model,” Maresca said. “I don’t know how much they were making, but it would not surprise me if it was in the hundreds of millions. Given that, their growth rate and the 450 million existing users they have, it’s entirely possible that in the not too distant future, their revenue was going to be 400-500 million per year.”

According to the WhatsApp website, there were 100 million new users added in the four months ending in mid-February. The first year of WhatsApp is currently free, with 99 cents a year after that. Sounds like chump change, but it adds up.

Users and user data

As Vincalek points out, WhatsApp has well over 400 million users, and not all of them are using Facebook. Now, in some respects, they are. People who are using Facebook will be able to use WhatsApp seamlessly, and most likely vice-versa. “There are more people using text messaging to carry conversations than using Twitter or Facebook. Facebook now has access to the conversations,” explained Vincalek. “It will be able to data mine the conversations and eventually monetize through (better) advertising. Twitter is still testing how to monetize the users. Facebook is now well ahead of Twitter.”

Regulatory concerns raised in recent days

Facebook hasn’t revealed much of anything about the WhatsApp user data they may now have access to or indeed plan on using, but it should be mentioned. In early March, the Electronic Privacy Information Center and the Center for Digital Democracy filed a complaint with the Federal Trade Commission regarding the acquisition. The issue, in a nutshell, is privacy. One of WhatsApp’s most attractive benefits to users was that the company wasn’t interested in mining data from its users. Facebook — not so much. So now, there’s a concern the privacy that WhatsApp users have enjoyed is now in jeopardy. According to the complaint:

[WhatsApp] Users provided detailed personal information to the company including private text to close friends. Facebook routinely makes use of user information for advertising purposes and has made clear that it intends to incorporate the data of WhatsApp users into the user profiling business model…The proposed acquisition will therefore violate WhatsApp users’ understanding of their exposure to online advertising and constitutes an unfair and deceptive trade practice, subject to investigation by the Federal Trade Commission.

While data may be a reason Facebook wanted WhatsApp, the WhatsApp founders aren’t playing along. They want users to understand WhatsApp will “remain autonomous and operate independently.” They make a promise on the WhatsApp site that …”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.”

People were shocked when Facebook paid $1 billion for Instagram, and with the acquisition of WhatsApp, the company seems poised to take over the social media world. Mark Zuckerberg, founder and CEO of Facebook, said it best in the press release announcing the sale: “WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable.”


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Kristin Marino writes about social media, SEO and education technology. She contributes to several websites.

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