Menu

Why Facebook Is Paying over $19 Billion for Messaging Service WhatsApp

WhatsApp launcher icon on ios

Facebook announced some startling news yesterday: that it is acquiring global messaging app WhatsApp for a staggering $19 billion. The deal includes $4 billion in cash, about $12 billion worth of Facebook shares and about $3 billion in vested stock units to be distributed to WhatsApp employees over four years after the deal closes.

Even if the fact that Facebook wanted to acquire WhatsApp is unsurprising, the price tag of the acquisition is beyond shocking. Facebook reportedly offered self-destructing photo messaging app Snapchat $3 billion for an acquisition, an offer that made our jaws drop at the time but seems paltry now. So why is Facebook paying WhatsApp what amounts to 35% of its cash, according to CNN Money? There are three likely reasons:

 

1. WhatsApp’s Extremely Active User Base

whatsapp active user growth chart

As highlighted in Facebook’s announcement, WhatsApp serves over 450 million users throughout the world, most of whom live outside the U.S. This is a rather large user base, yes, but what’s even more impressive is that 70% of WhatsApp are active on any given day – no other service can compete with these numbers.

In fact, WhatsApp has been growing at a speedy pace, with its current messaging volume approaching the entire global telecom SMS volume. According to Facebook, WhatsApp registers more than 1 million new users each day (see chart above). Facebook CEO and founder Mark Zuckerberg is quite impressed by these numbers. “WhatsApp is the only widely used app we’ve ever seen that has more engagement and a higher percentage of people using it daily than Facebook itself,” Zuckerberg is quoted in CNET.

With such a rapidly growing user base, WhatsApp strongly supports Facebook’s mission to connect people throughout the world. “WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” Zuckerberg said.

 

2. Advertising

If Facebook’s promise that WhatsApp’s messaging product will continue to live independently, we might see WhatsApp’s ad-free revenue model continue on. But if history repeats itself, and it’s likely that it will, some form of advertising could soon find its way into WhatsApp just as ads are currently creeping into the Instagram feed. And if you have a pessimistic view of Facebook, you might believe, as James Whatley of Ogilvy believes, that Facebook will eventually use the content of your WhatsApp conversations to serve you targeted ads. “I’ll give it a year before WhatsApp users are offered/asked/encouraged to ‘link’ with their Facebook accounts. And then you know what happens next…” Whatley writes, alluding to Instagram.

 

3. Image Sharing

Facebook’s service has always centered around photo sharing. As new services begin to surpass Facebook as the world’s most popular ways to share photos, though, Facebook has to stay ahead of the game by acquiring competitors: hence the Facebook-Instagram deal. Facebook and Instagram combined process just over 400 million photos per day, compared to WhatsApp’s 500 million daily images, according to Sarah Lacy at PandoDaily. Acquiring WhatsApp is a strategic way for Facebook to stay on top of the photo sharing game. “Facebook has become the world’s most dominant, and resilient, social network by ensuring that it ‘owns’ photos,” Lacy writes. “Today’s purchase shows they’re determined to maintain that dominance whatever the cost.”

 

A Time to Celebrate

Regardless of the reasons behind the acquisition, both Facebook and WhatsApp seem satisfied by the deal. WhatsApp co-founder and CEO Jan Koum, who will join Facebook’s board of directors, said “We’re excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.” Koum and his team reportedly celebrated the acquisition with bottles of Cristal. It’s safe to say we can expect a late start for the WhatsApp team this morning!

What do you think of the Facebook-WhatsApp deal? Is WhatsApp worth the steep price?

Featured image by Sam Azgor

   
Samson Ogola
Now, I didn't even know that, facebook was buying WhatsApp.. i have to share this
Kevin Mark Umbro
Let's see what happens...
 
X
X
Crop & Save