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Mobile


Everyone in a room I was in today dropped their jaws in disbelief when I told them the news that Facebook had forked over $19 billion to buy the global mobile messaging service WhatsApp.

It’s most definitely a big number — and, really, jaw-dropping — for the social networking site to pay for one of the most popular communications apps around. The deal to own it includes $4 billion in cash, $12 billion worth of Facebook shares and an additional $3 billion in restricted stock units for WhatApp’s founders and employees for retention.

Translation: We have now established a price floor for what it costs not to have a mobile operating system in a world in which having a mobile operating system counts for an awful lot these days.

And that means, for all intents and purposes, Google’s Android operating system and Apple’s iOS. And not, despite various and sundry efforts, Facebook, which also has tried to create a mutated shell version of its own OS called Home. (Phone home, as it turned out, did not work as well as it did in the movie.)

But a mobile presence is a must-do in the current digital environment, and this massive acquisition makes it clear that Facebook has decided that its core strategy will be to create or buy up must-have apps that consumers demand to have on their mobile devices.

It’s a little like deciding to be Disney, said one source, owning all the good content brands. If Facebook is Disney (by the way, its COO, Sheryl Sandberg, is on the entertainment giant’s board), then Instagram is the Disney Channel (the kids love it!) and WhatsApp is ESPN (everyone loves it!).

This Facebook effort has stopped and started at the company, but insiders have been saying a lot recently that the goal is now to break out all the various functions of the whole service into big mobile apps. Hence, Messenger. And news-reader Paper. And, of course, the purchase of photo-sharing app Instagram for $1 billion, which now seems like a bargain.

Facebook also tried and failed to buy mapping app Waze, which it lost to Google, its persistent arch-nemesis in these heady times. Thus, WhatsApp, which Google did not manage to grab this time.

What’s important with WhatsApp is that it is a global messaging product that is not quite as well known in the U.S. — much like Viber, which was recently bought by Rakuten for $900 million.

And its CEO and founder Jan Koum, who will join Facebook’s board as part of the transaction, has said that it has been committed from the start to developing for every platform, versus many apps that do only iOS or just iOS and Android. WhatsApp might have fewer fancy features, but it makes for a more reliable, widespread product.

Currently, WhatsApp says that it has 450 million monthly users and that 70 percent of them are active daily, and Facebook co-founder and CEO Mark Zuckerberg said it would go to one billion. Under the deal, the WhatsApp brand will remain and the service will be run independently.

That and the blockbuster price show the leverage WhatsApp and Koum had here. But for Facebook, which has to own at least part of the mobile future, apparently no price was too high.

It’s a major bet for Zuckerberg and Facebook, and perhaps — given the stakes — not as expensive as the numbers seem.



10 comments
magnusdopus
magnusdopus

Ironic that Koum's inspiration was to build a service that shunned online advertising, only for his work to be acquired by an online advertising behemoth.

stefnagel
stefnagel

Amazon faces the same problem. Simply a different payment schedule. Amazon pays its way in cheap prices/services and lost profits.

stunningmess
stunningmess

I think it's stupid, there's a new must have app every few years. Weibo was all the rage a year ago, now people are on wechat all the time (a whatsapp competitor). I also have reservation about letting the founder sit on the board, he looks too conservative, both wechat and Line already created revenue streams by letting brands engage with users and selling stickers, whatsapp relies on good old subscription model when many of its competitors are free.

AlexHammer
AlexHammer

I read in one article that the purchase represented 9% of Facebook's stock. If accurate, I'm surprised that this is not being more discussed, as it represents a MAJOR bet by Facebook. Very major.


I don't know that this marks (pun intended) Facebook as desperate, but clearly Facebook is highly vulnerable living on the buy side in a buy versus build mobile world (as this piece by Kara also implies).


Facebook only has so much money for acquisitions, big as it is, and there are and will be a lot of valuable apps out there.


And prices, obviously are hitting the stratosphere. Marissa Mayer has wanted in as a core strategy, Google has huge pockets.


Facebook is truly vulnerable in this new world.

cole
cole

Tesla must be worth one trillion dollars!  

Doge
Doge

so they bought out a app that does SMS messaging?

LDir
LDir

I agree that this is a good defensive play to keep this asset out of the hands of competitors.  To put the price it into perspective, it looks like WhatsApp has almost double the MAU of TWTR.  TWTR's current market cap is $30b.  It would be interesting to know the rate at which WhatsApp is adding users.  

stunningmess
stunningmess

@AlexHammer  I think social is moving away from the facebook model which is a network of everyone you know. It's now split into two trends "small group sharing" like group chat on messaging app, and "anonymous/ serendipitous exchange" like snapchat and secret. I think it's a reaction to the dominance of facebook, facebook has taught people privacy matters, anonymity matters

AlexHammer
AlexHammer

@pregel  3 trillion. I trillion for Tesla and 2 trillion for Elon Musk.

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