Why Facebook Acquired WhatsApp

I woke up to a news alert from both BBC and New York Times about the announced acquisition of WhatsApp by Facebook.

Why I devoted time to write about this is simple: I use both applications on a daily basis. Although this is certainly not Facebook’s first foray into mergers and acquisitions, the sheer magnitude and amount involved is enough to catch someone’s attention. There may be no clear computation on how the amount arrived at US$19 billion (US$12 billion in stock + US$4 billion in cash + US$3 billion in restricted stock units for founders Jan Koum and Brian Acton and 32 employees) — that’s for Facebook and industry valuators to figure out — but there are attractive reasons why Facebook snapped up WhatsApp.

1. Exponential Growth.
If Facebook had 1.23 billion users in 2013, it took the company ten years to accomplish such sign up numbers. WhatsApp may have yet to reach that number but it was clearly the leader in terms of gathering most number of users, among other big name social media platforms, in its first four years of operation.

whatsapp_growth

At one million sign ups PER DAY, it’s on its way to reach Facebook’s level sometime next year, or even later this year if registrations spike. While the pricing model is very simple — everyone is free to use WhatsApp in the first year and US$0.99 a year after that — it’s the sheer volume of WhatsApp users Facebook is more interested in.

2. 450 Million Active Users.
‘Active’ is the main word. Every signup turns into an engaged user. And why not? After years of getting charged by telecom companies for SMS, sending messages everywhere in the world via WhatsApp is virtually free. This whole package includes text, image and voice messages. Facebook doesn’t have to introduce ads at the moment, the same way it did for Instagram, another recent acquisition. But 450 million active users is just tantalizingly an attractive number to ignore, especially for Facebook’s already colossal user base.

3. Lean, Reliable Service.
While competitors have resorted into placement of ads or creating a market for stickers, Whatsapp maintained the simple, ultra-fast loading of message. Just like Google.com in the early days that served only its sole purpose: churn out search results and let visitors leave as soon as possible, WhatsApp operates with such simplicity that it only has 32 engineers serving the 450 million active users.

whatsapp_motto

No ads, No games, No gimmicks. Such contrarian approach is strikingly similar to Google’s apparent decision to take a direction different from its contemporaries which sold banner ads on homepages. No ads and games meant no extra overhead downloaded and no distractions. Of course, not all are happy with WhatsApp’s current make up, but when Facebook is pleased, it’s a good bet for a generous cash windfall.

4. Industry Direction.
This is a season for shopping instant messenger services. Rakuten acquired Viber on Valentines Day for US$900 million. “Companies need to embrace the mobile mindshift and engage consumers where they are in any moment,” said Forrester Analyst Julie Ask when commenting on the Viber purchase. Meanwhile, Amazon is testing out Amazon SNS, a push messaging service that allows advertisers and vendors to send messages on “mobile devices such as iPhone, iPad, Android, Kindle Fire, and internet connected smart devices.” Clearly, the mobile publicity that’s been mentioned many years ago is now really living its hype.

5. Zero Marketing Cost.
If Facebook needed to advertise on Yahoo! to gain more signups, WhatsApp didn’t have to do so. That’s because communication is a two-way thing. If you use WhatsApp, you’d likely tell someone you’re connecting with to install it too. This means no extra cost is needed to promote WhatsApp. Unless Facebook insists.

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