What Makes Facebook-WhatsApp A Win-win deal?

by Sohini Bagchi    Feb 20, 2014


Facebook was looking for a way to win the market for messaging and also lure younger generation, an area where it was losing out. Looks like both its ambition will now be fulfilled. The social networking giant has just announced its acquisition of the fast-growing mobile-messaging startup WhatsApp for $19 billion in cash and stock. The purchase would be the biggest Internet deal since Time Warner’s $124 has promised billion merger with AOL in 2001, according to data compiled by Bloomberg. Experts believe while Facebook will gain all the 450 million users of WhatsApp, the latter will continue to operate independently within Facebook, keeping its brand and service alive and make Jan Koum, WhatsApp Chief one of the most sought-after billionaires in the world.

Facebook wins in messaging

Facebook co-founder and CEO Mark Zuckerberg says in his Facebook page, “Our mission is to make the world more open and connected. We do this by building services that help people share any type of content with any group of people they want. WhatsApp will help us do this by continuing to develop a service that people around the world love to use every day.”

WhatsApp’s business model, to date, is charging a dollar for a year for subscription. With a simple, uncluttered, location agnostic application for a multimedia platform, its popularity has soared leaps and bounds and according to industry experts it is likely get to a billion subscribers before end of the year globally.

Experts believe messaging apps that combine text messaging and social networking is becoming excessively popular among smartphone users. Smartphone-based messaging apps are now sweeping across North America, Asia and Europe. And Facebook has realized its indispensable utility in the mobie era. Moreover this move will help Facebook tap youngsters who were abstaining from the mainstream social networks and shifting to WhatsApp and WeChat.

“A $19 Billion valuation is a jaw-dropping deal. But by acquiring WhatsApp, Facebook got a much-needed boost to its portfolio. FB users were complaining dearly about the lack of personalized socializing and sharing, which WhatsApp clearly has been successful with,” says Vidya S. Nath,Director, Digital Media, Global Innovation Center (GIC), Frost & Sullivan. Further, with an international subscription base, WhatsApp lends an edge to FB’s network, which didn’t win brownie points with its mobile platform earlier, she notes.

According to Zuckerberg, WhatsApp will continue to operate independently within Facebook. The product roadmap will remain unchanged and the team is going to stay in Mountain View. “Over the next few years, we’re going to work hard to help WhatsApp grow and connect the whole world. We also expect that WhatsApp will add to our efforts forInternet.org, our partnership to make basic internet services affordable for everyone,” he adds.

Whatsapp in the spotlight

Apart from Facebook, which comes into news with every acquisition, the deal brings to light the fortune of another man - Jan Koum, WhatsApp founder and chief executive - who has now joined the Facebook team and is supposed to be one of the richest executives on Facebook board and on his company in a big, which already gained popularity to messaging-enthusiasts.

Acording to a Forbes report, Facebook has already minted several billionaires such as cofounders Dustin Moskovitz and Eduardo Saverin, former president Sean Parker; and most recently COO Sheryl Sandberg, because of Facebook’s rising share prices, apart from Mark Zuckerberg, whose estimated net worth is about $30 billion.

As part of the deal with WhatsApp, its CEO Koum will be richer than all of them, joining the big billionaire club.  At 37, he will join Facebook’s board once the deal closes and will continue to operate the Mountain View, Calif.-based messaging company independently of its parent, says the report.

“I’ve also known Jan for a long time, and I know that we both share the vision of making the world more open and connected,” Zuckerberg wrote on his Facebook page. “I’m particularly happy that Jan has agreed to join the Facebook board and partner with me to shape Facebook’s future as well as WhatsApp’s.”

Read: Facebook’s Deal for WhatsApp: The Chatter on Twitter

Facebook will pay $4 billion in cash and about $12 billion in stock in its single largest acquisition. Until now it paid $1 billion for photo-sharing app Instagram. The price paid for Instagram, which with just 30 million users was already considered overvalued by many observers at the time. However, Nath points out what Facebook has not bargained for, is that it could tread into unknown waters of regulation and possible action. Presently, WhatsApp discrete growth in connecting consumers on data networks has not been fully scrutinized and screened by several regulatory bodies internationally. With FB’s eye popping acquisition, this could bring WhatsApp into the spotlight.

While Zuckerberg assures that the companies together will develop great new mobile services that give people even more options for connecting, analysts believe it will be interesting to see how the two applications will be able to combine synergies in the future, as contextually they are different, yet have the potential to take networking to the next level.