Numbers
Let’s start off easy with some numbers, shall we?
- 450 millions
- 70%
- 1 million
- 80%
- $40
- 55 people
- $19 billion
- 34 billion and 19 billions
- 600 million
What are these numbers for? Try guessing, the answers are at the end of the post.
7 Reasons Facebook Made the Right Call
1. Facebook messaging app is terrible
I don’t think anybody, not even the most die hard Facebook fan, would define the Facebook messaging system as “great”. It is of course one of the most popular messaging apps out there, but only because it is still Facebook. However, it fails to provide a reliable platform, not allowing easy file sharing on mobile and clogging users with useless (although extremely cute) stickers. And we shall not mention chatheads. Let’s not even go there.
2. Growth
With Facebook’s growth slowing down, and the supposed “teen escape” from the website, Facebook needs to enter a new space where potential growth is still great. With 1 million new users every 24 hours (although this number seems a bit large to me), WhatsApp appears to be the right choice.
3. Use its cash
With seemingly scarce opportunities to invest its cash into its own business operations, Facebook has been looking into acquiring new companies. This is not the first big profile acquisition Facebook has made. A little less than a year and a half ago, it bought Instagram. Facebook’s deals comes hot on the heels of another similar acquisition by Japanese online retailer Rakuten (楽天), who bought the IM company Viber for 900 million dollars a week ago.
4. Information
Who would say no to 450 million phone numbers? Not certainly Facebook. In the age of the Web, where the most valuable good a company can obtain is information, the more users are willing to volunteer their data, the better it is. And a messaging app, where most communication is personal, can be as a goldmine for Facebook. The company could learn at what time we are most active, whether we tend to send pictures or video messages, and how often we check our mobile (although they cannot, thank God, see your messages: those are deleted as soon as the server sends them out to the recipient. And we have to thank WhatsApp founder Jan Koum for that). I expect WhatsApp terms of service to change very soon. And as usual, nobody will read them.
5. Protection
Facebook is scared of competitors, that is the reason why it bought Instagram, and it is also part of the reason why it decided to buy WhatsApp. Absorbing a powerful and fast growing competitor lets Facebook not only eliminate a threat but benefit from its former rival’s growth and user-base.
6. Portfolio of Apps
Ever heard of Paper? What about Poke? But surely you have heard of Instagram and Messenger, right? Breaking itself up, Facebook tries to conquer an entire home page on our smartphones, a decision I personally find extremely annoying, but that apparently some people like. With Facebook Home, the (obnoxious) Android launcher that pesters you with badly cropped friends’ pictures, and Chatheads, which appear and disappear at will (and sometimes refuse to render properly, at least on my phone) Facebook is truly trying hard to own your mobile device. Another app (and one that actually works for once) can be a great addition.
7. Ads (eventually)
They have sworn they will not add ads to the app, but I suspect that they will in the future. I still hope they won’t though. Including ads will considerably enlarge their mobile ad revenue, which reached 53% of the company’s total advertising income.
7 Reasons Facebook Made a Terrible Mistake
1. Price per User
Have they paid too much? Are WhatsApp users worth $40 each? Considering each of them pays $1 a year to use the service and there are no ads in the app? Some people have pointed out that Facebook users are valued (based on market cap) at $140, which is considerably more. However, Facebook is able to extract more than $7 of revenue out of each of them, that is double what WhatsApp is able to gain.
2. Size
With just 55 employees, but a valuation of 19 billion dollars, the company will come to represent 11% ca. of Facebook’s market value. Which is undoubtedly a lot. And considering this deal will be settle with stock, we can expect a non indifferent dilution effect, about 8% (considering that part of the deal will be settled in cash). We are not considering the increase in revenue this acquisition will bring to Facebook, but since WhatsApp doesn’t reveal its figures, we will have to wait and see.
3. No integration (at least not anytime soon)
They are going to operate as two separate companies, so no benefit of having a better messaging service to tie into Facebook (I don’t know how you feel, but that would make my life so much easier). Don’t expect to see a better Facebook chat anytime soon. Stickers and Chatheads are apparently here to stay.
4. Monetization
Cannot include ads, cannot increase subscription price, cannot diminish length of free trial. How are they going to make money off of this thing? Don’t get me wrong, I am perfectly happy with not having to pay for anything, and I am no Facebook shareholder (although I sometimes really want to be). This does trouble me though. Time will tell, I guess.
5. most users are already on Facebook
Of those “new” 450 million users, how many of them are already Facebook aficionados? I’d say most of them, they might not be active users, but judging from my (limited)(non indicative) sample, most smartphone users have both a blue F and a green phone icon on their home screen.
6. no US
Facebook is not getting US growth in this deal. Snapchat has taken over WhatsApp as the most used messaging service, and since we all know how social networks function (they only work is everybody is on there), there is little chance of Americans switching back to WhatsApp. However, I should point out that the most popular IM app in the US is still Facebook.
7. ?
I couldn’t think of a seventh reason, maybe you can?
Conclusion
Trying to pin a number or value a company like WhatsApp, with massive growth and massive potential (hopefully) is always a hit and miss exercise. I personally think that overall the acquisition makes sense for Facebook, and I am looking formward to see what the social network powerhouse can do for WhatsApp going forward.
Thanks for readings this :)!
And now that you patiently waited, here are the answers:
- 450 million: active WhatsApp users
- 70%: users who check WhatsApp daily
- 1 million: new users every 24 hours
- 80%: WhatsApp market penetration in Spain and Portugal
- $40: price per WhatsApp user
- 55 people: employees at WhatsApp, 32 of which are engineers
- $19 billion: price Facebook paid for WhatsApp
- 34 billion: messages sent by WhatsApp Users
- 600 million: photos shared by WhatsApp users