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Facebook buys WhatsApp

2014
21
FEB

Facebooks $19bn deal for WhatsApp an expensive dose of common sense..

In a deal reportedly completed over chocolate-covered strawberries, Facebook and WhatsApp chief executives Mark Zuckerberg and Jan Koum decided on 9 February that the time was right for a merger. The deal is worth $19bn, and to say this figure raised some eyebrows is quite the understatement.

It is very easy to take the headline figure of $19bn and extrapolate it into hazy figures valuing each of the 55 WhatsApp staffers at $345m or each active WhatsApp user at $42, but that isn't how this business works.

That is not to say they did not overpay in the short term; but in these technological times where user data is key, it is a long-term decision which is not too hard to dissect.


It's not just about the price of buying WhatsApp. It's about the cost of not buying WhatsApp.

WhatsApp has already made significant inroads in regions Facebook is yet to truly exploit, according to Ovum consumer telecoms analyst Eden Zoller.

"WhatsApp is a player which is strong in both mature markets as well as emerging markets across Asia and the Middle East, which present a significant growth opportunity for Facebook," she explained.

Furthermore, she added, Facebook will also gain access to a not insignificant amount of user phone numbers, what she calls the "missing link" in Facebook's user information stocks. Data is power, and in excess of 450 million phone numbers will probably come in handy.

Professor of global innovation at Cass Business School Ajay Bhalla added: "For Facebook this is clearly a coup. The company will use it to develop a new experience within its mobile platform.

"Not only will Facebook get access to WhatsApp's impressive user base and intellectual assets, it will also get access to WhatsApp's expertise in monetising services in emerging markets."

Facebook had been in danger of being superseded as the primary destination for valuable Western teens in recent months, with market analyst rhetoric persistently pointing towards tapering user growth in this age group, while noting the seemingly irrepressible rise of 'cooler' platforms such as WhatsApp and Snapchat.

Martin Garner, senior vice president at CCS Insight, believes the move reflects this view of a changing marketplace. "Facebook is rightly conscious that it could be quickly displaced by the 'next big thing'. But an even greater concern is that 'the next big thing' will be acquired by a competitor," he said.

"Facebook is pursuing a strategy where it acquires companies and gives them the benefit of its expertise, resource, network and scale to continue to operate independently."


WhatsApp

But what of WhatsApp? This is a platform which has literally got everybody talking... to each other. Now in the big league, it rivals Apple's iMessage, Microsoft's Skype, BlackBerry Messenger and even its new step brother Facebook Messenger.

It is safe to assume that part of Facebook's perceived overpaying for WhatsApp is what convinced Jan Koum to do the deal; there is a certain point where no amount of self-confidence can override what is clearly a deal of a lifetime.

But in the end we find a confusing mish-mash of services owned by one company. Facebook now has Messenger and WhatsApp, two platforms it says it won't be combining. Surely this policy cannot last forever, and one product will eventually have to cannibalise the other.

But Facebook will have to be careful; WhatsApp was cool in part precisely because it isn't Facebook, so turning it back into Facebook is likely to provoke a bit of ire from fickle consumers.

In every sense of the word, this is a huge deal, and it will take some time before it becomes clear whether the fruit - chocolate strawberries or otherwise - of Facebook's labour will truly pay off.

Article written by Michael Passingham on v3.co.uk

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