This syndicated post originally appeared at Zeus Kerravala's blog.
This week, Facebook opened its wallet and shelled out a whopping $19 billion for WhatsApp. Most people think of WhatsApp as an over-the-top messaging application, but I think the company is much more than that.
The old BlackBerry messenger app or even the Facebook messaging service are really examples of messaging services. While it’s true that WhatsApp provides that functionality, it also enables group chat and picture and video sharing. Through the app, users can share almost anything – short messages, pictures, YouTube videos, location information – and should be thought of as a rapid mobile social media platform. Share your life, even when mobile, through WhatsApp.
Facebook today is enormously popular and boasts a user population of more than a billion users, which raises the question – why did they need to shell out this kind of money for WhatsApp? I believe there’s a growing trend for the younger generation (teens and below) to bypass Facebook in favor of some of the other applications, like Vine, WeChat, SnapChat, Line and, of course, WhatsApp. I’ve heard of this group of users being referred to as “Facebook Nevers.” These types of applications have taken off like a rocket as mobile social networking continues to take off, and Facebook has been on the outside looking in. Facebook was once considered cool and edgy, and now many consider it the “establishment.” There’s a growing group of the younger population that consider it cool to NOT use Facebook.
I also believe that Facebook saw WhatsApp worthy of the hefty price tag because of the penetration that WhatsApp has in Europe and the emerging markets. Facebook has held its own in North America, but in Europe and emerging markets, WhatsApp has the lion’s share of users – about twice as many in the UK and Brazil, and three times as many in countries like Germany and Italy. So, as the old adage goes, if you can’t beat them, join them, and that’s exactly what Facebook did by shelling out a whopping amount of money.
In November of last year, Facebook did re-launch FB Messenger to be a bit more current, and it has seen increased usage. However, the majority of the reported increase of usage has been in the U.S. and Canada. Outside of North America, where one could argue mobile messaging is more important because of international roaming charges, Facebook was horribly late to the mobile messaging game and didn’t even have a product until it acquired Beluga in 2011.
Since the launch of WhatsApp in 2009, the company has been laser-focused on one thing, and that’s giving users the best mobile messaging experience that’s free of ads. Keep it clean and users will continue to use the application. The company gives away the application for the first year and then charges a $1 a year for it after that. Right now, it has about $450 million users and is tracking towards a billion. At that point, if Facebook chose to charge $2 a year, they could have $2 billion in revenue and most users probably wouldn’t even blink at the extra $1 a year.
I’ve always felt that if an acquisition moved a company into a new market, then it’s hard to pay too much. For example, if EMC had paid twice as much for VMware when it acquired it, would we think they overpaid? Obviously not.
So did Facebook overpay for WhatsApp? If the acquisition helps Facebook appeal to today’s youth and makes it a mobile messaging leader in emerging markets, then we will look back a few years from now and applaud Mark Zuckerberg for pulling the trigger on this.
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