Facebook: WhatsApp is golden

2014-02-20 09:00
Facebook intends to use messenger application WhatsApp to grow its user base. (Duncan Alfreds, News24)

Facebook intends to use messenger application WhatsApp to grow its user base. (Duncan Alfreds, News24)

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New York - Facebook is placing a $19bn bet on reaching its next billion mobile users with the acquisition of WhatsApp, a popular messaging service that lets people send texts, photos and videos on their smartphones.

Facebook CEO Mark Zuckerberg is confident the app will reach a billion users. Services that reach that milestone, Zuckerberg said in a statement, "are all incredibly valuable".

The deal is by far Facebook's largest and bigger than any that Google, Microsoft or Apple have ever done. But it is likely to raise worries that Facebook and other technology companies are starting to become overzealous in their pursuit of promising new products and services, said Anthony Michael Sabino, a St John's University business professor.

"I expect there to be a lot of scepticism about this deal. People are going to look at this and say, 'Uh-oh, did they pay way too much for this?'" Sabino said.

The world's biggest social networking company is taking the long view. WhatsApp has 450 million monthly users, 70% of whom use it every day. The service is adding a million new users a day. There are 19 billion messages sent and 34 billion received via WhatsApp each day, in addition to 600 million photos and 100 million video messages.

Big deals

Facebook said Wednesday that it's paying $12bn in stock and $4bn in cash for WhatsApp. In addition, the app's founders and employees - 55 in all - will be granted restricted stock worth $3bn that will vest over four years after the deal closes.

The transaction translates to roughly 11% of Facebook's market value. In comparison, Google's biggest deal was its $12.5bn purchase of Motorola Mobility, while Microsoft's largest was Skype at $8.5bn.
 
Facebook's $1bn Instagram deal seems like a bargain in retrospect. Capturing mobile users - and young people - was a big reason behind Facebook's 2012 purchase of the photo-sharing app. Even its reported $3bn offer for disappearing-message app Snapchat pales in comparison. Snapchat rejected the bid.

The size of the deal stunned Gartner analyst Brian Blau. "I am not surprised they went after WhatsApp, but the amount is staggering," he said.

Facebook likely prizes WhatsApp for its audience of teenagers and young adults who are increasingly using the service to engage in online conversations outside of Facebook, which has evolved into a more mainstream hangout inhabited by their parents, grandparents and even their bosses at work.

WhatsApp also has a broad global audience.

Zuckerberg said the service "doesn't get as much attention in the US as it deserves because its community started off growing in Europe, India and Latin America".

Growth

"But WhatsApp is a very important and valuable worldwide communication network. In fact, WhatsApp is the only widely used app we've ever seen that has more engagement and a higher percent of people using it daily than Facebook itself," Zuckerberg added.

Ten-year-old Facebook is looking to attract its next billion users while keeping its existing 1.23 billion members, including teenagers, interested.

The company is developing a "multi-app" strategy, creating its own applications that exist outside of Facebook and acquiring others. It released a news reader app called Paper earlier this month, and has its own messaging app called Facebook Messenger.

Facebook said it is keeping WhatsApp as a separate service, just as it did with Instagram.

WhatsApp, a messaging service for smartphones, lets users chat with their phone contacts, both one-on-one and in groups. The service allows people to send texts, photos, videos and voice recordings over the internet.

It also lets users communicate with people overseas without incurring charges for pricey international texts and phone calls. It's free to use for the first year and costs $1 per year after that. It has no ads.

- AP

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