Why Facebook forked out $19bn for WhatsApp

Why Facebook forked out $19bn for WhatsApp

Earlier today Facebook spent $19 billion in cash and stock for smartphone messaging service WhatsApp.

B&T Magazine
Posted by B&T Magazine

That’s more money than Facebook has spent on anything else, 19 times what it paid for Instagram for example. And it suddenly makes WhatsApp worth more than a large number of the phone companies it runs on.

It’s serious mullah in anyone’s language, especially when you consider Facebook will initially keep WhatsApp in the anti-ad style founder Jan Koum is famous for with Koum writing on his blog that users can “still count on absolutely no ads interrupting your communication”.

So why has Mr Facebook made this move? Here’s three reasons why.

 

1. To reconnect with the youth audience

With more mums and dads and grand mums and dads getting on board, Facebook has widely publicised fears it is losing its cool cache and its touch with teens. Indeed its CFO David  Ebersman said as much last November “from Q2 to Q3 we did see a decrease in daily users, specifically among younger teens”.

WhatsApp gives FaceBook instant access to a new and relatively large group of youngsters who are actively messaging each other on a daily basis. According to Facebook, the service now spans 450 million monthly users, 70% of which are active daily.

With more than 1.2 billion users worldwide Facebook is the globe’s most popular social network. But if they want to retain their global domination they must get with the platforms that the kids are on.  It tried this last year with a failed $3 billion acquisition of Snapchat.  WhatsApp holds the key to this future.

 

2. To capture emerging markets

WhatsApp is more popular than Facebook in several large developing markets. According to a survey by Jana Mobile respondees in India, Brazil and Mexico are between 12 and 64 times more likely to say WhatsApp is their most used messaging service, compared to Facebook.

Big countries with many millions of users that FaceBook wants to get their hands on.

 

3. Short-term pain for long-term gain

As mentioned Facebook won’t be getting any direct short term ROI on its $19 billion. But long term, it intends to derive incredible value from the deal.

For a start Zuckerberg is convinced WhatsApp is on a path to turn its 450m users into 1b and “the services that reach that milestone are all incredibly valuable”, he rightly observes.

Facebook got to the messenger party late, it had a choice, continually play catch up or purchase the leader, and it’s chosen the latter.

And the big reason why is not what WhatsApp is, but what it will become for Facebook, a defence against anyone else stealing a march to dominate the messaging platform where billions of people will live to access each other and various forms of content, news, games and the like. See KaKaoTalk in South Korea or Line in Japan for dominant messaging players in Asian markets today.

Ultimately, services like this could be a great place to serve ads, if not now then perhaps down the track, just don’t go telling Jan Koum this!

Put simply Facebook intends to dominate the global Messenger space and in doing so look to ensure its future social domination with the WhatsApp purchase.

M&C Saatchi Mobile APAC MD Chris Steedman