With a $19 billion investment, Facebook could have purchased a Technology Manufacturer, Fashion Brand or maybe four aircraft carriers. Instead, Facebook bought WhatsApp, a bit sized startup that so far has only accumulated $60 million in funding mostly via Venture Capitalist “Sequoia Capital”. Mark Zuckerberg seems crazy, is what you might say.
But think about what exactly Facebook has bought:
About 450 million users joined WhatsApp in 5 years, with an daily active user base of almost 70%, which is about 3 times more than Facebook in 5 years and almost 10 times more than Twitter or Skype. These numbers translate into revenues and most of these users are probably on Facebook anyway. On the other hand, Digital detox a relatively new term is what Facebook is most worried about.
A new business model
Unlike Facebook and most other Internet giants, WhatsApp runs on a subscription-based revenue model, charging users $0.99 a year after the first year of use. Further, WhatsApp commits its services to no advertising and presumably no commercial exploitation of user data, which is different from Facebook’s business model. This acquisition can presumably help Facebook understand how to successfully execute on such business models.
Enhancements to the existing business model
The daily messaging volume of WhatsApp compete the SMS volume of the entire global telecom industry, and while Facebook strives to be the largest medium connecting people and their life events, daily happenings are better captured by metadata from messaging apps. This data could then enhance Facebook’s ability to pick out people’s most important relationships, which would presumably lead to better-targeted advertising.
Facebook Messenger is popular in the United States of America but not in other countries. In key markets like Pakistan, India, South Asia and South America WhatsApp is the Messenger. And this is what Facebook was looking for, the immediate real value: to become part of the global turn to mobile on ASAP basis.
These reasons for a $19 billion deal including competitive pressure from Google and other companies, the number might not look so crazy. Time will tell definitely but regardless of how this deal turns out, the loser, in our opinion, is the global telecom industry, which currently enjoys about $100 billion per year in revenues from SMS services.
Moral of the story: Create an alternative yourself before others disrupt your business model.