Facebook has just done what we were asking them to do, expanding. By acquiring Whatsapp for $19 billion, Facebook has broken several records in terms of numbers, but has also conquered another piece of mobile that it was missing. Facebook Messenger couldn’t compete with an app that was getting 1M users per day, with half a billion active people and tons of messages exchanged every day.
Whatsapp was founded in 2009, straight after one of the co-founders didn’t get a job at Facebook and since then raised $8M. The growth of this app has been really impressive and the usage is disruptive. However the key behind the success of the app is the ads free model and the fact that users don’t have to pay for downloading the app and using it for a year. What Whatsapp tried to use was a sort of freemium model, where users would have been forced to pay after a determined period.
Why did Facebook acquire Whatsapp? There are dozens of reasons that we could list, but the first one is that the Facebook’s ecosystem must grow and expand in areas where Facebook is losing. Messaging was one of those, even if Facebook Messenger was doing really good, but not as much as Whatsapp. In one single acquisition, Facebook has gained half of the Messaging market. The only huge competitor is WeChat, which is operating in the Asian market, but with the experience of the Whatsapp team and the Messenger one, Wechat can be easily destroyed.
The second main reason is that Whatsapp is part of what Facebook is aiming at, mobile. More than half of Facebook’s revenues come from mobile and that’s where Mark Zuckerberg is looking at. This is why Facebook tried to acquire Snapchat and acquired Instagram. With the advance of technology, desktops and laptops become less useful and the usage of small and smart device becomes massive.
The third reason is given by simply looking at the Whatsapp’s stats. There are currently over 450 million people using the service each month. 70% of those people are active on a given day and the service is adding more than 1 million new registered users per day. Further, the messaging volume is approaching the entire global telecom SMS volume, by making this protocol completely obsolete.
The fourth is the simple result of acquiring a company, value. Facebook is not also gaining a massive user base with outstanding stats, but has got more than 50 people who have been able to build this empire. People are those who build things and distribute them, no matter what idea you have, execution is fundamental and these people have created one of the largest private messaging system ever. Even though Facebook rejected Brian Acton, I guess they have probably checked his application twice and welcomed him on board.
Facebook turned me down. It was a great opportunity to connect with some fantastic people. Looking forward to life's next adventure.
— Brian Acton (@brianacton) August 3, 2009
It’s so easy to say that it was inevitable. What we can say about this acquisition is that it makes sense for what Facebook has been trying to do. Is 19 billion too much? Well, at the moment they look a lot of money as much as 1 billion looked for Instagram; but the capacity of Facebook to turn this system profitable as a new asset is what really counts. If the company is able to use Whatsapp as another asset that brings in another stream of revenues, the game is over and 19 billion are worth it. It’s fairly obvious that Mark Zuckerberg has got a plan, otherwise he wouldn’t have spent that much to acquire a fifty employees startup.
Is this enough for Facebook? I am not its CFO, but if the finances are right, I think this company can give another try to Snapchat in the next six months. If Facebook acquires Snapchat in 2014 for something close to $5 billion, the game is over for everyone who wants to succeed in mobile. Instagram, Snapchat, Whatsapp and Facebook are those four apps that give a sense to what using a smartphone means, if one company can “rule them all”, it will own the entire mobile social market, which obviously is the biggest slice in mobile.
I believe the acquisition was definitely what we wanted to see and Facebook is not that stupid to understand that it needs more assets. If you don’t innovate, you don’t keep growing and it doesn’t only mean that you need to create new products, but even acquiring more value. The next big question is, what app is Facebook going to turn down? Two apps, Facebook Messenger and Whatsapp, can’t co-exist, one must die in order to put the focus of both teams on a single project. I believe Facebook will quit Facebook Messenger, because it’s the one that was struggling. Further having an app whose name doesn’t start with “Facebook” makes more sense.
Whatsapp can be easily integrated in the Facebook’s ecosystem. The next step is to start making money out of it and that’s what we all expect, including investors. Facebook is trading with a market capitalization of $170 billion.