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Facebook’s $19 Bn for WhatsApp: Crazy or Genius?

  |  February 21, 2014   |  Comments

Was the whopping $19 billion acquisition of WhatsApp a totally crazy move on Facebook’s part? Or was it genius?

It may have happened a couple of days ago now, but it's still making the headlines: Facebook’s acquisition of mobile messaging service WhatsApp for $19 billion is the largest deal ever for a venture capital-backed start-up. Some have come close, such as US West Media Group’s acquisition of Continental Cablevision - a provider of cable television and Internet services - for $11.8 billion in 1996, according to Dow Jones VentureSource, but none have quite hit such a big mark.

So was the whopping $19 billion a totally crazy move on Facebook’s part? Probably not. After all, it’s all relative. With a market valuation of $173 billion for Facebook, the WhatsApp deal can almost be likened to buying a chocolate bar – well, compared to a lot of our lives anyway.

WhatsApp has more than 450 million users and is adding more than 1 million on a daily basis. Some 70 percent of these users are active every day. Over the next couple of years, these numbers will surely grow, reaching more than 1 billion in no time. Given the way that WhatsApp works - free service for the first year and then a $0.99-per-year charge thereafter - Facebook will be making back $1 billion per year in subscription revenues. Not so bad for ROI, huh?!

Leila Thabet, managing director of social media agency We Are Social US, says, "Once again, it’s a 'if you can’t beat it, buy it' strategy for Facebook, whose acquisition of WhatsApp is clearly taking out one of their main competitors in mobile messaging. It’s also another huge signal that mobile is where Facebook’s future lays, and that it is intent on expanding its offering to stay relevant to younger users."

While it’s certainly a staggering price tag, WhatsApp looks to be a complementary fit to Facebook's current offering, adds Thabet. "Buying instant access to nearly a half-billion highly active users is a move few companies can afford, but one that Facebook needs to make to help them stake out the mobile market. It's that extremely fast-growing, mobile-device-loving user base that Facebook is looking to capitalize on here."

But is it just the access to a 1 billion-mark audience that makes this deal seem somewhat genius? Certainly not, says Nathaniel Perez, global head of social at SapientNitro. After unsuccessful attempts to capitalize on location, a few messaging faux pas, and a vague foray into TV engagement, Facebook has been failing to get a handle on immediacy and spontaneity. WhatsApp, on the other hand, is incredibly successful at it.

"That's why Facebook needs it. WhatsApp’s youthful levels of activity, combined with its massive reach, can give Facebook the data it needs to grow its now matured business. It should be fairly straightforward to link the two audiences, begin gathering an unprecedented level of data from WhatsApp activity, and feed the hungry algorithmic monsters at the heart of Facebook's machine," Perez says.

But what does all this mean for marketers?

As far as Perez is concerned, there will be no immediate implications to marketers, much like with Facebook’s purchase of Instagram. In the future, the WhatsApp acquisition and the data that it unlocks on consumer behavior will help Facebook improve the intelligence, accuracy, and price of its advertising products while helping it forge ahead in the age of digital behavior, but that will take time.

For brands, on the other hand, it will be all about creating an instant connection to consumers and being available at all times.

Anurag Wadehra, chief marketing officer of digital engagement company LivePerson, says, "It has taken a long time for brands to successfully leverage social as a means to build relationships with their customers and to understand the importance of being available to customers in their channels of choice. Brands need to move faster to keep up with rising consumer expectations. We've all just been put on notice."

All in all, the acquisition seems to be a clever move on Facebook’s part. How the rest of the story will unfold from here is something that we will all have to wait for. Will the revenue from subscriptions be enough to continue to make the purchase worthwhile? Will we see some type of ad-based monetization introduced? After all, that has been a key monetary driver for Facebook up until now, in stark contrast to the strategies of WhatsApp. Will WhatsApp stop growing? Will another leader move into the space? To be continued.

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Melanie White

Melanie White is the Editor of ClickZ, where she has worked since July 2012. White has been with Incisive Media (ClickZ's parent company) since 2009 where she was Deputy Editor/ US Editor for one of the financial risk management titles, International Custody and Fund Administration (later Custody Risk).

In addition, White worked on FX Week where she was a Senior Reporter. She has also worked and contributed to a number of other titles, including The Accountant, International Accounting Bulletin, the New York Post, Independent Magazine (UK), as well as the broadcast title Sunday Live with Adam Boulton at Sky News.

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