By now, ClickZ readers are well aware of Facebook’s acquisition of mobile messaging app WhatsApp. At $19 billion in cash and stock, it’s touted to be the fourth-largest acquisition of the past decade.
If that’s the case, what was Facebook’s motivation for buying the company?
Simply, if you can’t beat ’em, eat ’em!
Presumably, that’s the reason Facebook purchased Instagram in 2012 for $1 billion and why it attempted to buy Snapchat last year for $3 billion.
Certainly, profit couldn’t be the motive since neither Instagram nor Snapchat is making money, and it’s no different where WhatsApp is concerned. The company even brags about the fact that it doesn’t sell ads.
No, the real reason for the acquisition is that all of the above services are growing in popularity and, as such, pose a threat to Facebook’s dominance. Any site that moves people away from dependence on Facebook also chips away at its ability to sell ads, which makes up most of the company’s revenue.
That begs the question of why the social networking giant paid such an enormous amount for WhatsApp compared to the relatively paltry sums offered to the others.
In his article “Why Facebook Had to Have WhatsApp,” BuzzFeed reporter John Herman nails it. “WhatsApp is – or was – arguably the largest known threat to Facebook. It was one of the only services that could plausibly claim to be cannibalizing Facebook on a large scale, and one of a small few that pose to it an existential threat,” says Herman.
Herman’s pronouncement is justified because WhatsApp currently has 450 million users – most of who are outside the U.S. – which is approximately half the number using Facebook.
Of greater significance, Facebook’s shift away from a focus on desktop to position itself as a mobile company makes Instagram, Snapchat, and WhatsApp direct competitors. When you consider that more than half of Facebook’s ad revenue is derived from mobile, that takes on special significance.
Now that Facebook is a public company, not only must it please users, but its stockholders, as well. As such, it’s in the company’s best interest to acquire competitors rather than cede users to them.
That presents yet another problem. Like Whack-a-Mole, mobile messaging apps keep popping up everywhere, which means Facebook will likely be forced to fend off other potential competitors in the future. Snapchat notwithstanding, for these start-ups, it is a game to see who can be acquired first.
The question has often been asked of whether any site can be a Facebook killer. Now that the company has reached its 10-year anniversary, the likelihood of that occurring is greater than ever.
Even with all its wealth, Facebook’s pockets aren’t deep enough to buy every competitor. Therefore, its survival as the dominant social network depends on its ability to adapt to fickle consumer preferences – but the older Facebook gets the more difficult that becomes.
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