Facebook bought WhatsApp for an eye-opening $19bn (£11.4bn) this week- causing the stock market and analysts alike to question the social network’s confidence in its own growth. But how did Zuckerberg justify the hefty price tag that could have bought him 19 Instagrams? We look at five reasons why the deal might not be quite as crazy as it sounds…
Buying back growth after stalling in Western markets
WhatsApp is simply growing faster that Facebook. The chat app market has exploded, and WhatsApp is leading the way ahead of Snapchat, WeChat and many others. Facebook users are currently uploading 350 million new photos every day. Those numbers do not include photo uploads to Instagram, another mobile app that Facebook acquired. By contrast, WhatsApp is processing 500 million images per day. The deal shows Facebook’s intention to remain the most ‘engaged with brand in the world’, even if that means offering billions of dollars for an app that’s less than a few years old. This in turn should keep advertisers, and their revenues, flooding in. The combined Facebook, Instagram and WhatsApp audience will bring Zuckerberg close to 2 billion active users- nearly one third of the world’s population.
A defensive move- buying WhatsApp so Google and Yahoo could not
The move could also be a pragmatic way of keeping rivals such as Google and Yahoo away from the biggest growth areas. When the first reports surfaced that Facebook wanted to buy Snapchat back in 2013, several other rumours circulated that Yahoo and Google wanted to buy Snapchat. It is very likely both had similar plans for WhatsApp- so the huge price tag is not just for Facebook’s growth, but for preventing big rivals from doing the same.
Continuing its ‘mobile first’ strategy with early adopting teens
Facebook has admitted there has been a decrease in daily users, “specifically among teens”- the teen audience was a key factor in its 2012 purchase of Instagram. Teens are no longer sitting at their computers, instead choosing to download messaging apps like Snapchat and sending brief selfies to friends. Facebook needs to bring back some of the teens that abandoned its website for other services. If it can’t attract them with new in-house ‘multi-app’ strategy (such as Facebook Paper), it’ll buy popular rival apps such as WhatsApp. From this perspective, a $19bn spend to attract its next billion users while keeping its existing 1.23 billion members, including teenagers, interested could actually make sense.
Expanding where the biggest growth is- in emerging markets
WhatsApp is actually more popular than Facebook in emerging markets, with mobile users in India, Brazil, and Mexico found to be more likely to use WhatsApp than Facebook for their messaging needs, according to recent research. Now Facebook has the ability to grow and maintain a strong mobile presence outside of the US.
It not about extra eyeballs for ads- it’s about becoming the future of mainstream communication
Plenty of other such apps have sprung up, including Viber, which Rakuten, a Japanese internet giant, recently bought for $900m, and the immensely popular WeChat, which belongs to Tencent, an innovative Chinese company. But WhatsApp has lead the way for this new generation of chat apps- and telecoms companies are terrified. In 2013, the number of text messages sent in the UK fell for the first time ever. According to figures published by Deloitte in a telecom prediction survey, the number of texts sent last year fell 7bn to 145bn, while the number of instant messages sent through apps rose to 160bn. We have reached a tipping point. But the usage of mobile phones to send messages is stronger than ever- and WhatsApp signals the future. The report predicts that in 2014 the number of texts sent will fall even further to only 140bn, while the number of instant messages will increase dramatically to around 300bn. The price of the technology also means that soon mobile phone companies will stop making traditional handsets, and people will have no choice but to convert to smartphones.