Right on message Facebook buys WhatsApp for US$16bn

20 Feb 2014

Social network Facebook has acquired messaging platform WhatsApp for US$16bn (about €11.7bn) in cash and stock. In what has to be Facebook’s biggest acquisition to date, its CEO Mark Zuckerberg said WhatsApp is hurtling towards 1bn users.

In a bid to ensure relevance in a world where younger technology users are spoiled for choice in terms of different communications apps, the WhatsApp acquisition is significantly higher than the US$3bn Facebook was willing to pay for messaging app Snapchat.

WhatsApp is an alternative voice and SMS communications platform that lets users communicate for free within Wi-Fi networks.

It boasts 450m users – 70pc of whom are active every day across iOS, Android, Windows and BlackBerry devices.

Brian Acton and Jan Koum founded WhatsApp in 2009, and the company now employs 50 people and is headquartered in California.

Just days previously, Japanese internet company Rakuten acquired chat and messaging app Viber for US$900m.

The move by Facebook should send shivers down the spines of mobile operators who have long feared the motives of internet giants who are monetising off the very networks the operators have built. If there were ever any doubts Facebook and similar companies were intent on eating the traditional telecoms worlds’ lunch, those fears have now been confirmed.

On a path to connect 1bn people

“WhatsApp is on a path to connect 1bn people. The services that reach that milestone are all incredibly valuable,” said Zuckerberg.

“I’ve known Jan for a long time and I’m excited to partner with him and his team to make the world more open and connected.”

The acquisition price of about US$16bn includes US$4bn in cash and about US$12bn worth of Facebook shares.

The agreement also provides for an additional US$3bn in restricted stock units to be granted to WhatsApp’s founders and employees that will vest over four years subsequent to closing.

Jan Koum, WhatsApp co-founder and CEO, said: “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide.

“We’re excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world.”

Now a numbers game

Facebook’s acquisition of WhatsApp should come as no surprise and makes sense for both parties, although there are some key challenges ahead in terms of how Facebook develops and monetises WhatsApp going forward, according to Eden Zoller, principal analyst, Consumer Telecoms, Ovum.

“The social messaging market is growing rapidly, with messaging volumes to reach 69trn with subscribers growing to 1.8bn by the end of 2014, according to Ovum forecasts. An immediate benefit to Facebook in the WhatsApp acquisition is that it has enabled two strong social messaging players to be on the same team,” Zoller said.

“WhatsApp is a player which is strong in both mature markets, as well as emerging markets, across Asia and the Middle East, which presents a significant growth opportunity for Facebook.

“At the same time, Facebook is growing its mobile footprint with close to a billion monthly active mobile users. This makes innovation in mobile services and capabilities an imperative, either organically or by acquiring best-in-class applications like WhatsApp.

“With the acquisition, Facebook has gained access to WhatsApp’s large repository of phone numbers, which was a missing link for Facebook’s user information.

“The access to phone numbers now bridges the offline and online worlds of Facebook users. WhatsApp will also enhance Facebook’s mobile strategy and make the service grow faster and be stickier with mobile-first users. Facebook will in turn provide WhatsApp with the funds and resources it needs to develop the service and become an even stronger competitor in an increasingly over crowded messaging market,” Zoller said.

Smartphone teens image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years