Facebook, that less-than-agile goliath, has spent a questionable and huge amount of money buying an app that, while popular, seems to be missing a serious monetizing business model.
Sound familiar? It should. Today, the social media company purchased WhatsApp, a cross-platform (that’s important) mobile messaging app, for a whopping $16 billion US ($12 billion in stock, $4 billion in cash), sending experts into a tizzy and leaving tech watchers howling. Here’s the bare bones of what you need to know about it, plus the official release: WhatsApp lets you send messages, group messages, images, video and audio on Android, Blackberry, Apple, Nokia, and Microsoft Windows devices, and its founders say it has more than 450 million active users. It generates some revenue, though not a massive amount, through a “freemium” plan announced in July: unless you’re a pre-existing iPhone user, who will get the app free for life, WhatsApp will be free to use for the first year, and 99 cents every year after that to subscribe. (That’s not that bad, considering Facebook’s revenue in North America is about $5 per user.)
The news came as a surprise, and some experts (and some among the Twitterati) admitted today to not knowing what it was, or why it was popular. One overlooked facet of WhatsApp’s value is its huge foothold in Asian markets: for smartphone-using globe-crossed families living around the world, especially in Asia, WhatsApp is an indispensable and ubiquitous tool to keep people connected, age be-damned. Age is important, too, as more and more young people are signing up for the “privacy” of the app. And travellers, too, swear by Whatsapp as a way to communicate without being slaughtered by expensive phone plans.
So what value does this have for Facebook, then? That, like so much of this surprise deal (WhatsApp said as recently as December that it would not sell), is yet to be seen, though considering its growth, it’s certainly in large part a user-base buy. Facebook has said that it will not integrate it into its platform, (it will “continue to operate independently within Facebook”), keeping Facebook Messenger intact (though one has to wonder how much the ascent of WhatsApp had to do with the development of its no-frills standalone Messenger app). But here’s an interesting thought: so much of Facebook’s revenue-generation strategy relies on target marketing and data-mining, and considering its base of young people and growing foreign markets, data-mining WhatsApp would be the equivalent of data-mining text messages. What Facebook does best is allow you to give a sense of the things that define you and who you really are, but that means there’s a lot of social media preening, a defense mechanism that goes down when you’re off social media, while calling or texting your friends in intimate and personal moments. If we’re a projected, best version of ourselves on Facebook, Twitter, Instagram, or LinkedIn, what could advertisers do with knowledge of what we’re like when we’re our actual selves? WhatsApp’s creator says users will not see any changes and that it will not integrate ads, but that doesn’t preclude under-the-hood tinkering that could provide more information for ads on the Facebook platform.
Not to mention that there’s a huge volume of messages to mine there. WhatsApp has been growing exponentially, and Andreesen Horowitz analyst Benedict Evans says it may have even overtaken SMS. And that makes sense, frankly, because of the proliferation of unlimited data plans, relative to text packages. And in that way, this takes square aim at platforms like Apple’s iMessage and BlackBerry’s BBM and their like, which circumvent SMS costs but still rely on knowing phone numbers and contact information and not something as ubiquitous and accessible as, say, a Facebook account.
It’s too early to say whether $16-billion is too high a price tag, though the cost is certainly gargantuan-looking, and as recently as November, valuators pegged it around the $5-billion mark. That cost, too, is likely bloated by the fact that it’s a purchase of a primary competitor of a core platform element (WhatsApp is, in many ways, a cleaner Facebook Messenger without the Timeline, increasingly seen as unneeded baggage), and one with a revenue-generating strategy in place at that, so a comparison to the seeming bargain of Instagram is unfair. And there is the feeling that Facebook had to do something, whether it was purchasing Snapchat or something else, and there is the sense that perhaps, it felt obliged to make a splash, because they’re not dead yet. But the way Zuckerberg’s crew has turned Instagram into a no-brainer bargain also suggests that for all the obituaries written for Facebook, one shouldn’t count them out yet. The ingredients are there for Facebook to make this purchase a win, and mobile does, after all, remain the present and the future.