In an unprecedented move, social media giant Facebook has purchased the popular WhatsApp messaging service for $19 billion. The deal, announced in a press release on 19th February, is an ominous message from Mark Zuckerberg’s company. Facebook is willing to buy out rival companies for vast amounts of money in order to maintain their dominance. However, the acquisition also hints at what Facebook has in store for the future. The social networking site may be the core of their operation, but branching out into new initiatives suggests a willingness to adapt to the continuously evolving digital world.
The deal marks Facebook’s 10-year anniversary in spectacular style. However, the company was quick to post a press release indicating the reasons behind its decision. Here’s the lowdown on one of the most remarkable business deals in history.
WhatsApp is a cross-platform instant messaging service for smartphone users. If you own an iPhone, Android, Windows Phone, BlackBerry, Symbian, or Nokia S40 device, you can run the app. Through it you can indulge in group chats, share locations, and send photos and videos. It’s free to download and use. As the official site explains, “WhatsApp Messenger uses the same internet data plan that you use for email and web browsing, there is no cost to message and stay in touch with your friends.” This approach, along with its ease of use, led to the app gaining mass appeal.
In November 2013 many sources reported the increasing popularity of the service, with 190 million active monthly users (contributing 10 billion daily messages) noted. A month later, in an official blog post, WhatsApp announced there were now 400 million active users. A huge leap in a short space of time. Its popularity may seem confusing, considering Skype and Facebook offer a similar free service. However, in the ever-changing mobile technology market new trends can emerge seemingly overnight. WhatsApp, with its ease of use and concise simplicity, made its mark.
In an official Tweet on 2nd January WhatsApp stated, “On Dec 31st we had a new record day: 7B msgs inbound, 11B msgs outbound = 18 billion total messages processed in one day! Happy 2013!” As with Facebook, dealing with statistics in billions had become a daily expectation. This is where Facebook swooped in. Its social media service offers a free chat format, but in terms of forward thinking Mark Zuckerberg clearly has his mind on his company’s continued appeal and overall outreach. Right now the company can buy out new innovations, but in a decade a lot could change. Facebook is effectively safeguarding its future.
They aren’t alone in such initiatives. In June 2013 Google, in an attempt to maintain authority with Google Maps, purchased its rival Waze for $1.3 billion. The Israeli-based social mapping company had interest from Apple and Facebook, but Google clearly made the deal in order to secure its service’s prominence in the market.
The $19 billion Facebook/WhatsApp acquisition takes things to a new level. The deal itself has apparently been secured in three steps: $4 billion in money, $12 billion in Facebook shares, and $3 billion in stock units (this goes to WhatsApp’s founders and employees). In an official statement, Facebook indicated this would accelerate Facebook’s “ability to bring connectivity and utility to the world.” It’s become clear the move won’t have any consequences in the day-to-day running of WhatsApp. Despite everything the company will “continue to operate independently and retain its brand.” In the meantime, WhatsApp’s co-founder and CEO Jan Koum is also set to join Facebook’s Board of Directors.
Perhaps most tellingly, the press release notes, “Facebook fosters an environment where independent-minded entrepreneurs can build companies, set their own direction and focus on growth while also benefiting from Facebook’s expertise, resources and scale. This approach is working well with Instagram, and WhatsApp will operate in this manner.” Overall, the deal benefits WhatsApp enormously, but for Facebook it is something of a risk. The company can’t be certain it will, in the long term, earn its money back from the app. However, the company isn’t prone to mistakes and WhatsApps’ exceptional history bodes well. Ultimately, for Facebook, it’s a flexing of its dominant status in the business world.
Facebook at 10
Dominance has become easy work for Facebook. It’s business figures from December 2013 say it all: 945 million active monthly mobile users, 757 million active daily users, and a colossal 1.23 billion active monthly users. Facebook is a decade old this year, but even co-creator Mark Zuckerberg could never have perceived the immense success of the service. There have been endless column inches covering its rise, and blockbuster movies (2010’s The Social Network, as well as a mention in 2013 space epic Gravity), but above everything else the relentless popularity of the format continues to startle.
The WhatsApp acquisition itself is nothing new. Facebook has steadily acquired (and merged) with businesses over the last decade. This began on August 23rd 2005 when it purchased its domain name from AboutFace for $200,000 (having initially run with Thefacebook.com). Since then, and most notably, Instagram was taken up for around $1 billion in April 2012. Face.com was also acquired for $100 million in June 2012 (a face recognition platform), whilst numerous other photo sharing, social gifting, and social messaging services have been picked up. Only last month it was announced Facebook had acquired Branch Media for $15 million — a startup company whose service, Branch, is based around conversation and link sharing. None of their previous mergers or acquisitions have come close to the inconceivable total of $19 billion. Indeed, combining the full total of Facebook’s 44 deals to date wouldn’t even make a dent in the WhatsApp figure.
More acquisitions will follow in 2014 and beyond, but few will stun the world as much as this. Facebook is working hard to ensure its future, and it’s not unreasonable to assume that in another 10 years, it will still be at the top of the business world. In 2014 the company has made one thing very clear — it certainly has the financial resources to do so.