MRKT 3311 – Facebook Pays $16 Billion for WhatsApp
In February 2014, Facebook has been reported in purchasing WhatsApp for $16 billion dollars. The acquisition is by far the largest since the start of Facebook, and it is 16 times more than what they paid for Instagram. Facebook will be paying WhatsApp $4 billion in cash and $12 billion in Facebook stocks.
What is WhatsApp and why is Facebook paying big bucks for it? WhatsApp is a SMS service application for smartphones, it allows the user to send text messages to other people on their contact list for free. Similar to Blackberry Messenger and iMessager, the service allow the user to avoid using text message from their local carriers. As long as you are on a data plan or connected through WiFi, WhatsApp’s SMS service will be free; it provides an option to avoid using the paid text messenger from service providers.
WhatsApp was founded in 2009 by former Yahoo engineers Jan Koum and Brian Acton, the app have more than 450 million users at the moment; and according to Mark Zuckerberg “WhatsApp is on a path to connect 1 billion people. The service that reach that milestone are all incredibly valuable”. There are other alternatives to WhatsApp such as WeChat, and Line; WeChat is a Chinese competitor and claims to have 270 million active users while Line is a Japaness competitor who has 300 million users. Although, WhatsApp appears to be more popular in general but it varies by regions. Places such as India, even introduce WhatsApp on their second generation phones for example the Nokia Asha line comes with WhatsApp.
Now that you know a little bit about what WhatsApp is, how does Facebook justify their $16 billion purchase? Many experts believe the deal was very well thought out by Facebook. It is a known fact; the trend of going mobile is upon us, and for Facebook to tab into this trend now set them up for the future. Many developing countries such as India and South America are slowing switching over to smartphones from their traditional phones; having the most popular SMS service as a part of Facebook’s utility keeps Facebook relevant even in the future.
FIEGERMAN, S. (2014, 02 19). Facebook to Buy WhatsApp for $16 Billion. Retrieved 04 12, 2014, from mashable: http://mashable.com/2014/02/19/facebook-whatsapp/?utm_content=feature_title&utm_cid=mash-prod-email-topstories&utm_emailalert=daily&utm_source=newsletter&utm_medium=email&utm_campaign=daily
PACHAL, P. (2014, 02 19). What’s WhatsApp and Why Did Facebook Pay $16 Billion for It? Retrieved 04 12, 2014, from mashable: http://mashable.com/2014/02/19/whatsapp-facebook-why/?utm_cid=mash-prod-email-topstories&utm_emailalert=daily&utm_source=newsletter&utm_medium=email&utm_campaign=daily
Panzarino, M. (2014, 02 19). Facebook Buying WhatsApp For $19B, Will Keep The Messaging Service Independent. Retrieved 04 12, 2014, from techcrunch: http://techcrunch.com/2014/02/19/facebook-buying-whatsapp-for-16b-in-cash-and-stock-plus-3b-in-rsus/