Why Facebook Aquires Whatsapp? List of 12 Recent Biggest Tech Acquisitions

Why Facebook Aquires Whatsapp? List of 12 Recent Biggest Tech AcquisitionsWhy Facebook Aquires Whatsapp? List of 12 Recent Biggest Tech Acquisitions

“WhatsApp” is a cross-platform Smartphone app that lets you send free text, voice, picture and video messages using your data allowance. If anybody is carrying a Smartphone in his/her pocket, there will be a good chance that he/ she no longer send SMS text messages, but use WhatsApp instead without paying high fees or no fee at all. This mobile messaging application was shown the first light in August 2009 by two individuals Jan Koum, 36, a Ukrainian, and Brian Acton, 40, an American. Since then, their application has been downloaded over 400 million times, much more than Google’s Play store. ‘WhatsApp’ is available on Android, Nokia’s Symbian, Nokia S40 and selected Nokia Asha, Blackberry, iPhone and Window phone. Both Koum and Acton have made money in two ways. The users of iPhone are charged onetime fee of $99 upon installation and the Android users are offered one year free but thereafter $99.00 for every year.

As per ‘The Wall Street Journal report’ there are over 250 million subscribers using WhatsApp every month and it is bringing millions and millions of dollars to the pockets of Koum and Acton. This duo has worked 20 years at “Yahoo!” to keep that site working and sell advertisements because that’s what Yahoo! does along with gathering data and serving pages. They witnessed when Yahoo! got eclipsed both by size and reach to Google because Google turned out to be a more efficient and more profitable ad seller. They believe that when advertising is involved a user becomes a product. So they decided to avoid ads and create something that can make everyday lives of the users better in some way even if they are charged for the service directly.

Koum and Acton have told that their company had employed only 30 people and carries all its development work at Russia where good talent is available considerably cheap.  The company based in Mountain View, California, currently employs only 55 people. WhatsApp is often compared to Skype because what it has achieved on mobile phone has been attained earlier by Skype on international calling on landlines. WhatsApp charges $1 a year for the service for some users in some markets. This will become Facebook’s first paid product after a recent take over announcement. The company has so far shied away from the limelight through advertisement and has only taken funding from one U.S based venture capital firm, Sequoia Capital. The company has never spent a penny on marketing.

The following figures indicate the tremendous growth accomplished by WhatsApp Company so far.

  • October 2011: 1 billion messages
  • April 2012: 2 billion messages
  • August 2012: 10 billion messages
  • June 2013: 27 billion messages
  • November 2013: 600 million photos are shared each day, more than 10 billion video messages, 20 billion voice messages each day, 190 million active monthly users.

Facebook Buys WhatsApp for $19 Billion

On February 19, 2014, the Mark Zuckerberg owning Menlo Park based “Facebook Inc” announced that it is buying “WhatsApp” in a cash and stock deal worth for $19 billion ($12 billion in stock, $4 billion cash and $3 billion in shares vesting over four years in restricted stock units for the employees of the acquired company). The size of the deal is roughly 13% of Facebook’s enterprise value. The deal is expected to close in late 2014.

The social networking service is buying the world’s fastest growing chat app company which is most popular (its engagement rate is higher than Facebook’s) in the emerging markets especially among the younger generations. This deal of Facebook has dwarfed its previous biggest website deal of $1 billion when it took over ‘Instagram’ in 2012. The deal is one of the biggest acquisitions in recent mobile tech history which almost doubles ($8.5 billion) what Microsoft paid for Skype and five times more than what Lenovo paid ($2.9 billion) for Motorola to Google.

Some Other Recent Biggest Tech Acquisitions:

  • WhatsApp by Facebook $19 billion
  • Motorola Mobility by Google $12.5 billion
  • Skype by Microsoft $8.5 billion
  • Sun Microsystems by Oracle $7.4 billion
  • Nokia by Microsoft $7.2 billion
  • Broadcast.com by Yahoo $5.7 billion
  • Lenovo paid $2.9 billion for Motorola to Google
  • PayPal by eBay $2.2 billion
  • YouTube by Google $1.65 billion
  • Palm by HP $1.2 billion
  • Tumblr by Yahoo $1.1 billion
  • Instagram by Facebook $1 billion

“WhatsApp” will continue to operate from its present headquarters in Mountain View and WhatsApp brand will be maintained as a separate entity in Facebook as a separate service, just as it did with Instagram. The co-founder and chief executive of “WhatsApp”, Jan Koum, will join the Facebook board. The stake of Silicon Valley-based ‘Sequoia venture capital’ firm who invested $60 million in ‘WhatsApp’ before the acquisition, following the acquisition, the stake is expected to worth around $2.5 to $3.0 billion. The WhatsApp is a privately held company and its no published financial data are readily available but as per market based sources, the company’s value is believed to be in excess of $1 billion and likely to be around $2 to $4 billion based on 300 million current users and expected growth.

The acquisition will enhance connectivity and utility to the world by delivering core Internet services efficiently and affordably. Koum has said in a blog post they will devote more concentration on building a communications service that is fast, affordable and personal as possible.

By acquiring WhatsApp, Facebook will now be managing three separate social networks: Its eponymous Facebook platform; Instagram (a key component of Facebook’s economic moat), and WhatsApp.

$19 billion: Is it a good bet for Facebook?

Some of the analysts have approved the acquisition deal as a wise move for Facebook because they find that with WhatsApp, Facebook already has about 84% of U.S. teens signed up on its network and has bought the clear leader with a massive base of users. WhatsApp also has a huge growing broad global audience. Facebook was not getting the attention it deserved in U.S because its community started off growing in Europe, Latin America and India. WhatsApp is the only widely used app that has more engagement and a higher percent of people using it daily than Facebook itself.

Doug Anmuth from J.P. Morgan is of opinion that although the price tag seems high but WhatsApp gives Facebook a strong position in mobile messaging. Mobile messaging is an important part of Facebook’s core mission of “connecting the world”. The Smartphone adoption may reach five billion users in near future. This is the region where Facebook is trying to grow its base of teen users and capture from other rival services, including text message services and Snapchat. The teen users are increasingly using the service to engage in online conversations outside of Facebook.

Facebook users always complain on lack of one-on-one personalized socializing and sharing, which WhatsApp clearly has been doing successfully. By keeping and strengthening phone as a central point of a consumer’s universe WhatsApp took chatting in to another new level.

The acquisition is in the tune of Facebook’s new strategy. Facebook is developing a “multi-app” strategy (with new releases like Facebook Messenger, news reader app called Paper). It is creating its own applications that exist outside of Facebook and acquiring others. There are many experts who think that Selling WhatsApp to Zuckerberg is like Zuckerberg selling Facebook to Yahoo in 2006.

Some complains that this may lead to overzealousness: Facebook and other technology companies are starting to become overzealous in their quest of promising new products and services—it is a microcosm of a bubble. It is an omen that suggests Facebook is scared of losing teens.

Facebook’s shares fell by 2.7 % or $1.82 to $66.24 within an hour of trading after the deal was announced. Earlier on the day of announce of acquisition, the stock hit a 52-week high of $69.08.

An independent analyst Roshmita Dey considers the purchase as a bet on the future to expand their business lines. Facebook is going to end up competing with its rivals: the acquisition is a part of its strong competitive weapons although the potential monetization remains a bit of head scratcher.

About the Author

Sandra
I am working as Editor in Chief for Financeninvestments.com. Writing on Financial Topics is my passion. You can find me on , Seeking Alpha Instablogs or join our Facebook Community, s. FNI is a great Community for financial bloggers and writers. Get everything you wanted to know about your finance and investment related matters such as mutual funds, banking, retirement, economics and much more.

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