In a deal that has shocked the markets, Facebook has agreed to spend $19bn in order to acquire the mobile messaging start-up WhatsApp, which has enjoyed a meteoric rise over the past five years. With 450 million users, the subscription-based service is currently acquiring another million every day; what is more, it is particularly popular with young people – just the demographic Facebook has been struggling to connect with.
Describing the smaller company as “incredibly valuable”, Mark Zuckerberg went on to say that he is excited to partner with its co-creator Jan Koum, who is apparently an old friend, to “make the world more open and connected”. Koum will now join Facebook’s board of directors. Facebook has asserted that it intends to run WhatsApp as a stand-alone project, as it has done with Instagram; however, as it is still unclear how it expects to make serious money out of the latter, there are suspicions that Facebook is looking for ways to use both to filter new users through to its main product. Part of WhatsApp’s job may now be to make Facebook look cool again.
According to Zuckerberg, this deal was made after just 11 days of negotiation. It has been paid for with a mixture of cash and stock. The cost per user is $9 higher than anyone has paid before – at least at this level – and it is thought to reflect Facebook’s anxiety about getting a grip on the mobile communications network. Notoriously poor at the communications side of managing online interaction, Facebook may in part see WhatsApp as a learning opportunity; it may also have been motivated by concern that if it did not snap up this particular hot product quickly, somebody else would. To assure the WhatsApp team of its sincerity, Facebook has pledged a gift of $2bn even if the deal falls through.
There is one party that may be left feeling awkward in the aftermath of this deal and this is Snapchat, for which Facebook offered a mere $3bn last year. Staff at WhatsApp are likely to be happy, as some of the money from the deal is being distributed among them – and there are only 50 of them.
Some commentators have suggested that what Facebook is really doing is trying to buy up successful young companies with the potential to outdo it in certain markets and with which it does not have the expertise to compete. Whether Koum’s involvement will make it a more effective competitor remains to be seen.