Facebook Buys WhatsApp Inks $19 billion deal
What used to be sold at $1 for a year’s subscription from the second year on has been sold at a whopping $19 billion. Facebook bought WhatsApp in a landmark $19 billion cash and stock deal ac-cording to joint statements is-sued by Mark Zuckerberg and Jan Koum. The deal puts the world’s largest social network at the heart of mobile messag-ing. The transaction break-up is $4 billion in cash, $12 bil-lion in stock and $3 billion in restricted stock that vests over several years with Allen & Co advising Facebook and Mor-gan Stanley, WhatsApp.
This is Facebook’s big-gest buy since Instagram ($1 billion) in mid-2012, paying $33 per user in comparison to WhatsApp’s $42 per user. What underscores the social network’s determination to win the market for personal messaging is that the What-sApp deal is worth more than hat it raised in its own IPO.
Who gets what
- Jan Koum owns 45% of WhatsApp which translates to $6.8 billion
- Brian Acton is worth at least $3 billion
- Venture capitalist Sequoia Capital, which invested in WhatsApp in February 2011 holds about $3 billion in stock post-deal.
What got Facebook onto WhatsApp
Although Facebook has messaging, it is in no way a comparison to what What-sApp had established in a short five years.
The deal provides Facebook access to new us-ers, especially teens who have been overtly favouring private messaging through WhatsApp and its rivals over mainstream social networks. WhatsApp has been scoring big by being a zero-fee international mes-saging service compared to the hugely expensive SMS plans worldwide. With WhatsApp, all that a customer needs is a phone connection with a data plan, the concept of which works well with all age groups, especially teens.
The other contributing factors being
Facebook’s inability to crack the messaging market like WhatsApp did and the fact that WhatsApp is leading users away from the social network
The explosion of the idea:WhatsApp has done for mes-saging what Skype did for voice and video calls.
WhatsApp is a leader in smartphone-based messaging apps. Has a majority user cum fan club spanning North Amer-ica, Asia and Europe.
450 million users in five years and adding around a mil-lion daily.
Made it big by sticking to its core functionality of mes-saging without gimmicks (of-fers, games, ads, or e-com-merce unlike competition)
It’s lean. In an industry first of sorts, WhatsApp makes it work with just 32 engineers and a support staff of even less number, yet manages to keep an uptime greater than 99.9%
The lesser known things about things at WhatsApp
- Jan Koum is a Ukrainian immi-grant and college drop out
- Brian Acton is Stanford alumnus and was a Yahoo employee when the two met
- The mentor (Acton) and the mentee (Koum) worked together at Yahoo for years; both were seeking to do more and ended up leaving Yahoo one after the other.
- The two bonded over skiing, soccer and ultimate Frisbee after Koum’s mother passed away.
- Soon after Yahoo, they ran into bad patches financially and even applied to Facebook inde-pendently only to be rejected.
- Jan Koum founded the ser-vice and ran several test runs in his friends circle before inviting Acton to be a part of what is today a Silicon Valley start-up fairy tale.
- Koum incorporated Whats App Inc. in California on 24 Feb 2009, his birthday.
- The name WhatsApp was chosen because it sounded like ‘what’s up’.
- WhatsApp started by being a status update app growing itself out into an instant messenger at a time Blckberry’s BBM was the only other free texting service.
- At its first public outing with WhatsApp 2.0, it was lapped up by over 250,000 users.
- Koum and Acton occasion-ally switched the app from “free” to “paid” so they wouldn’t grow too fast.
- Koum, Acton and venture capitalist Jim Goetz of Sequoia signed the agreement to sell their messaging phenomenon at the abandoned building which used to house North County Social Services, where Koum had once stood in line to collect food stamps as a migrant. The building is a short distance from the current WhatsApp HQ.
What got WhatsApp all the public love despite competi-tion?
Since its arrival, WhatsApp has remained the service that it set out to be – an instant mes-saging service that can serve across continents and plat-forms. That it persisted in its devotion to being clean and fast – no games, no e-commerce and no offers has been a great relief to the user who is inun-dated with all kinds of pop-ups while trying to connect to peo-ple on his contact list through other services. A user fee of $1 from the second year on (the first year’s user fee completely waived off) and, no fee what-soever per message – be it text, image or voice upload became a great crowd-puller. The as-surance of a message being de-livered on the receiver’s hand-set indicated by the double tick is next in line to the list of its best loved features as is also the fact that once a message has been delivered to a hand-set, it is deleted from What-sApp’s servers. Even better is the fact that they want to know as little about the user as pos-sible: WhatsApp does not col-lect personal information like the user’s name, gender, age or address. Registering for the service is through the user’s phone number and does not re-quire the annoying signing-in with a username and password every time one wants to use the service.
How Zuckerberg worked the deal
While Koum and Acton had consistently fought off all kinds of investors and sale bids over the years including Facebook’s (Sequoia Capital is their only other investor), Zuckerberg fi-nally got his foot in the door at a dinner with CEO Koum on February 9 where he proposed the deal. Ten days later, they were exchanging hand shakes.
Other big and fun buys
| Japanese e-commerce giant Rakuten bought messaging ser-vice Viber for $3 per user, in a $900 million deal. |
| Facebook acquired photo-streaming service Instagram for $1 billion at $33 per user |
| LinkedIn bought bright.com for $120M in February 2014 |
| Zynga purchased mobile games developer NaturalMotion for $527M in January this year |
| Bebo founders bought back the now worthless social net-work for $1million after selling it to AOL for $850million just five years ago |
| Apple secured Topsy, a Social Media Analytics Firm for over $200 million |
| Facebook also bought Israeli mobile app maker Onavo for somewhere between $150 and $200 million. |
WhatsApp post marriage to Facebook
The deal allows WhatsApp independent operations in-cluding keeping its promise of being a free service. It also involves continuing its policy of no advertising (although there is public fear that it may not be the case). Neither Face-book nor WhatsApp has speci-fied how the former intends to recover the purchase cost. At the press meet Zuckerberg said the $1 user fee will remain the same and that the plan is to concentrate on growth.
There is wide spread spec-ulation as to how and when Facebook will earn back what it put into the buy. Truth is, ac-quisition of a high growth as-set like WhatsApp is not to fill a void, the game plan was to avoid becoming void. In other words, this acquisition was not about increasing revenue for Facebook, it was about surviv-ing the global shift to mobile.
BUDDING MANAGERS
MARCH 2014 ISSUE
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Posted On: Thursday, 10 April, 2014 - 17:08