Why did Facebook buy WhatsApp?
In a surprise move, Facebook yesterday bought the popular multimedia messaging service WhatsApp.
The pricetag has raised eyebrows – at $19bn in capital it represents some full 10% of Facebook’s market valuation, making the $1bn acquisition of Instagram in 2012 look positively small change.
It’s an aggressive acquisition. But what could Facebook want with WhatsApp, whose mission statement is zealously anti-ads and anti-data collection? Zuckerberg’s platform is pretty much all about data collection, priding itself on how well it knows its audience.
Keeping it separate
WhatsApp may have 450m active users, but as with Instagram the products are remaining separate – and outside of some anonymised usage information I would be surprised if Jan Koum, co-founder of WhatsApp and now on the board of Facebook, would backtrack over such public commitments to user privacy.
There are few clues to be found in the official write-up, which is comprised of largely anodyne language about ‘connectivity and utility’ (not that there’s anything wrong with that). So let’s have a think.
Diversifying? Profits? Staying ahead?
Could it be that Facebook is trying to diversify? WhatsApp is set to have something like 760m users by the end of the year, and if each of these pay the annual dollar subscription fee then that’s a good sum of money especially with modest overheads. But it’s hard to believe that Facebook spent that much just to get less than $1bn a year in returns. For measurement against current business, Facebook made something like $1.5bn in profit last year.
All things considered, in fact, it feels like the deal is simply to stay ahead. Facebook basically wants to own every mode of one-to-one conversation going – be it photo, video or text.
Several outlets have noted that Google (reportedly) tried to buy the service the last year, and that would have created quite the headache. My guess is that even if the outlook is vague the philosophy is sound, and Facebook would rather pick these services up at cost and figure it out as they go than have to deal with Google, Apple or even Amazon – with whom they undoubtedly form the contemporary ‘big four’ – suddenly coming into possession of a chunk of the world’s conversation.
There’s also the question of mobile in and of itself.
One of the problems for businesses on mobile is that all apps are created equal. Whereas on desktop the biggest service tends to win every time until the model changes, ‘unbundling’ is the key trend on mobile.
Keep up with the competition...or just buy them?
This is where core services are divvied up and repackaged into specialist, standalone apps. Fewer and fewer users want a ‘hub’ solution where one service takes care of all activities, hence why Facebook keeps releasing things like messenger, camera, home, paper – except that these often simply don’t have the first-mover advantage or the dedicated resource to keep up with the competition.
So the alternative is to buy them.
Lastly, there is the global footprint.
It’s well documented that emerging markets are primarily mobile, and even without China they tend to possess their own ecosystems. Estimates are, WhatsApp already sends more messages than the entire global SMS network – and economies of scale combined with adoption curves would predict that it is destined to go up against LINE, QQ and WeChat in the east. How that translates across to Zuckerberg’s greater mission in that part of the world is pretty tough to call, but from Facebook’s point of view WhatsApp may at least provide them with a footprint in a digital culture that has been more resistant to their own product.
Phillip Dyte is paid social media manager at iProspect
This article was first published on mediaweek.co.uk
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