When I read the news about Facebook’s acquisition of Whatsapp, I thought it was a misprint. $16 billion plus $3 billion in restricted stock options. There’s no way a messaging app can cost that much.
I remember people already taking offense at Instagram’s 1 billion USD acquisition. Who would’ve imagined that Whatsapp was worth 19 Instagrams? Or 12 Youtubes? A messaging app 2.5 times bigger than Nokia, a company that just 2 years ago was the top mobile manufacturer in the world? Something was amiss here.
Forget about regular business metrics. The ongoing rationale is that Facebook paid that much for the users. Whatsapp got to the 450 million mark faster than even Facebook. The acquisition translates to roughly $45 per user, a bargain compared to the $100+ value for Facebook. It must have also paid a premium for the hockey-stick growth and the instant access to emerging markets.
But is that really the case? Line and Wechat have already overtaken Whatsapp in the emerging markets of East Asia and now have their sights set on the world. They are already far ahead of Whatsapp in monetization tactics like mobile commerce, customized stickers, and game items.
Of course, Whatsapp’s appeal and biggest differentiating factor is its simplicity and the absence of ads. This poses a thorny problem for Facebook: How can it get close to $45 returns per user? Any kind of monetization runs the risk of alienating the user base. On the other hand, synergies with Facebook run the risk of turning Whatsapp into a ‘Schrodinger’s cat’ of sorts. If Facebook opens its ‘box’, it’s going to kill it straight away. If it doesn’t, it will never find out whether it can add anything to Facebook’s core business.
Even putting monetization aside, there’s a danger that Facebook might work its reverse Midas touch on Whatsapp. Just associating with the social network has already caused damage to Whatsapp. Competitor Telegram for example had 8 million downloads after news of the acquisition broke. But all this just shows how irrevocably tarnished Facebook’s brand has become.
And herein lies the reason as to why Facebook needed to buy Whatsapp so badly.
Because Whatsapp is the anti-Facebook.
The messaging app has no gimmicks, no ads, and is laser-focused on its core task. Facebook on the other hand has become this bloated, tangled mess that people have grown to hate. Its reason for being is tied to the desktop era, where sharing was a lot more deliberate and therefore more attuned for public consumption. In the shift to mobile, sharing became more frictionless and effortless, comprised of more random moments and hence more suitable for only the closest friends.
Facebook has the engineering prowess and the scale to create great mobile products, but no matter what it does, it can no longer shake its identity as a ‘public space.’ It has won the age of sharing, but that has already been pushed aside with the new zeigeist at play: mobile messaging. From “Like Once, Friend Anywhere" by Ben Thompson of Stratechery:
"If we accept the thesis that messaging is the foundation of social on phones, and that messaging is inherently personal, then that means Facebook has a pretty significant brand perception problem. Their definition of social is public broadcasting, a definition they have reaffirmed both through word and deed. Users have learned that nothing on Facebook is personal or private; why would they expect to use Facebook for messaging?"
The acquisition was not a play for growth, it was a play for survival.
Essentially in exchange for around 12% of its market value, Facebook bought itself a fresh identity. In one fell swoop, it has moved from also-ran to first place in the all-important messaging wars. Moreover, Facebook just brought its biggest threat and philosophical opposite to its stable. Whatsapp’s simpler interface requires lower data consumption and thus makes it easier for Facebook to have a presence in emerging markets without compromising the features of its core product. Facebook can have its cake and eat it too.
It is just another step to Facebook the company growing beyond Facebook the service, to become, quoting again from Stratechery, a ‘social conglomerate’. Zuckerberg saw the disruption coming. He of all people understands how fast the tectonic plates shift in the technology world. He has acted extremely fast, gobbling up startups one by one in a quest not just to connect the world but to own our entire attention spectrum.
Aware of the stakes, Facebook will likely stick to its word and do everything (including getting out of the way) to make Whatsapp grow. For the social network, the inherent problems can be solved once the service becomes big enough. It has to be very careful though. The difference here with the desktop era is that there are no winner-take-all dynamics at play in mobile messaging. It is a lot easier to shift to another messaging app than it is to shift to a different social network. One-to-many or many-to-one communications require network effects. One-to-one conversations on the other hand are easily transferable - to another app, to the telephone, even to real life. Even when Whatsapp’s user base really does grow to a billion, it will still be vulnerable once Facebook peppers users’ conversations with some kind of monetization tactic.
In his interview, Zuckerberg already declared that ads are not the right way to monetize messaging apps. Will it go the same way as Wechat or Line? The challenge is to make the experience as natural and unobtrusive as possible while still making money from the service. It will be interesting to see what Facebook will come up in this area. One thing’s for sure though, by buying the anti-Facebook, Facebook has cemented its position as one of the 'five horsemen of tech' and ensured that it will remain relevant in the coming years.