The social network giant Facebook is looking to stay relevant with the recent acquisition of messaging service WhatsApp. For a record price of $19 billion, Facebook management, including founder Mark Zuckerberg, is looking beyond short-term gain into a long-term growth potential.
According to Forbes contributor Adam Hartung, Facebook is very much aware of the changing consumer behavior, emergence of newer technologies, regulations and inventions, as well as innovations constantly popping up meant to challenge the old way of doing things. Hartung also said that this awareness led Facebook to undertake the following approaches, which include: accepting the market shift happening in the environment, acquiring a company that has shown excellent potential in the new set-up and using stocks as a currency to allow the company to stay relevant.
A shift from the use of laptops to the use of mobile devices is a challenge Facebook was trying to solve. Aside from this, more people are using photos, images and texts in various requirements, which Facebook sometimes cannot provide. Internal solutions were implemented but somehow, external companies did a better job.
This is where the instant messaging subscription service WhatsApp came in. During Zuckerberg’s speech before the Mobile World Congress in Barcelona, Spain, he said the WhatsApp deal was actually “worth more than $19 billion…[and] a great fit for us.” Zuckerberg added that the deal will also allow Facebook to connect more people to the Internet. In 2012, Facebook also bought the photo sharing service Instagram for $700 million, in an effort to increase usage coming mostly from the emerging tablet and smartphone users.
Although WhatsApp currently has a relatively low revenue base, its potential to double in users, as well as its strategic value, fits in well with Facebook’s plans. Currently, WhatsApp has 450 million users, 70 percent of which are active daily users. Compare this figure with Facebook’s 550 million users and it is clear where Facebook is headed with those additional users. With just 55 people working for WhatsApp, and with many users, the messaging company knows what it is doing.
Facebook will pay $4 billion in cash, $12 billion in Facebook shares and $3 billion in restricted stocks, to be paid to WhatsApp founders Jan Koum and Brian Acton and their employees over a span of four years. Facebook can initiate this type of a deal using shares because the company has a high market valuation. This just emphasizes the belief that in the long run, money can be expected to be generated from this acquisition, and Facebook can look to stay relevant with the WhatsApp acquisition.
This recent move by Zuckerberg and his management team seems to be to investors’ liking also, as Facebook stocks on Monday hit a record high of $70.78. This was more than three percent compared with the previous day’s rate.
Zuckerberg also allowed Koum the independence and the focus on expanding WhatsApp’s international users rather than worry about details on how to make money from the operations. “They can focus for the next five years or so purely on connecting people,” said Zuckerberg.
WhatsApp services are provided free to its users for the first year, with a minimal charge of 99 cents after the first year. This is different from traditional text messages, which are paid for by subscribers through their mobile phone service providers. WhatsApp competitors include Japan’s Line, South Korea’s Kakao Talk and China’s WeChat.
As a strategy to stay relevant in this shifting technology-driven environment, the social network giant Facebook is looking at the potential WhatsApp can provide, not to mention looking to stay relevant with the recent acquisition of the messaging service.
By Roberto I. Belda