This past week the tech world went into a state of cardiac arrest with the announcement of Facebook’s purchase of 5-year start up WhatsApp. Why all the hoopla? Try the $19 Billion purchase price. It seems that when it comes to mobile messaging, WhatsApp is what’s up in the tech world.
To put the price into perspective, the $19 billion price tag is higher than the stock value of corporate monsters like American Airline and Tyson Foods. These are mainstay companies that have been around for generations, so why pay such a mind-boggling amount for a five-year-old company that believes the word “monetizing” is a dirty word?
Well, just ask a few of the 450 million users that WhatsApp holds in its back pocket. Yes, that is half a billion users. What makes that 450 million number so amazing is that the majority of WhatsApp users are based in emerging markets and fall in the 18-24-age range, a place where Facebook is soft.
Once the tech analysts came out of their swoon over the price of the deal, cooler heads began to see the real value. The world of the Internet is different from bricks and mortar in so many ways. One is how a company’s valuation process occurs. This deal, like other tech acquisitions in recent memory, has been based on price per user. For example, Facebook paid $28 per user for Instagram. Google shelled out $48 per user for YouTube. When you break it down the WhatsApp deal got done with Facebook paying $42 per user. All of a sudden that $19 billion doesn’t seem so crazy.
The tech world is wondering what’s up with WhatsApp. Many have not heard of the company before the deal was announced. WhatsApp is a mobile messaging service that is based on simplicity. Users sign up with just their mobile number. It is free for the first year of service. After that they ask for a ridiculously low fee of 99 cents a year. Once users are signed up they can begin texting to their heart’s delight for free, even over seas. The draw for a user is obvious. Bypass the traditional phone carrier for texting and messaging plans and save big bucks. No wonder that 450-million user number is growing by the day.
When it comes down to it, this was a deal that Facebook had to do. It gives them reach into the mobile market. This has been a place they have not been able to gain ground. Now they have that reach. That seems to be the most important part of the deal because it will take years for the $19 billion to be made back.
According to reports about negotiations, the words money and value were not big a topics. It seems that Mark Zuckerberg and WhatsApp founder, Jan Koum have like mindsets. They believe in building things that set the world on its ear. The initial negotiations came together in less than an hour over dinner.
On WhatsApp website it communicates the vision of the company. It speaks to the desire to get away from the traditional corporate mindset. There is no advertising connected with the app, and according to them, there never will be. WhatsApp sees itself as a tool to serve people. Perhaps that is what has Zuckerberg so in love with them. It will be interesting to see how WhatsApp changes over the next few years as a result of this deal. The tech world should be buzzing and asking what’s up with WhatsApp for years to come.
Editorial by Tony Bowers