Whatsapp Purchase is a Bad Strategy?

Whatsapp

Facebook’s big $16 billion dollar purchase of social media application Whatsapp is the big news these days, but thinking about the long-term will it be a big success? Some critics have already started to come out with a Yahoo reporter claiming that, although there is nothing wrong with the purchase financially, it is nevertheless a bad strategy on Facebook’s end. Reports have also explored Whatsapp’s popularity in Asia, the world’s largest mobile market, and the findings echo Yahoo’s cynical sentiments about the purchase.

Yahoo writer Aaron Pressman points out that the purchase of Whatsapp does not increase its audience, help learn the desires and wants of its audience, and it does not maintain users engagement, which could all help to attract advertisers – its real concern. He also writes how there are no synergies and no savings in building a group of separate applications, noting how there is a reason why conglomerates are no longer in style.

The Wall Street Journal’s look at the impact or lack of impact Whatsapp will have on Asia largely echoes Pressman’s sentiments. One of the bigger goals for Facebook was to broaden the company’s image outside the U.S. Their purchase of the largely popular, ad free Whatsapp, achieves that goal to some degree, especially in the U.S. market, but Facebook has  much work to do to appeal to Asia, which has the world’s largest social media market.

The three most dominant apps in Asia is Naver Corp’s Line,  Kakao Talk of Kakao Corp., and Tencent Holdings Ltd.’s WeChat. The companies are not well-known in the United States, but in Asia, Line is dominant in Japan, Kakao has a firm grasp in South Korea, and WeChat in China. Along with instant messaging, all of the applications offer entertainment, such as gaming, along with social-networking and other features – a trend in Internet on mobiles known to start in Asia.

Whatsapp does have some grasp in Asia, being popular in such markets as Singapore and Hong Kong; however, the environment and competition is tough as WeChat, Kakao, and Line have also expanded in those regions over the past couple of years. The purchase of Whatsapp is risky and could quite possibly turn out to be a bad strategy in the long run.

Individually speaking, Whatsapp’s 450 million active users monthly is larger than Line’s 350 million users, WeChat’s 272 million active users, and Kakao’s 133 registered users; however, it is not a runaway with the numbers being fairly close. Moreover, the three Asian applications have shown they can increase revenue through their offering of games and several other paid features, while Whatsapp makes a $1 flat subscription fee after a year from users.

In the largest of all Asian markets, China, Facebook is unavailable in most regions; however, Whatsapp is not restricted and thus, with its purchase Facebook can widen its appeal to China’s market through the instant messaging application. The Wall Street Journal reports that Whatsapp would have to self-censor itself, similar to what occurs with social networks in China or it could be, like its new parent company, blocked. Not to mention, the dominance of WeChat in China, according to analysts, would make it extraordinarily tough for Whatsapp to have any kind of impact in the country’s market.

Looking in the past, so far Facebook has not had any success in broadening its appeal to China with its purchase of Instagram in 2012 due to competition in the country; the acquisition of Whatsapp has a likelihood of repeating the same failure amidst its benefits in the U.S. Market. As reports say, if Facebook purchases an application that already has too large of a competition in a continent with the world’s largest smartphone market, then it may in fact all turn out to be a bad strategy.

By Kollin Lore

Sources
Wall Street Journal
Yahoo
Deseret News
Reuters

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