WhatsApp was purchased this week by Facebook for $16 billion in cash and stock ($19 billion including restricted stocks) making it worth more than many better known internet properties and they achieved this stunning value without ads in their business plan. In fact, the founders used no marketing beside word of mouth to build their user base of close to 450 million.
WhatsApp is a messaging service, like Facebook chat, with client applications that run on all the major smartphones including iPhones, Android phones, Blackberries and Window phones. The user enters their cell phone number and the application scans their address book to find other users of WhatsApp so they can be connected with immediately. Users can add other contacts later as they continue to use the application. Messages, like simple SMS can be sent, but also attachments like photographs and links to webpages, audio and video sources, and similar. The service is completely free and there are no limits on traffic or overage charges or any other costs which users are accustomed to expecting with comparable services offered by mobile phone providers. The application is free as well and, significantly, does not place ads in front of the user. After one year of free use, the user is charged $1 per year to continue using the service.
WhatsApp is hugely popular by any standard. They have 450 million users actively using the service on a monthly basis, close to a third of the Facebook user base which is estimated at 1.2 billion. They achieved this number of users in a very short time, less than 4 years. Twitter, for comparison, had less than 100 million users 4 years after launch, and they still have less than half the users WhatsApp has even after nearly 8 years of existence.
This user acquisition rate, due in no small part to WhatApps decision to offer the service without ads, is one reason Facebook thinks they are worth the multi-billion dollar price paid for them this week.
WhatsApp users, though smaller in number than Facebook users, send somewhere near a half a billion images each day while Facebook users send about 150 million less. These statistics show that Facebook’s interest in user photos has not diminished, even after their acquisition of Instagram in 2012.
Facebook has reported that WhatsApp services a volume of messages near the size of the entire world-wide SMS volume handled by traditional telecommunication companies. Its potential as a real-time source of user activity trends rivals Twitter both in the pace of updates and the sheer scope of users.
This is another big factor in Facebook’s move to acquire the messaging service. Not only the rapid user uptake, but the user data, generated by enthusiastic sharing across the globe, makes the WhatsApp purchase a very smart decision.
The newly acquired WhatsApp founders can be proud of having created such a social media juggernaut, now destined to be used by billions of Facebook users, at a blindingly fast tempo and all without resorting to ads to establish their worth. How they integrate their users with Facebook’s, and what use will be made of their user data, which they have up till now ignored as a potential source of revenue, remains to be seen.
By Brian Ryer