It’s revealed that the deal to buy WhatsApp by Facebook has been ongoing underground since 2013.
But as soon as the announcement that Facebook has bought WhatsApp messaging app was made, so many people have been wondering whether Faceboook’s acquisition of WhatsApp makes any business sense.
Facebook has been looking at the possibility of adding a messaging platform to their services, and going for WhatsApp is the only good option considering the millions of users it has all over the world.
No doubt about it, WhatsApp is a popular messaging app that has grown to become one of the most downloaded messaging apps over the year.
Why did Facebook buy WhatsApp?
According to Facebook founder Mark Zuckerberg announcement:
“WhatsApp will complement our existing chat and messaging services to provide new tools for our community. Facebook Messenger is widely used for chatting with your Facebook friends, and WhatsApp for communicating with all of your contacts and small groups of people. Since WhatsApp and Messenger serve such different and important uses, we will continue investing in both and making them each great products for everyone.”
So there you go, if you are one of the people asking why Facebook bought WhatsApp.
How Facebook-WhatsApp relationship could make business sense
So why did Facebook buy WhatsApp? Surely, Mark’s Facebook must have had serious thoughts about this move before making the move. It’s as if Facebook has the money and decided to spend it by “dashing out” money to some guys behind WhatsApp messaging app.
Quite lot of people have been asking such questions as: will the acquisition make business sense? What will Facebook benefit from WhatsApp? Anyway, Facebook knew what they are going into before they made the decision to buy the messaging app.
Below are some of the reasons why I think Facebook’s acquisition of WhatsApp could turn out to be a good business.
#1). Fight off competition
Some analysts believed Facebook was paying a high price to keep WhatsApp from being snapped up by a rival such as Google Inc. This could actually be true because with a little over 450 million people using WhatsApp each month, and 70% of them active every single day, WhatsApp has one of the highest daily active user bases in the world.
The messaging volume on WhatsApp is fast approaching the entire global telecom SMS volume. WhatsApp users share 400 million photos and 10 billion messages each day. WhatsApp has grown faster in a span of four years than Facebook, Gmail, Skype and Twitter – names that are much bigger than WhatsApp today.
If the mobile messaging app ended up in Google’s hand, it could mean the end of Facebook as a competitor. Also, Facebook shares would have been pressured by more than single-digit percentages in after-market trading if Google had purchased WhatsApp instead.
So, for Facebook to buy WhatsApp, it will help the tech giant to stand a better chance to compete with the likes of Google and Microsoft in mobile messaging services.
#2). Mobile messaging trends
Gone are those days when we can only use SMS to send text messages to our friends and families. But today, there has been a massive change in the ways smartphone users are communicating with big thanks to the improvement in technology.
Nowadays, mobile messaging apps have taken over the use of SMS as the popularity of smartphones continues to grow. Smartphone users can now communicate through messaging apps such as WhatsApp, Viber, WeChat, Snapchat, LINE, Skype, BBM, Gtalk, Kakao Talk, etc. These messaging apps are already undercutting the mainstay businesses of mobile phone network companies: text messages and voice calls.
I guess Facebook have spotted massive potentials in mobile messaging and that could have easily helped them to decide to acquire WhatsApp. This can turn out to be a good move by Facebook considering the fact that other two giant tech companies are also offering similar services – Microsoft through Skype and Google via Gtalk.
#3). Popularity in emerging markets
Various studies and reports have shown that Facebook has fallen behind in mobile phone messaging apps in emerging markets, where many are accessing the Internet on fast-growing 3G mobile networks for the first time on smartphones.
Facebook should be able to consolidate its position as a global tech giant with the acquisition of WhatsApp which is much stronger than Facebook Messenger in Europe, Latin America, Africa and Australia, and has attracted users at a time when it appears that young people are turning away from Facebook.
Facebook is paying $42 per user, compared with a market value per user of $170 for Facebook and $212 for Twitter, Deutsche Bank’s Ross Sandler said.
#4). Advertisement revenue
Facebook is paying more than double of its annual revenue for a chat program that has little revenue. The purchase price is slightly more than the market value of Sony Corp. But analysts noted that WhatsApp has over 450 million users and boasts a higher level of engagement than Facebook which is great for revenue generation.
WhatsApp does give Mark Zuckerberg inroads into international markets and, as importantly, to a younger demographic. But what is less clear is whether the finances will add up in the long term.
WhatsApp has reiterated its commitment to an ad-free service, opting to charge users a mere $1 per year. Under this scenario, it will need to continue its growth trajectory to ensure any financial return to Facebook.
But Adverts are pivotal to Facebook’s own business model – and the pressure for it to monetise its new WhatsApp user base in the same way may prove too tempting to resist.