With WhatsApp, Facebook builds social infrastructure conglomerate

Summary:Facebook's ability to acquire services and let them run (along with a ton of dough) seems to be a winning strategy for now. WhatsApp probably would have been integrated into Google in a clunky way if the search giant won the bidding war.

Facebook is winning the startup acquisition war with a lot of cash and an approach to integration that resembles more of a social conglomerate.

In a deal with a staggering price tag, Facebook said it will acquire WhatsApp, a mobile messaging outfit with 450 million monthly users, a global footprint and a demographic that could be appealing.

Google was reportedly interested in WhatsApp, but Facebook acquired the company. Clearly, Facebook is going for a land grab of users , but it's worth examining why Facebook was able to woo WhatsApp (beyond $16 billion in cash and stock of course).

Here are a few thoughts about why Facebook looks appealing:

Facebook doesn't go crazy with integration. WhatsApp co-founder and CEO Jan Koum will join Facebook's board. WhatsApp will run as it does today. And Facebook has no plans to integrate WhatsApp and its Messenger service. In other words, Facebook won't force things. That approach is appealing to startups looking to be acquired.

Let's face it WhatsApp would be part of GoogleTalk or Android or Google+ if the search giant acquired it. Facebook hasn't botched the Instagram acquisition and other purchases such as Parse appear to run independently with connections to the mother ship when it makes sense.

The conglomerate approach works...for now. Facebook can afford to operate these separate services because there's a ton of growth ahead and the real win is aggregating billions of socially connected users. Monetization and efficiency will come later. Add it up and Facebook's conglomerate approach makes sense and the companies it acquires aren't bringing a lot of employee overhead anyway.

Strategically, WhatsApp can make sense if the service can reach 1 billion users. Today there are only four brands with 1 billion users---YouTube, Google Maps, Google Search and Facebook. Should WhatsApp hit the 1 billion user mark Facebook becomes a counterweight to Google. 

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Mark Zuckerberg is still startup friendly. Zuckerberg may be a veteran in Web years, but he's still young and can connect to startup CEOs in a way that Google CEO Larry Page and the gang can't.

For financial reasons---WhatsApp diluted Facebook shareholders by 8.5 percent---Zuckerberg may want to become even more startup friendly earlier in the game. 

Pacific Crest analyst Evan Wilson noted:

After the Instagram acquisition, Facebook said, "We don't plan on doing many more of these (acquisitions), if any at all." We think after the news about a potential Snapchat acquisition and the WhatsApp acquisition, it's clear that Facebook is not done. We see these new services as competitive to Facebook and the acquisition activity shows that the company likely agrees. Doing these acquisitions is the third-best option, in our view. We would rather see Facebook be successful organically or acquire these competitors earlier (and cheaper).

Social infrastructure is an appealing theme. Facebook's mission is to bring more social connections to the world. That's a mantra that can play well. We all know Facebook will monetize the data from those social connections, but for now it's about the high-minded dream.

Bottom line: Facebook can take out potential rivals without looking like the Borg from Star Trek. That approach is likely to pay off over time.

Topics: Social Enterprise

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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