With WhatsApp, Facebook builds social infrastructure conglomerate

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.

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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.

Topic: Social Enterprise

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28 comments
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  • So many reasons why this is unsurprising...

    So many reasons why this acquisition is unsurprising. Here's an intriguing angle that isn't getting much coverage, though: http://goo.gl/DZjz9O
    Kate_Smith6678
    • What's your point?

      It's no secret that the companies have long been friends, as have their CEOs.

      Clickbait, I suppose? Another desprate blogger vaguebooking!
      Heenan73
  • a waste of big $$$

    A lame app for 19 billions?...even M$ did better with Skype!
    LlNUX Geek
    • M$$$ now look$ $mart in compari$on

      Ye$$$ M$$$ paid cheap price for $$$$kype
      Do you remember how much $$$ AOL paid for ICQ? The $$$ame type of chat app for PC$$$ co$$$t AOL less than $$$$300 million. Oh good old time$$$
      paul2011
  • Billion Users

    Then, there's that little outfit called Microsoft Office...did we miss that because we don't like Microsoft, or because Office has 1.5 or 2 billion users?

    It'll be interesting how Whatsapp - who is averse to advertising - fares under a company that makes its money from advertising.
    WebSiteManager
    • It doesn't need advertising, it has subscriptions ...

      ... one reason for high price. Facebook dreams about subscriptions!
      Heenan73
  • There was no bidding war ..

    Google weren't interested in the price, and certainly weren't going to give a board seat. Neither were Apple or Microsft, it would seem.

    In the UK, veryone gets free unlimited texts, so it's hard to imagine there's unlimited growth in a paid-for texting service - but maybe I'm missing something?

    And if I'm right, how long before US bundles in txt, to strike back at txt services that leech off the Internet service?
    Heenan73
    • already

      Unlimited txting, what this app goes after are the tweens that do not have a smartphone so they cannot text. As far as I am aware and I have whatsapp, it is free to use, maybe advanced features have a subscription.
      schultzycom
    • yes

      The major USA carrier's plans are unlimited talk and text and then you buy a data pool, since talk and text uses so little bandwidth compared to data. Verizon even tosses in unlimited international text.
      LarsDennert
      • There is a whole world...

        outside the United States. And outside the US WhatsApp is doing much better. Why? In Europe for example you can get pretty cheap texting packages with your wireless plan. But text messages and photo messages even more so get incredibly expansive when send cross-borders. So while many american teenagers and grown-ups may only communicate within the US and don't care about that, it is way different in Europe. Most European kids go on exchange programs to neighboring countries, even have relatives there. So WhatsApp delivers a free or almost free service that replaces a costly service. Because carriers do not offer cheap european texting and most likely won't for the foreseeable future, WhatsApp will only gain usage there.
        SeeTheUnicorns
  • Replay of Yahoo

    This is just like Yahoo's buying binge when they started. They passed out a lot of stock and guys like Mark Cuban got to cash in when they were bought out. The people bought out make out the best because there is no restriction on them dumping what is basically worthless stock on the public. These companies will never likely generate enough income to justify their market caps. It's good for the whatsapp people, but some advice, sell your stock now or at least keep an eye on it so you can sell at the drop of a hat when the first hint of bad news comes out.
    MarkinLA
  • Revenue

    Ok, so even if WthatsApp manages to charge $ 1 a year to every potential user. it would still take 20 years to pay back. Of the 450M users; how many actually pay $ 1 a year?
    WhatsApp was great as a bridge for BlackBerry users. That's mainly the reason why I ever use this. BBM now works on all major platforms.
    For iOS users to iOS users, facetime to me is a better alternative, and for other platforms, google+ or FB's own chat functions works very well.
    WhatsApp works great and I think their engineering team did a great job, but it's a bridge over the top application to bridge MMS fees and to connect legacy BB devices (current gent BB are comparable to Android in capabilities).
    emiliosic
    • Math

      That's $42 per current monthly user at that price of $19B
      notrozer
  • 16 Billion?

    I'll stick with BlackBerry Messenger.
    bb_apptix
    • Except...

      I use windows phone, and at least Whats app makes a WP8 version, bb doesn't so I hope they finish their demise soon.
      notrozer
    • I tried BBM the other day

      RAM/CPU hog and a bit buggy. the app itself is ok if they can fix the issues with the code.
      theoilman
      • and i don't know why

        it has to be constantly running in the notification bar when every other messaging app doesn't need to
        theoilman
  • Freakin Ridiculous Price

    While the market has FB at a premium - IMO is overvalued - you might as well leverage that valuation. Can WhatsApp earn a $20B return for FB or simply result in dilution of value and transfer of ownership equity to another group? Doubt there was anything like a bidding war given Google's recent embarrassment with MOT, so what drove the acquisition price to this level. How many WhatsApp users are unique to FB? But if the market is giving FB a lot of funny money to throw around - they get to throw it wherever they want.
    gigabob1
  • Facebook Becomes More Bloated

    Gee, Facebook wastes billions on another 'social infrastructure' piece. As these social apps come and go (like Facebook will) like other social fashions, this is all just window dressing.
    thenitewatch
  • Big money for short life app.

    Seems like 19 billion for 450 million subs is pretty steep. How many actually use the service?
    No doubt in a year people will have started to move on to something else. Will Facebook get its money out of WhatsApp? Very hard to do in my opinion.
    JohnnyES-25227553276394558534412264934521