On Wednesday, Facebook announced it spent $US19 billion buying the messaging app WhatsApp.
With this purchase, Facebook became the king of mobile messaging, but critics and competitors were concerned about how Zuckerberg would profit from this acquisition.
Aswath Damodaran, a professor of finance at NYU, wrote a blog post with a few theories on how this acquisition could pay off.
WhatsApp is used by 450 million people worldwide to send an assortment of messages and photos. It’s free for one year and then the app charges you $US0.99 per year.
In order to break even, Damodaran stresses that Facebook needs to focus on users because it’s staggering how many people use the app.
The professor theorizes that 2.5 billion new users need to be added in order to make money off that small fee the app charges after the first year.Based on how popular it becomes, Aswath thinks WhatsApp could increase its $US0.99 yearly subscription.
One source of frustration could be ads. The WhatsApp founders refuse to run ads on the app, but Aswath claims that Facebook could advertise the app on its own site without running the risk of losing users.
Damodaran concludes his post by offering this strategy for Facebook: figure out the best way to attract users and keep them, discover the best way to make a profit without scaring users away, and study how to make this app valuable to its business instead of strictly focusing on how to make money.