Why Facebook Had No Choice But To Pay $US19 Billion For WhatsApp

Mark zuckerberg red hoodie
Facebook CEO Mark Zuckerberg Screenshot/Entrepreneurship Corner

In one way, it’s weird that Facebook just agreed to pay $US19 billion for WhatsApp. The messaging app — which allows people to send texts, audio and video — does pretty much the same kinds of things that you can already do on Facebook.

So why would Facebook pay such a vast sum for something it does not need, at least in terms of software functionality?

The answer is that CEO Mark Zuckerberg probably felt he had little choice. WhatsApp processes 27 billion messages a day, and has 400 million active users a month. Facebook, by comparison, has 1.2 billion monthly users — which means that WhatsApp is already, on its own, a sizeable threat to Facebook in terms of peeling off its users and siphoning them into a messaging environment that until today, Facebook had no access to.

For years, Facebook has tried to do what WhatsApp already does: It launched Messenger, a standalone messaging app that has had great reviews and maybe 350 million users … but that didn’t slow the growth of WhatsApp.

WhatsApp has an appeal that Facebook does not: Its core audience is international. The vast majority of its users are not American even though the company is based in California. Facebook, by contrast, is kind of the opposite — its core base in is the U.S. and it has only recently made inroads globally.

So Facebook now expands its international exposure.

Here is how big that exposure is: “Messaging volume approaching the entire global telecom SMS volume,” according to Facebook’s press release.

The other big appeal is that WhatsApp allows people to communicate over Wi-Fi — that’s crucial in countries where cell data charges are so expensive that texting and calling is often limited or prohibitive. Especially in poor countries.

WhatsApp has a paid model — you subscribe to it — so Facebook has basically bolted on a revenue stream that allows it to instantly connect a huge number of poor people it otherwise would have taken years to accumulate.

Lastly, messaging apps have been HUGE in tech for the last two years. Viber was just acquired for $US900 million. Snapchat has turned down offers of up to $US3 billion. Smaller apps like Kik and LINE have peeled off tens of millions of users who were bored of Facebook.

Basically, the messaging tide was turning away from Facebook, and Facebook has now bought the biggest boat riding it.

Lastly, Zuckerberg signaled that this type of acquisition might be the future of Facebook on his Q1 earnings call:

I just want to put this in the context of the overall strategy here. We were just talking about some of the standalone experiences and Messenger, and public content is part of this overall spectrum of content that people want to share and consume as well. …

So we’ve been focused on improving the tools for public discussion and folks to be able to share public content, … And this is an area where, just like Messaging and some of the other things we’ve talked about, you should expect us to keep focusing on a lot.

He was actually talking defensively about Messenger at the time, but in hindsight he was obviously working on this deal. “Standalone experiences” was the key phrase. And now it’s done.