Introduction
Facebook.com made their biggest acquisition with popular IM (internet messaging) service WhatsApp for $19 billion ($4billion in cash, $12 billion in Facebook stock and $3 billion in future stock). This deal is a behemoth in comparison to their past purchase of Instagram in 2012 worth $1 billion. This paper will argue over this acquisition and its viability through analyzing the pros and cons for Facebook through this acquisition. Considering everything, the main argument here is if this deal is a ploy to acquire the competition or it is an attempt to diversify into new markets. WhatsApp service allows users to send their messages over the internet through their mobiles and avoid paying text message charges. In addition, customers can also send voice recordings, pictures, videos and their location free of charge. Mark Zuckerberg, the founder of Facebook said that he believes that WhatsApp will hit user base of 1 billion in coming years or months can this making it an attractive acquisition. Considering the $1 annual fee that WhatsApp charges their customers making their money back on $19 billion investment would take a considerable amount of time. This brings for forward the real question in the landscape of mobile technology and social media. Is this deal a ploy to acquire the competition or it is an attempt to diversify into new markets (Blabey).
Argument
This acquisition has been spawned with criticism, and some praise has also come its way. When seen as an ongoing strategic plan of social media, this acquisition merits both praise and criticism in equal measure. Considering everything, the main argument here is if this deal is a ploy to acquire the competition or it is an attempt to diversify into new markets (Raghavan).
This deal seems synonym to Facebook’s strategy and reputation of acquiring mobile platforms, illustrated with the acquisition of Instagram and failed attempt to acquire Snapchat. Thus, it can be argued that Facebook views WhatsApp as another threat to their chatting service or their own mobile platform that they possibly are planning. Facebook has decided to ditch staying idle and watching WhatsApp rake in billions and compete with them in coming future. This seems like a clever manoeuvre, as WhatsApp is growing and reaching millions daily and would have reached of a billion soon. There is another opinion here, as this move is too much even for a giant like Facebook. This move can become their detriment if the leaders at Facebook avoid their speciality of the main channel of social media and connecting people (Stuart).
This acquisition can also be considered as a stroke of genius by Facebook. As these firms do not have user base to compete, skill to develop and create the technology needed to make the real reason businesses start and exist, to make money. They added the photo sharing app at Instagram. After Facebook failed in diversifying their platform into messaging and photo sharing, they decided to buy the one they couldn’t beat. WhatsApp acquisition can be a smart move as millions of customers all over the world use this service on a daily basis. This strategy of diversification helps Facebook to increase their market presence and build their position as Tech conglomerate (Stuart).
Facebook’s 19 billion investment in firm with 450 million customers makes the customer acquisition rate of $42 per customer. In comparison to investment made by other firms like Facebook ($141.32), Twitter ($83.53) and LinkedIn ($84.95) for customer acquisition and market capitalization, this investment can come out to be a bargain. As far as monetary benefits are considered many critics have claimed that Facebook has overpaid for a firm that charges only $1 to their customers annually. Spending $19 billion on buying WhatsApp that has simplest functionality but negligible revenue seems like a mistake. WhatsApp has managed to develop customer base of 450 million, but they have stuck to IM and do not allow ads on their platform. With these disadvantages Facebook is banking on WhatsApp to help them improve their brand and increase their market presence. There another side to the coin as this bet might end up being a masterstroke by Facebook. This acquisition has already helped them shut out their biggest competitor Google from the phenomenon called WhatsApp and gain millions of users and above all their data – in many emerging markets (Richter).
This acquisition buffers the interests of Facebook against one of their competitors that could have posed a significant threat as an independent or subsidiary of their competitor Google. This deal will also extend the reach of social network, with WhatsApp’s 450 million user base that spans largely from emerging markets like India, Africa, Latin America among others. Facebook has invested heavily to penetrate these markets in past, WhatsApp gives them cheaper and more targeted customer base with data. Since the majority of population in these emerging markets use WhatsApp as their preferred messaging service, the data collected from the messenger could be worth a lot more for Facebook in their strategic targets to better compete and beat Google (Samachar.com).
WhatsApp is not only a fast-growing firm; it is the fastest growing tech firm in the world. With their customer base of 450 million that is increasing at the rate of 1 million per day, the growth rate is leaving every other tech giant in shade. Comparing their growth with other online services like Gmail (123 million), Skype (52 million), Twitter (54 million) and Facebook (145 million) can reveal that it is beating all of them hand down (Kovach).
Despite all these plans and strategic goals of Facebook, WhatsApp can turn out to be a financial nightmare for them. Because majority of their users are teenagers and cost-sensitive people based out of foreign countries—a customer base that be difficult to target and penetrate. WhatsApp charges just $1 annually to their customers, and Facebook has paid $42 per customer, following the current trend it will 40-50 years for Facebook to see any return on their investment. Facebook can increase WhatsApp annual charge, but this would see customers leave for competitors. Despite no immediate way available for Facebook to monetize their investment, they are playing a long term game. Mark Zuckerberg, the founder of Facebook, has stated, “We believe that once we get to being a service that has 1 billion, 2 billion, maybe even 3 billion people one day, that there are many clear ways that we can monetize” (Tate).
Conclusion
Facebook’s planning to capture the maximum users they can, before they can start to make money from this deal. Facebook is playing the waiting game to implement their advertising model and reach most people they can in emerging markets. In addition, his deal gives Facebook access to half a million users and their data, adding to the virtual assets that come with this acquisition. I personally believe that time will tell if this acquisition is a win-win or win-loss for Facebook and WhatsApp. One way or another, Facebook will attempt to make their money back on WhatsApp investment and time will tell if their business model of selling ads or building apps will make this deal a strategic mistake or a masterstroke.
Works Cited
Blabey, D. "Facebook purchases WhatsApp for $19 billion." Simplify Digital. Simplifydigital.co.uk, 20 Feb. 2014. Web. 6 Mar. 2014.
Kovach, S. "WhatsApp Is Growing Even Faster Than Facebook Did When Facebook Was The Same Age India." Business Insider. Businessinsider.in, 20 Feb. 2014. Web. 6 Mar. 2014.
Raghavan, S. "WhatsApp deal: Facebook’s future lies in investing in R&D - Economic Times." The Economic Times. EconomicTimes.com, 24 Feb. 2014. Web. 6 Mar. 2014.
Richter, F. "Facebook Paid $42 Per WhatsApp User." StatistaInfographics. Statisca.com, 20 Feb. 2014. Web. 6 Mar. 2014.
Stuart, D. "Facebook acquires WhatsApp - Buy the Competition or Diversify? | Social Media Today."Social Media Today.socialmediatoday.com, 23 Feb. 2014.Web. 6 Mar. 2014.
Tate, R. "How Facebook Will Squeeze $19 Billion Out of WhatsApp | Wired.com." Wired Business. Wired.com, 21 Feb. 2014. Web. 6 Mar. 2014.
"What the future holds for WhatsApp after acquisition by Facebook." Samachar.com. CNN IBN, 22 Feb. 2014. Web. 6 Mar. 2014.
