Facebook has announced that it will acquire mobile messaging firm WhatsApp for around $16 billion, that will be in the form of $4 billion cash and company shares worth $12 billion. There is also an arrangement for $3 billion worth of restricted stocks that will vest 48 months after the deal has been closed.
Integration of mobile messaging has been the trend of late. Japanese retail giant Rakuten announced on Valentine's Day its acquisition of Viber Media for $900 million. The $19 billion spending of Facebook, however, rocked the technology world, prompting many to ask if the mission of connecting more people across the globe worth that much.
WhatsApp has more than 450 million users - a report in December revealed that Facebook Messenger trailed WhatsApp in Brazil, South Africa and Indonesia - with about 70 percent of these users using the platform to exchange messages that can challenge the numbers of the text messages sent through telecommunication networks across the globe. About a million people everyday sign up for the service. The messaging platform, being run by just 50 employees, is seen as an inexpensive alternative to texting especially when Internet connection can essentially be accessed anywhere.
"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable. I've known Jan for a long time and I'm excited to partner with him and his team to make the world more open and connected," said Facebook founder and chief executive Mark Zuckerberg.
Zuckerberg was referring to Jan Koum, 37, CEO and co-founder of WhatsApp. Koum is believed to own 45 percent of WhatsApp and is now worth $6.8 billion, a far cry from his situation when he migrated to California with his mother from Ukraine when he was 16 years old and when he depended on food stamps at one point to survive.
"Clearly, it's going to be a worldwide, cross-platform app that's popular probably in areas where Facebook isn't. They're buying a large, robust user base that has a varied demographic," said Gartner social media analyst Brian Blau.
During a conference call, Zuckerberg said that WhatsApp is seen as a leader in the messaging world especially in Europe, India, Latin America, and Asia.
However, Asia is also a chaotic messaging space dominated by local players such as KakaoTalk and WeChat. Kakao, for example, is used by 93 percent of smartphone users in South Korea. WeChat, on the other hand, has 230 million users while another player, Line grabs 300 million people who spend to send cute stickers to their friends and family members.
"Facebook's rich valuation per user for WhatsApp confirms that instant-messaging apps lead the next Internet gold rush. The steep valuation could be a positive signal for rival messaging apps such as WeChat, Line and Kakao, as well as BlackBerry's BBM service," said Bloomberg Industries Internet analyst Praveen Menon.
Though WhatsApp now belongs to Facebook, its users need not worry as the company will remain independent. "WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product," the company disclosed in a statement.
Zuckerberg shares the view that ads is not the right path to monetize messaging systems but clearly showed how messaging systems will shape the near future.
WhatsApp's move can also be considered a very smart one. A new report has just surfaced that Google had allegedly offered $10 billion to buy the company but it was turned down. Patience, even for a bit longer, can indeed pay off (which can translate to a whopping $9 billion more).
For other messaging platforms, the latest move of Facebook has pushed their values up by a few notches and it is a clear sign that the giants of the technology world are closely watching them as possible aces they want to pocket in the near future.