WhatsApp Is Just What Facebook Needed

Ezra Chasser
Ezra Chasser President, Sore Thumb Marketing

Posted on February 20th 2014

WhatsApp Is Just What Facebook Needed

facebook-whatsappLet Wall Street doubt all they want. The critics will say that no company would pay for an acquisition with 2/3 stock if they thought their stock was undervalued. They'll also say that Facebook spent 1/3 of its available cash on hand to pay for this deal. None of that matters, at least not to the strategy behind what Facebook made happen yesterday. Here's how it shakes out:

International presence: While Facebook Messenger has been supremely popular here in the US, WhatsApp is the king on every other continent besides Asia. This move helps Facebook expand their footprint globally and gives them a much more significant presence worldwide, making them more attractive to not only multinational corporations, but companies who function primarily outside the US. top-3-messenger-apps User growth: WhatsApp reportedly has 450 million MAUs, compared to Facebook's 1.2 billion. Let's assume that there's some overlap between the two numbers, but not a ton. This means that Facebook just paid 1/3 of their cash (or roughly 10% of their market cap) to increase the size of their user base by 30%. The only thing that makes Facebook such a titan in the internet world is its the massive breadth of its audience and that number just got a lot more substantial.

The Internet Trifecta: Last, but certainly most important: Everyone can agree that the future of the tech business is in mobile. There are four essential components (in my mind) that make up the internet: Social, Search, Chat, and Photo.Facebook now owns the leader in Social, Photo, and now Chat. That is an extremely potent combination and will make them extremely difficult to contend with in the future, even for Google who is the obvious leader in Search, far beyond its closest competitor.

 

It will be extremely interesting to see what Facebook does with WhatsApp in the future, but I wouldn't expect the app that you know and love to change too much at this point. Since its acquisition nearly two years ago, Instagram has barely changed (in the branding/function, at least) and I would expect Facebook to leave WhatsApp alone for the most part as well. But just knowing that they have secured themselves a solid stronghold in another key area of the ongoing internet battle must feel pretty good.

Ezra Chasser

Ezra Chasser

President, Sore Thumb Marketing

Ezra Chasser is the founder of Sore Thumb Marketing, a New York-based consultancy focused on helping small business owners make the most of their online marketing presence. You can reach him via email or @sorethumbnyc.

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Comments

John Phanchalad
Posted on February 20th 2014 at 9:10PM

i'd have to agree it was a great strategic purchase and now we'll see if it sticks as a great purchase or not

Ezra Chasser
Posted on February 20th 2014 at 11:12PM

Thanks for commenting John, I'm glad you agree. Facebook really flexed some muscle with this purchase proving that they're prepared to envelope any company that's a potential threat to outdo them; that's a pretty powerful message. I can't see this not going down as a brilliant purchase even years from now (think Disney's purchase of Pixar).

- Ezra

Madhava Verma Dantuluri
Posted on February 20th 2014 at 9:38PM

Very true, this is the most expensive buy i believe and hope this is worth for FB.

Ezra Chasser
Posted on February 20th 2014 at 11:11PM

Thanks for reading Madhava, I'm glad you enjoyed. It's certainly expensive though at $42/user, it's not so much out of the range of what people are paying for comparable companies-- just that most of those comps don't have 450M active users. I think that this will end up being a smart move for Facebook.

- Ezra

mighty dissertations
Posted on February 20th 2014 at 11:25PM

Well this was expected and I see it as a postivie thing..quite excited to know about the further developments.

Vivek Pereira
Posted on February 21st 2014 at 6:19AM

The amount of money is unbelievable. Why do we poor promoters struggle for a few grand while some people get things easily on their platter. I think it's about being at the right place at the right time. Of course, the Whatsapp guys deserve every penny, but so do we.

Ezra Chasser
Posted on February 25th 2014 at 8:03AM

Hi Vivek,

Thanks for reading and for your comment. I completely agree, the valuations on these companies has gotten out of control and there's certainly a large amount of luck involved with being in the right place at the right time. At the end of the day, it's just about how much potential revenue Facebook sees in these new 450M members and what that's worth to them.

- Ezra

PS- PolicyMic ran a great article called "15 Things Cheaper than WhatsApp", including the entire world's music industry and the cost of providing clean water to the entire world for a whole year. I'd recommend checking it out: http://www.policymic.com/articles/82945/15-things-that-are-cheaper-than-...