Facebook to Acquire WhatsApp for $19 Billion

February 20, 2014 11:58 by Clayton Reeves in M&A, Technology  //  Tags: , , , , , , ,   //   Comments (0)

In the biggest internet deal since Time Warner / AOL deal in 2001, Facebook has agreed to acquire WhatsApp for $19 billion. The first thing to notice about this deal is the price.  When Facebook paid $1 billion for Instagram, many thought it was too large of a price tag for the mobile photo app. However, WhatsApp is a much larger fish with a striking growth profile.

WhatsApp is a messaging service that eschews typical ad-based revenue business models for a simple, fast, easy to use messaging interface. The app has been successful because it is best in class and does not track user data or spy on users. According to Jim Goetz of Sequoia Capital, WhatsApp's only venture sponsor, “It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police. Jan’s childhood made him appreciate communication that was not bugged or taped.”

As reported by CNN, WhatsApp has more than 450 million users (more than Twitter) and is adding a million users a day. Facebook CEO Mark Zuckerberg recently said, "No one in the history of the world has done anything like that." WhatsApp is also the most popular messaging app for smartphones, according to OnDevice Research. Unique to this deal is the fact that WhatsApp will still refuse to use advertisements, so Facebook's typical monetization strategy will not apply. It will be interesting to see how the business combination plays out, and whether WhatsApp will truly be able to resist monetizing their hundreds of millions of users with advertisements or data collection. 

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