The world will sleep with a different kind of realization tonight — well at least the one that uses WhatsApp to say good night will. In what might be the most expensive, and perhaps overvalued buyout in recent tech acquisitions, Facebook has forked out a whooping $19 billion for WhatsApp.
So what really changes?
WhatsApp CEO Jan Koum will join the Facebook board of directors, and the team will move and operate from FB's Mountain View, California office. WhatsApp will continue to be an individual messaging feature, alongside Facebook messenger. So breaking it down a little, prima facie WhatsApp is the winner here, with billions in stock and cash and integration with the biggest social media firm the world has seen yet, but Facebook could just have a much bigger plan in place that may not be so obvious right now.
Mark Zuckerberg in his joyous status update shared, "WhatsApp will complement our existing chat and messaging services to provide new tools for our community". Facebook claims that because the two services are useful for different purposes — one for your Facebook contacts and the other for phone contacts and smaller groups — they will not be mixing the two services.
In his blog post, Jan Koum said that WhatsApp has not entered into a compromised deal, and the user experience will not be affected in anyway. He writes, “Almost five years ago we started WhatsApp with a simple mission, building a cool product used globally by everybody. Nothing else mattered to us. […] here is what will change for you, our users , Nothing.”
The user experience will be unchanged, however Zuckerberg added, “over the next few years we are going to help WhatsApp to grow".
The Number game
$134 billion, that is Facebook's net value. Compared to that, $19 billion seems peanuts, but for the 5 ex-Yahoo! employees who built the chatting service, this is big. It has been the biggest exit for a venture-backed company, and strangely this is half of what Yahoo! is worth. No wonder this should mean a lot for Jan Koum and Brian Acton, founders of WhatsApp.
Koum moved to the US from Ukraine at the age of 16 and lived off food-stamps, venture capitalist Jim Goetz claims in his blog . With the current deal in place, Koum's worth would be pegged at $6.8 billion and Acton at at least $3 billion, based on Facebook's closing share price on Wednesday.
In an event of the merger falling through, Facebook has still agreed to pay an unusual sum of $2 billion to WhatsApp, which includes a $1 billion fee in cash and shares of Facebook's Class A common stock of $1 billion, based on the average closing price of the ten trading days preceding such termination date.
A chance to get back
More often than not, businessmen love to compete. Koum has seen a bumpy ride until he founded WhatsApp. Acton, refused by Twitter and Facebook in the 2009, has now shown the world that he is worth more.
Facebook on its part has already tried to buy out the likes of Twitter and SnapChat in the past, only to be turned down smugly. However, it has made a bigger point with WhatsApp — especially because the latter enjoys a much bigger user base as compared to Twitter's 200 million users.
Apart from additional profits, FB has more reasons to celebrate; it has a better per-employee-profit ratio, thanks to WhatsApps lean team of just 50. Also, it poses a real competition to Apple's iMessage,Tencent's WeChat, SnapChat, LINE, Kik Messenger, and Kakao-Talk, alongside its home-brewed Facebook Messenger. Moreover, Facebook will now be a formidable player in the mobile communication market, something many companies admit they were a tad to late to move into.
For both these CEOs the merger is bigger than just the monetary gain, it’s also a personal victory of sorts.
The Data snooping act
Alongside a million downloads, 450 million users use WhatsApp everyday. Add this to Facebook's official figure of 900 million users, and the social networking giant gains an upper hand in user data analysis, but that also means it sits on a gold mine of user behaviour related information worth much more than $19 billion.
However, in August 2013 Facebook released the numbers of data requests made by government bodies across the world in the first six months of 2013 alone, with a total of 12,000 requests, the US sent the largest number of requests, the EU responsible for 8,590 demands while India stuck to a low of 3,254.
In a statement, Facebook General Counsel Colin Stretch assured that they believe in transparency and have stringent processes in place to find legal deficiencies in such requests. “Transparency and trust are core values at Facebook. We strive to embody them in all aspects of our services, including our approach to responding to government data requests. We want to make sure that the people who use our service understand the nature and extent of the requests we receive and the strict policies and processes we have in place to handle them", he said.
"Governments make requests to Facebook and many other companies seeking account information in official investigations. The vast majority of these requests relate to criminal cases, such as robberies or kidnappings. In many of these cases, these government requests seek basic subscriber information, such as name and length of service. Other requests may also seek IP address logs or actual account content. We have strict guidelines in place to deal with all government data requests," said Facebook’s press release in 2013.
Setting foot in Europe and Emerging Markets
Emerging economies have seen users picking the mobile platform over the web, thus underlining the popularity of apps. Facebook is the most popular social network, it boasts of over 1.23 billion users with 945 million accessing the service via the mobile platform. All this makes acquiring the biggest mobile messaging app a rather important deal.
After tasting success in the European markets, big names such as Digg , Viber and Reddit have seen Facebook steal their audiences in the recent past, which will only increase with its control on WhatsApp.
That said, Facebook has seen a ban in China in 2009, with Renren and Sina Weibo taking over the entire billion Chinese user base. Zuckerberg in an interview with Charlie Rose in 2011 said, “the way that we look at it now is there’s so many other places in the world where we can connect more people more easily without having to face those hard questions that I think a simple rule in business is, if you do the things that are easier first, then you can actually make a lot of progress.” Despite the shrug-off Facebook has ever since been playing the surround-and-conquer game that includes buy outs, adding Chinese programmers to their pay rolls and registering trademarks in China & now the the merger with WhatsApp that widens the crack a little further.
Operations at WhatsApp
Koum promised that there will be no advertisements,“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.”
Although the two messaging services will operate independently and WhatsApp will have autonomy in operations, becoming a part of Facebook will allow WhatsApp to inherit a few things. With the team remaining in the Mountain View office, it gets access to Facebook's analytics arm. With more resources at hand, and more importantly access to advanced processing for data, their joint information processing power could probably be much bigger than that of Google.
Internet.org, Zuckerberg’s new dream
In the statement made on Facebook’s 10 anniversary, Zuckerberg had announced plans to make cheaper and easier internet services available to every part of the world. Zuckerberg said, “Our mission is to make the world more open and connected. We do this by building services that help people share any type of content with any group of people they want. WhatsApp will help us do this by continuing to develop a service that people around the world love to use every day.”
With the social angle added to Facebook’s capitalist operation, Zuckerberg joins the likes of Google that claims its mission is to integrate all the information in the world, and make it free for users. However, with Google, Skype, Twitter and other internet biggies being embroiled in controversies surrounding user data, no information and service is really safe. Rightly said, there are no free lunches in this world.