On Wednesday, Feb 19, Facebook announced its largest acquisition ever, saying it would pay at least $16 billion for WhatsApp’s text messaging application with 450 million users around the world who pay little or no money for it. The one lakh crore price tag is the most ever paid for a venture-capital-backed company. It also means Facebook believes WhatsApp is worth over $42 per user, making the company more valuable than household names like Southwest Airlines, Sony, American Airlines, Ralph Lauren, Marriot International and Campbell Soup.
Most of all, the deal emphasises that these are early days in the transition from personal computers to mobile phones. The lack of real estate on a mobile phone means less advertising, more relevant content and the viral nature of its appeal is how WhatsApp has reached 450 million users (72% active) without spending a penny on marketing.
The obscene price tag is also the price Facebook is paying for neglecting the mobile phone market and sees this acquisition as the easy way to hop onto the bandwagon and lead the way for the world once more.
The mobile phone is the future, but happens to advertising?
Jan Koum the ex-Ukrainian boss of WhatsApp, has a well-known aversion to collecting people’s data and plastering advertising over his app, Here’s what he had to say in his blog a few years ago –
“When we sat down to start our own thing together three years ago we wanted to make something that wasn’t just another ad clearinghouse. We wanted to spend our time building a service people wanted to use because it worked and saved them money and made their lives better in a small way. We knew that we could charge people directly if we could do all those things. We knew we could do what most people aim to do every day: avoid ads.
No games. No ads. No gimmicks. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.
No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow. We know people go to sleep excited about who they chatted with that day (and disappointed about who they didn’t). We want WhatsApp to be the product that keeps you awake… and that you reach for in the morning. No one jumps up from a nap and runs to see an advertisement.
Advertising isn’t just the disruption of aesthetics, it insults to your intelligence and the interrupts your train of thought. At every company that sells ads, a significant portion of their engineering team spends their day tuning data mining, writing better code to collect all your personal data, upgrading the servers that hold all the data and making sure it’s all being logged and collated and sliced and packaged and shipped out… And at the end of the day the result of it all is a slightly different advertising banner in your browser or on your mobile screen.
Remember, when advertising is involved you the user are the product.”
It’s estimated that Koum holds a 45% stake in the company, while Acton holds over 20%.
At WhatsApp, engineers spend all their time fixing bugs, adding new features and ironing out all the little intricacies in our task of bringing rich, affordable, reliable messaging to every phone in the world. That’s their product and that’s their passion. Data isn’t even in the picture. They are simply not interested in any of it. WhatsApp has just 32 software engineers, which means that each one supports some 14m users. And the volume of messages it is handling is said to be the equivalent of all the SMS messages transmitted by the world’s telecoms companies. WhatsApp transmits 18 billion messages a day, but doesn’t send any itself.
The future certainly belongs to the mobile phone and because they are so personal and private to the user that putting an advertisement there is not a good idea.
When people ask why WhatsApp charges for its service, the company says “Have you considered the alternative?”.
PostScript: Before founding WhatsApp, both Brian Acton and Jan Koum were actually turned down for jobs at Facebook.
gautams blog dot com 