Facebook pays cool £11 billion for WhatsApp

Facebook CEO Mark Zuckerberg. Picture: Getty

In a move that throws down the gauntlet to the Californian firm’s competitors in the thriving mobile marketplace, the mammoth deal will grant Face-book access to 450 million new customers.

The agreement, the most expensive acquisition in the history of a technology sector given to bloated valuations and hyperbole, is the latest show of force from a company intent on thwarting potential rivals by opening its chequebook.

Analysts described the costs involved as “staggering” and said it demonstrated Facebook’s determination to attract a younger audience.

Mark Zuckerberg, the founder and chief executive of Facebook, described the services offered by WhatsApp as “incredibly valuable”, adding that they would help further his company’s mantra of making “the world more open and connected”.

Founded less than five years ago, WhatsApp has become one of the most popular mobile apps in the world, coveted by consumers who do not wish to pay to send text messages, pictures and audio and video clips. It also lets users communicate with people overseas without incurring expensive charges and phone calls.

Although the firm, also based in California, has just 55 employees, they will be granted a total of £1.8bn in restricted Facebook stock that includes a further £7.2bn in shares and £2.4bn in cash.

Jan Koum, the co-founder and chief executive of WhatsApp, which will retain its own identity after the deal goes through, said: “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide.”

Professor Will Stewart, from the Institution of Engineering and Technology, said taking WhatsApp into the Facebook family of apps and services represented a wise move that would keep it ahead of its competitors – at least for the moment.

He explained: “Obviously, WhatsApp adds instant messaging to Facebook which must strengthen their position for the moment.

“Equally, all app types rise and fade, so established social media formats like Facebook will be overtaken by something new, and picking up candidates that might have ultimately replaced them may be a good survival strategy for a while.”

Magister Advisors, an investment bank that advises leading technology and internet firms, described the acquisition as a “simultaneously offensive and defensive move akin to putting the legs of leading footballer Lionel Messi on a sumo wrestler”.

Victor Basta, its managing director, said: “The WhatsApp deal is a conquest of another emerging platform by Facebook which is increasingly looking like a digital republic.

“WhatsApp’s 400 million-plus user base is bigger than Twitter’s which has a higher valuation. The deal buttresses Facebook against a potential decline in engagement on its core platform and adds another convenient layer of engagement for those in its existing user base that don’t currently use WhatsApp and potentially better social integration for those that do.”

450m users after 5 years

In less than five years WhatsApp has become one of the most used mobile phone apps around the world – with 450 million monthly global users.

The messaging service allows users of iPhone, Blackberry, Android, WIndows Phone and Nokia smartphones to exchange unlimited messages, videos, audio and images across the world for free via the internet.

WhatsApp, which charges a download fee, was launched in 2009 by two former Yahoo! employees who were determined to turn away from ad-driven technology.

As of December last year it had just 50 employees at a time when an average 50 million users were signing up each month.

In a 2012 blog co-founder and chief executive of WhatsApp Jan Koum said: “When we sat down to start our own thing together three years ago we wanted to make something that wasn’t just another ad clearing house.

“We wanted to spend our time building a service people wanted to use because it worked and saved them money.”

Brian Blau: Massive deal is a drive to attract younger aucience

This deal shows that Facebook wants to attract a younger audience. In recent years Facebook has grown in popularity among older people, with younger users increasingly tending to post only things they would be happy for their parents or grandparents to see.

But acquiring WhatsApp will not just give it a younger demographic, it will be a different demographic. When Facebook bought Instagram, it was clearly going after a different type of user and I think the exact same thing is happening here.

Facebook is interested in expanding its business and the way to do that is to either grow products organically or make the kind of acquisitions that gets them the type of audience that they don’t normally have access to.

That’s what Facebook is all about – collecting conversations. It’s in the business of getting people online and having them connect with their friends, family and co-workers. By having access to WhatsApp users, the company now has younger users based across wider locations.

I think that this is a bet on the future for Facebook. The company is aware it will have to expand.

WhatsApp is in the business of collecting people’s conversations, so Facebook is going to get some good and different data. It really helps them keep their user growth and engagement high.

From what I understand, WhatsApp users use that app more than Facebook users use Facebook. It’s an audience that is highly engaged and likes to have not just person-to- person communications, but discussions in a group.

Getting and keeping those kind of users is crucial and in the future; those types of conversation and connections will bring value. Facebook is all about data, a very different type of data to what Google might collect. It’s information about people – what they do, what they say and where they go.

I think the deal will help Facebook prosper as long as WhatsApp users don’t revolt in some kind of backlash. I don’t think they will.

Instagram is the best example. There was fear in the beginning that lots of users would leave, but the numbers have grown dramatically ever since.

The amount Facebook paid is staggering. On it surface it seems like it’s potentially overvalued and that Facebook paid too much for what is a messaging app. But looking at it, Facebook must be awfully confident it has the ability to generate cash to grow.

• Brian Blau is a research director at New York-based analysts, Gartner, specialising in technology and business.