Facebook gets message and pays $19bn for WhatsApp

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ALMOST five years ago, a pair of Silicon Valley technology entrepreneurs set out on a simple mission to build a cool product used globally by everybody.

Yesterday, Jan Koum, a Ukrainian immigrant, and Brian Acton, a Stanford University alumnus, announced they had agreed a deal to sell their mobile messaging app to Facebook for up to $19bn.

Whatsapp allows users to exchange messages without having to pay for SMS. The service now supports more than 450m monthly users and is adding one million more every day. It is ad-free.

Mark Zuckerberg, the founder and chief executive of Facebook, said: “WhatsApp is on a path to connect one billion people. The services that reach that milestone are all incredibly valuable.”

The deal is worth more than Facebook raised in its own initial public offering and underscores the social network’s determination to dominate the market for messaging.

Analysts at Espírito Santo Investment Bank said the price makes the $1bn paid for photo-sharing app Instagram in 2012 look quite modest and is 16 times the $1bn figure that search giant Google reportedly offered for WhatsApp last year.

“It is WhatsApp’s success in mobile and engagement with its user base, 70 per cent of which use the service every day, that Facebook has been unable to attain through its Messenger application,” they added.

Kristal Ireland, a Yorkshire-based digital marketing expert, said the deal is a game-changer, not just for the technology industry but for modern telecommunications as whole.

She described Facebook’s move as a decisive and calculated takeover of an app that threatened the future strategic direction of its own instant messaging platform.

“What we are seeing is a huge shift in the instant messaging user base away from traditional, and often chargeable, text messaging and multi-media messaging into free messaging platforms like WhatsApp.

“Quite simply moving past the initial question of how Facebook will monetise WhatsApp we need to think in terms of Facebook acquiring an enormous international user base, which left unchecked could rival its own 945m active users and challenge its own messaging services,” said Ms Ireland, who is strategy director at Enjoy Digital in Leeds.

She added: “Facebook likes control of the users and isn’t afraid to preserve it, whatever the cost.”

Professor Will Stewart, of the Institution of Engineering and Technology, said the acquisition of instant messaging will strengthen Facebook’s position – for the time being.

“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,” he added.

“This does show the growing significance of mobile, though of course Facebook is on mobile anyway. But Facebook has been around a while now so the real question is what comes next?”

Rick Summer, an analyst with Morningstar, warned that while investors may welcome the addition of such a high-growth asset, it may point to an inherent weakness in the social networking company that has seen growth slow in recent quarters.

“This is a tacit admission that Facebook can’t do things that other networks are doing,” he said, pointing to the fact that Facebook had photo-sharing and messaging before it bought Instagram and WhatsApp.

Nathan Lane, director of Campfire PR in Leeds, said Facebook is losing its cool among young people who are leaving the social network to avoid their parents and are using direct messaging platforms such as Whatsapp instead.

He added: “The mind-boggling price may seem high but if it keeps Facebook relevant to tomorrow’s consumers, it may prove a bargain.”

Facebook is paying $42 per user in the deal.

Twitter: @bernardginns

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