Why Facebook acquired WhatsApp for $19B?
Facebook bought WhatsApp for $19 Billion on Feb 19, 2014, which remains its largest acquisition and one of the largest tech acquisitions in history.
Firstly, let’s understand the prospect of how much money WhatsApp made until 2014. By the end of 2013, WhatsApp had 400 million+ monthly active users.
A similar messaging service in China developed by Tencent, WeChat turned in $924 million in revenue in 2014’s third quarter with 440 million users. For the sake of comparison, we can say WhatsApp should have some similar figures. But that's not the case.
Free apps do not make money. Even if they have a billion downloads on a marketplace (like App Store or Google Play). That begs us our first question.
How do they generate revenue?
Using advertisements. Yes, you read it right. By showing 3rd party apps and based on Cost per install and other key metrics, these 3rd party apps pay publishers for advertising for them. But wait, did WhatsApp show any!
With no advertisements in WhatsApp, how did they make it work?
Many of you may not be aware, but WhatsApp was free for 1 year and then $1 for every following year for some countries (I personally did not pay anything 🤐). So, looking back to the numbers. On, an average WhatsApp has roughly 300 million users paying back in 2013 that sums up to $300 million.
Does that justify the deal that Mark made with Brian & Koum 🤔
Yes, it does. Business is not about generating instant revenue but rather be a leader in the market for as long as possible. And with the correct revenue generating strategy the cash will flow in automatically.
Look what Mark Zuckerberg had to say, “WhatsApp is the only app we’ve ever seen with higher engagement than Facebook itself”.
Facebook saw WhatsApp as a threat to its services. It needed that competitor to be its ally. And with user data of 450 million users, it sure did come as a hefty price. Although it is many millions far from $19 Billion when the time comes, Facebook can expect billions and even with light marketing, it can reach a number of potential customers.
In January 2018, Facebook released a Business version of WhatsApp for Android and on April 4, 2019, WhatsApp Business for IOS.
As of today, WhatsApp has 1.5 Billion+ downloads in play store with its Business counterpart at 50 million+ downloads.
Recently Facebook also announced its new Cryptocurrency, Libra. They are planning to launch it in 2020. Its main source of operations will be from WhatsApp, according to sources. More on this later.
Looks like they are getting the job done!
That’s all for now. On a side note, Mukesh Ambani leveraged the same idea for Jio and look where it stands. Reliance Jio & Facebook to spread digital literacy! Sounds like they have teamed up as well 😮
Got more to discuss? Reach me out at kaushalagarwal79@gmail.com.
