Facebook Buys WhatsApp: But, Why?

It’s not every day a deal of this proportions occurs in the digital space; admittedly, until I read a little more into the Facebook purchase of WhatsApp, my initial reaction was, well, wtf?!?

At first, a $16 billion dollar deal for the popular messaging app seemed preposterous. Sure, WhatsApp has been in the top of the Apple app heap for quite some time, but really, it’s basically just an SMS substitute (that also happens to send pics, voice messages, and videos– minor details).

OK, maybe an SMS substitute– on steroids.

WhatsApp has a reported 450 million active users worldwide; the company estimates a whopping 70% of which are active on any given day. In case you’re keeping track at home, that’s a higher percentage of active engagement than Facebook itself. WhatsApp’s service is reportedly also broadly used as a stand-in for standard SMS in countries such as The Netherlands and Spain. Given Facebook’s recent issues of diminishing teen engagement, and the fact that teens do a whole hell of a lot of texting, this could be a way for the brand to re-capture some of this valuable audience.

One of the more interesting things about WhatsApp is its business model. In a blog post last June, WhatsApp skewered the practice of selling ad space, even incorporating a part of a Tyler Durden rant in the intro. Instead, WhatsApp utilizes a subscription model– the first year of use is free, and each year following cost $.99. A trivial cost, to be sure, compared to phone carrier rates; but, with the potential to rake in serious annual revenue. Its an idea I’ve explored in the past; one that WhatsApp is pulling off, rather successfully.

The deal includes $12 billion in Facebook stock & $4 billion in cash. Mark Zuckerberg announced yesterday that he plans to operate WhatsApp separate from Facebook for now, and will focus on the product and user growth.

The Facebook purchase of WhatsApp comes at a time when the social network is committed to diversifying its portfolio; early this month, Facebook Paper, a socially-fueled newsreader, hit mobile devices to critical applause.

(Source: Ad Age)

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