Editorial: What’s Facebook app to?

Feb 21 2014, 00:22 IST
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SummaryGrowth doesn’t come from protectionist strategies

Considering that Facebook received large amounts of criticism for seemingly overpaying for Instagram ($1 billion) in 2012, the social network is sure to receive much more than that for the whopping sum it is shelling out for messaging app WhatsApp. Facebook will pay $4 billion in cash and $12 billion worth of shares for WhatsApp, taking the deal size to $16 billion. But the total cost of the deal could even touch $19 billion, with WhatsApp’s founders and employees receiving $3 billion in restricted stock units, vested over the next four years. By any account, that is a huge sum of money. And as such, it reveals a lot about Facebook’s strategy going forward. First, the sheer size of the deal implies that Facebook is now comfortable in its new role as a primarily mobile-based social network—it has got its mobile advertising model sorted out, and revenues from there are strong as per the company’s latest quarterly reports. The deal also highlights Facebook’s seeming desperation to make messaging acquisitions. Following the Instagram deal, Facebook last year made an offer to buy photo-sharing app Snapchat for $3 billion. The deal was rejected, but clearly didn’t dampen Facebook’s appetite for the ‘hot new messaging app’.

In that regard, WhatsApp is a good buy. With 450 million users, it probably is the only app that could assume the title of ‘Facebook killer’. This is especially the case since Facebook decided to go mobile—a move that put it in direct competition with WhatsApp. In January, Facebook reported that it had 945 million monthly users who used its various apps—Facebook Messenger, Facebook Home and Instagram—to check their newsfeeds, share photos and message each other. WhatsApp has almost all of these features and, scarily for Facebook, is reportedly adding 1 million new users daily. And it has no ads.

But, of course, the questions Facebook will have to answer will not be as much about whether it should have bought WhatsApp at all, but whether it should have paid so much for it. WhatsApp has next to no revenue model—no advertisements and a nominal subscription fee. But the point is that Facebook is not looking to make money off WhatsApp; the deal is primarily to protect itself. Which leads us to the final point about Facebook’s strategy: it has started to realise its age. On one hand, you can argue that Facebook’s recent acquisitions are a sign of

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