When Facebook reached out to Snapchat, it made sense. A few billion dollars for an app that lets you send disappearing messages seems a little crazycakes, but Snapchat is really popular with teens, a demographic that's falling out of love with the world's largest social network.
But when Facebook announced that it was spending north of $16 billion on WhatsApp, an SMS replacement service that's widespread overseas, Mark Zuckerberg's latest purchase raised a few eyebrows.
WhatsApp doesn't have ads. It's a free app in many countries, while in others it uses a subscription model: 99 cents per year after the first year. It doesn't store messages or collect any data on its users. Facebook has no idea if WhatsApp's 450 million monthly active users skew young or if and how they overlap with the network's own 945 million mobile monthly actives. When it comes to user information and revenue opportunities, WhatsApp is the antithesis of Facebook.
But the service fits in with Facebook's larger goal: to be the social utility for your life.
Wherever you go, Facebook is there
Facebook is like a cable company or an Internet provider--depending on where you live, there is likely a dominant utility company. There may be other, smaller options, but since they can't match what the big players offer, you default to the biggest. It's safer.
There are other social networks you could choose, but Facebook is the biggest. Social networking has become an essential part of our lives, a way to stay connected with the world at large. And when Facebook sees rapidly growing services that are luring users outside of the social network's scope, it has to follow. In some cases, it tries to replicate the service; in others, Facebook's own offering doesn't cut it. So just as the company did when it saw that Instagram's photo-sharing efforts were outpacing its own, CEO Mark Zuckerberg opened the corporate wallet and shook out some billions.
If Facebook and its stand-alone apps--Instagram, Paper, Messenger, and now WhatsApp--are the places you go to share photos, send messages, read the news, and stay connected to friends and family, then leaving the fold will be that much more difficult. Just when you think you're out, they pull you back in.
WhatsApp's future: No ads, more subscriptions
WhatsApp users don't have to worry about big changes anytime soon. Zuckerberg said in a Wednesday call with analysts that WhatsApp, like Instagram, will remain a stand-alone app that operates independently from Facebook.
The messaging service isn't going to be an immediate revenue stream for Facebook. WhatsApp cofounder Jan Koum's opposition to in-app advertising is well-documented and not going away just because Facebook now holds the purse strings.
Instead, the app will focus on growth. Once WhatsApp reaches 1 billion users, making money will become more important. In a jab at Snapchat--oh, how times have changed--Zuckerberg said WhatsApp's 50-something employees are forever "obsessing over perfecting messaging, not adding a lot of bloated features into a messaging app.
"I think over time people are going to pay for that and want to pay for it and will be happy to pay for the best [app]," he added.
In other words, once WhatsApp is the messaging service all your friends use, you will want to be a subscriber. With WhatsApp as part of its arsenal, Facebook could take on traditional phone carriers. WhatsApp processes nearly as many messages as the entire telecom industry, which makes about $100 billion a year in fees for SMS and MMS messages. Facebook probably won't charge you as much for a WhatsApp subscription as you pay for a monthly texting plan, saving you money in the long run.
As Xeni Jardin of Boing Boing noted, carriers in regions where WhatsApp is wildly popular--swaths of Latin America and parts of Asia--charge exorbitant rates for SMS and MMS messages in many parts of the world, so free over-the-top messaging apps are cost-cutting resources. Plus, you don't have to rely on spotty cell reception to stay connected with friends if you've got a Wi-Fi connection. WhatsApp also doesn't play favorites with platforms: It's got apps for all phones, even poor BlackBerry.
With Facebook behind it, WhatsApp can now grow its U.S. presence. Cofounder Koum said the app will roll out new features this year, but don't expect anything flashy: "Things like message speed delivery and app reliability and battery life...that will continue to be our focus."
Spoken like a true utility company.