Trying to Make Sense of Facebook's Massive Bet on WhatsApp

Facebook is concerned about losing mind share and apparently not concerned about owning complementary properties that may not ever be fully integrated or generate revenue for the foreseeable future. So why is this a good deal for Facebook?

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Fri, February 21, 2014

CIO — Facebook achieved another series of firsts this week in one gargantuan swoop, though it came at a staggering, virtually unparalleled price of $19 billion.

Facebook and WhatApps

The WhatsApp acquisition reinforces Facebook's lead as the world's largest social network and also adds to its growing array of platforms that command user attention and engagement on mobile platforms.

What's driving this deal and leaving competitors dismayed is Facebook's continued determination to acquire and innovate in the face of disruption. It also shows that Facebook is concerned about losing mind share and increasingly comfortable with owning and operating complementary properties that may not have to be fully integrated after all.

"They've built a product and a network that has almost half a billion people actively using it in five years. It would be pretty stupid for us to interfere."
-- Mark Zuckerberg

WhatsApp More Engaging Than Facebook

"It's the only app we've ever seen with higher engagement than Facebook itself," CEO Mark Zuckerberg said during a call with analysts. "We think WhatsApp is on a clear path to have a billion people using their product."

[Related: How WhatsApp is Different Than Other Messaging Apps]

Giving up roughly 10 percent of its market value for WhatsApp's 450 million monthly active users couldn't have been easy to swallow for Facebook, but Zuckerberg says the deal came together in just nine days. Many analysts are wondering how much of that price was purely by a defensive move to keep the fast-growing mobile messaging market away from its competitors. Facebook's own Messenger mobile app isn't exactly setting the world on fire so something had to give.

Zuckerberg: Money Doesn't Matter, We Won't Interfere

Unlike the flexibility Facebook acquired in Instagram's executive team, WhatsApp's founders are diametrically opposed to advertising and have been unafraid to say so since day one. Making the kind of money that would typically justify such a high price doesn't even appear to be on the radar, and Facebook is fine with that. "We're not really concerned about monetization today, we're focused on growth," said WhatsApp CEO and co-founder Jan Koum, who will join Facebook's board once the deal closes.

"Our explicit strategy is for the next several years to focus on growing and connecting everyone in the world. We believe that once we get to being a service that has a billion, two billion, maybe even three billion one day, that there are many clear ways that we can monetize," Zuckerberg says.

"One of the big reasons why it makes sense for WhatsApp to join us is that, as an independent company, they wouldn't have been able to purely focus on growth," Zuckerberg adds. "I don't think that ads are the right way of monetizing messaging services, and I know Jan shares this philosophy."

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