When former Yahoo employees Brian Acton and Jan Koum founded WhatsApp in January of 2009 their motto was simple: No Ads! No Games! No Gimmicks!
It is a note that the cofounder Brian Acton gave to the CEO and partner Jan Koum when they started this remarkable company just over five years ago. The same note is pinned on Jan’s desk as a daily reminder on what has made WhatsApp a force to be reckoned with in the technology world.
The app is simple. It is available on almost all mobile platforms and allows users to send and receive messages, photographs, audio notes and videos over the data connectivity on their devices. So users can send messages between each other regardless what kind of operating system or phone they are using at a fraction of the cost of sending an SMS.
To put this into perspective the deal at current exchange rates works out to around R207 billion. The entire First Rand group has a market cap of around R185 billion.
Has Facebook gone mad? They have just used up a third of their cash on hand and acquired a company that just turned five years old.
The answer to that question is a yes and a no, but leaning more on the no part. Facebook has effectively just eliminated the threat from the one company that could have taken them out in the long term.
There certainly is an acquisition frenzy happening in the market at the moment. In the last two months alone we have seen close to $50 billion being splashed out by the likes of Google and Facebook.
What they do have is 450 million users around the world who have installed the app on the phones. They send more than 18 billion messages a day, share over 500 million photographs among each other daily, and millions of voice messages and videos are exchanged every single day.
No company in the history of social networks has grown so fast in such little time. And WhatsApp is not showing signs of slowing down either. Nine months ago they had 200 million users. They have more than doubled their user base in under a year, and are growing at 1 million users per day.
Facebook CEO Mark Zuckerberg said that WhatsApp is on target to hit the 1 billion-user mark very soon. Facebook in comparison has 1.2 billion users and not growing as fast.
But how does Zuckerberg plan monetise this acquisition? Effectively Facebook has paid just over $40 per user. WhatsApp’s revenue stream is made up of charging users $1 per year to use the service. This though is not being enforced. Even if they do get to 2 billion users, it would still mean that it would take Facebook 10 years before they start seeing any return on their investment.
Unless Zuckerberg has plans to put advertising into WhatsApp, an idea that Jan Koum is opposed to.
For Facebook this deal was more strategic than anything else. It gives them a stronger footprint into emerging markets like India, Mexico, and many European countries where WhatsApp is outpacing Facebook in growth.
The latest research done by World Wide Worx and Fuseware coming out of South Africa, shows that WhatsApp is used by over 10 million people on their phones. This number is just behind the estimated 11 million Facebook users in South Africa. With the current rate though, WhatsApp will rise to 63% penetration by the end of 2014 according to World Wide Worx.
Ultimately the dream that both Zuckerberg and Koum have, is to connect the world, and when you look at the latest International Telecommunication Union numbers, they estimate that there are at least 6.8 billion mobile subscribers on this planet.
Ultimately that is what this acquisition is about: to ultimately have their platform on every one of those mobile devices will make them incredible powerful. The future after is all about mobility.
Google desperately made to buy WhatsApp. Early last year they had offered a $1 billion for the company, and later that price was rumoured to go as high as $10.
What do they do now? The market is certainly ripe for more acquisitions, and products like WeChat and BBM are surely targets for Google. Even a company like Twitter has got to be on Google’s radar.
The next 10 months are going to be very interesting; we are in for what looks like a record year in tech acquisitions.