It is old news now that Facebook is buying messaging application WhatsApp for $19bn in cash and stock. When I heard the news, I notified colleagues and friends via the modern messaging service, and not Facebook. Why? I don’t see Facebook as a messaging service provider. I see it as a social media service that happens to have an add-on messaging service. Even in today’s overpriced valuations for niche tech ideas, $19bn is a lot of money, especially for a service that has the potential of being replaced by the next big thing overnight. Talk about risky. To put it into perspective, the price Facebook paid is about 19 times more than Facebook paid for Instagram two years ago in what was then seen as a risky, high-stakes bid.
So what is it about WhatsApp that makes it so attractive to Facebook?
Latin America and Africa.
Although WhatsApp is largely unheard of in the US, it is the essential communications app for those living in places and regions of the world where traditional cellular and mobile coverage is spotty, poor and text messaging services are ridiculously overpriced. Its ability to send short video, text, and audio messages to a group of friends at the same time makes its value invaluable, especially since it doesn’t charge a per message fee like traditional SMS text messaging.
Telecoms in Central America are heavily nationalised, but WhatsApp doesn't require that you remain connected to data to maintain a single, linear communication session, as mobile instant messaging does. The end result is that the app has reached critical mass there; your app doesn’t have to be the best, just the one that everyone uses. Consider the statistics: the company tweeted on 7 Jan 2014: “On Dec 31st our users sent 18B msgs and received 36B = 54 Billion total messages in a day… ~3x in a year”. That is phenomenal use for an app that doesn’t sell user data to make a profit, and has never spent a penny on marketing or advertising. It is truly the most successful viral app in the history of apps.
It begs the question, why WhatsApp? After all, it can be argued that the messaging service is actually the antithesis of Facebook. There are no ads and there is no personal data harvesting. However, with closer examination of the deal one can conclude that the app isn’t too far removed from Zuckerberg’s mindset.
He created the OpenInternet.org project to help bring about scaled down and efficient versions of mobile web to help jump start the company in emerging markets like India, Latin America and other third world countries. It appreciates the differences in connectivity in these places. For example, the connected market in Nigeria is significantly different than the connected market in the rest of the West. In Africa, the desktop and laptop is a rarity and connectivity comes almost exclusively from mobile. Combine the use of mobile with a monopolised telecoms industry and it is easy to understand why users want an app that works even after disconnection.
WhatsApp's ability to provide an essential and core service fits right into Facebook’s battle plan to become the primary mobile internet service in Latin America, Western and Northern Africa, and the BRIC (Brazil, Russia, India, and China) countries. The importance of being first in these markets is crucial for Facebook to be relevant from the get-go. Being first often is synonymous with trust. Zuckerberg has been partnering Facebook with developing-world carriers and by actually subsidising data, creating new chip designs (both in Open Compute and Internet.org) that take half the energy to run, improving internet infrastructure with open source open computer-hacked hardware, and lowering the amount of data required for internet apps.
The last initiative has its roots in "Facebook For Every Phone", a Facebook app for feature (not smart) phones that's little-known in the developed world, but has over 100 million users across the world. It has been making moves in emerging mobile markets even before its IPO, with initiatives like Facebook for Every Phone - a low-data feature phone version of the Facebook app - and with partnerships with wireless companies worldwide to help pay for users' data costs.
That's because places like Latin America are where the internet is headed next. According to a recent Latin Post report, based on Gartner's research, while smartphones officially accounted for a majority of global phone sales last year for the first time, Latin America was the strongest growth market for smartphones in the last quarter of 2013, with sales growth peaking at 96.1 per cent. While low-cost mobile device makers are making hay in Latin America, apps and services are the next step.
But is WhatsApp really worth $19bn - 19 times as valuable as Instagram? There are still plenty of skeptics about the $1bn price tag placed on of Instagram, but that appeared to be paying dividends for Facebook in the short term. For WhatsApp, we'll have to see.