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Whats App with Facebook’s 19 Billion-Dollar Deal?


2/20/2014

Published on Feb 20, 2014

The news of Facebook’s latest and largest acquisition ever has been greeted with both amazement and bafflement in cyberspace. Many are stunned by the sheer enormity of the deal: US$4 billion in cash and another $12 billion in Facebook stock, as well as an additional $3 billion in stock to be paid out over four years.

With 450 million users, WhatsApp is the biggest of the free, text-message applications, which include Japan’s Line, the Chinese WeChat, and Viber. These free services are especially popular in less developed countries where fewer users have access to pricier smartphones and unlimited data plans.

The app is free to download. However, after the first year users must pay $.099 per year. That’s cheap compared to how much frequent SMS users pay. 

Still, it’s not hard to do the math. With 450 million users, assuming that all of them paid that pittance per year, WhatsApp does not look like much of a bargain, or short-term payoff, for $19 billion bucks.

Facebook has not bought the company, which had employed 55 people, to replace its Messenger app.

So what’s up with the WhatsApp acquisition?

There is a method to what appears to be social media madness. As Pete Pachal, a tech writer for Mashable.com, noted: “During a call to discuss the merger with investors, Mark Zuckerberg said that because WhatsApp is on track to have more than a billion users, it's a rare mass-market service that is ‘extremely valuable.’ Zuckerberg stated that the acquisition fuels Facebook's mission to make the world more open and connected.”

The writer also noted: “Zuckerberg said buying WhatsApp helps Facebook's Internet.org project — its mission to provide Internet access to the two-thirds of the world not yet connected. Since most of that growth is expected in the developing markets where WhatsApp is popular, WhatsApp appears to have been suddenly elevated to a key component of that strategy.”

Facebook has not bought the company, which had employed 55 people, to replace its Messenger app.

Some social media mavens have speculated that the real deal has less to do with philanthropy and a lot more to do with the fact that the developing world is the next battlefield for tech titans to scrap over and divvy up. In countries like India, where WhatsApp enjoys considerable popularity, the mobile market is sure to experience phenomenal growth over the next years.

 

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