Sunday 28 December 2014

WhatsApp: the $19bn sweet deal done on Valentine's Day

Published 22/02/2014 | 02:30

The Facebook and WhatsApp app icons displayed on an iPhone.
The Facebook and WhatsApp app icons displayed on an iPhone.

What's up with WhatsApp? Quite a lot – social media giant Facebook has just splurged $19bn (that's right, BILLION) on the text-messaging start-up, making it one of the highest valued companies in tech industry history.

By any standards that is an extraordinary sum (remember Facebook's revenues for the entirety of 2013 were a mere $7bn).

According to reports, the deal was done when WhatsApp's CEO Jan Koum crashed the Valentine's Day dinner of Facebook's Mark Zuckerberg and his wife Priscilla Chan at their home in California.

The pair of tech tycoons apparently negotiated one of the biggest takeovers in Internet history while nibbling chocolate-covered strawberries, originally intended for Ms Chan.

But, though Facebook's share price took a tumble followed the acquisition, few have questioned its logic – even if it has had to pony up great deal more than the 'mere' one billion Zuckerberg reportedly offered for WhatsApp last year.

A messaging service that allows you send and receive SMS-style texts more or less free without a phone carrier (the messages are dispatched via your internet connection), WhatsApp has done for instant mobile communication what Twitter did for celebrity feuds and YouTube for cat videos.

It has taken a simple idea and turned it into a tech industry phenomenon, while managing, until now, to stay beneath the radar (Forbes magazine described it as "the biggest social network you've never heard of").

Launched in 2009, WhatsApp has grown steadily and now has an estimated 400 million users (the app is free for the first 12 months, thereafter subscribers must pay the equivalent of 99 cents annually). In August of last year, users set a new record by exchanging 10 billion messages in a single day.

In 2014 text messaging is hardly a revolutionary technology. WhatApp's selling point is its low usage cost. Early adopters included teens for whom mobile price plans were perhaps prohibitive and expats who wished to text home without running up ruinous phone bills. It soon expanded beyond text – users can now exchange pictures, audio and video.

There's a rags-to-private-yacht cast to the story: the son of poor Ukrainian migrants to the United States, WhatsApp co-founder Jan Koum spent much of his childhood living on food-stamps while his parents eked a living.

He started the company with his former boss Brian Acton, with whom he worked at Yahoo! for almost a decade as an engineer.

The pair let their product speak for itself, counting on word of mouth to build its reputation – a strategy that has surely proved more lucrative than they could have imagined.

According to Bloomberg the WhatsApp purchase is the largest since Time Warner 's merger with AOL in 2001, regarded as one of the most ruinous in corporate history.

Without question, WhatsApp is a very different animal – a product with a clear profit model that serves a discernible purchase. But is it worth Facebook's billions? Mark Zuckerberg's reputation as a boy-genius may well hinge on the answer.

Irish Independent

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