Social network Facebook is set to acquire the WhatsApp messenger app for an enormous $19 Billion, it was announced today. Facebook’s purchase will involve an initial $4 billion cash handover alongside another $12 billion Facebook shares with $3 billion in Facebook shares given to the app’s founders and 50-strong workforce at some stage in the future (exactly when has not been announced).
The move brings WhatsApp’s clientele of 450 million users under the Facebook footprint and apparently discussions related to the deal started only 11 days ago. The markets, however, did not appear to appreciate the move – Facebook shares dropped 5% before recovering slightly in after hours selling.
WhatsApp was one of the first solutions that allowed mobile phone users to avoid SMS charges and as many as up to a million people sign up for the solution on a daily basis. WhatsApp generates revenue from the $1 per year subscription fee it charges users. The Facebook purchase has prompted fears that the approach that made it so successful is about to be overturned.
WhatsApp was co-founded by Jan Koum's who famously had a handwritten note next to his desk which outlined his strategy for the app: “No Ads! No Games! No Gimmicks”. Although Facebook CEO Mark Zuckerberg has suggested his company does not intend to include ads on WhatsApp, few analysts believe that the draw of ad revenues from WhatsApps close to half a billion user base will be resisted for very long. Mr. Koum will, however, join Facebook's board of directors and he has has announced that WhatsApp will be run "independently and autonomously" so only time will tell.
WhatsApp’s user base is predominantly teenagers and young people - a demographic Facebook has been losing ground in over recent years. But many people have raised eyebrows regarding the price Facebook paid to bring WhatsApp’s users under its footprint. $19 billion dollars is an extraordinary amount of money and some suggest its valuation is evidence of another dot com bubble.
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