Moreover, global competitors abound everywhere, and the Chinese, who have all the populations, are not even using WhatsApp. The action by Facebook makes it seem as if money is worthless! A buck for every user – and WhatsApp should have gotten no more than $450 million. Perhaps less, because, of the 20 or so WhatsApp contacts I have, none has sent me a WhatsApp text for the past three months, for whatever reasons! Acquiring WhatsApp for $19 billion does indeed sound like over-speculation, if not foolish gambling.
To be sure, WhatsApp was featured previously in this column in Daily Trust on 1 April 2013 when I wrote “Messaging Apps Are Devine Favours.” WhatsApp, Inc., based in Santa Clara, California, was founded in 2009 by Brian Acton and Jan Koum, both veterans of Yahoo! In its own words, “WhatsApp Messenger is a cross-platform mobile messaging app which allows you to exchange messages without having to pay for SMS, at least for the first year.” (You pay $1 after your first year of use.) According to Reed Albergotti, Doug MacMillan, and Evelyn Rusli in the 20 February 2014 issue of Wall Street Journal, WhatsApp users every day upload 600 million photos and send 100 million video messages. The tech journalists also say that the app currently has approximately 450 users. In the first quarter of 2013, WhatsApp was the dominant texting app used in Brazil (80%) and Germany (87%).
But there are potent competitors: WeChat, developed by the Chinese company Tencent Holdings, with 272 million active users, is the dominant messaging app in China, the world’s largest smartphone market. Line, by Naver Corp. in Japan, has 350 million users, mostly in India, Indonesia, Taiwan, and Thailand. Viber, by Viber Media, Inc. in Cyprus, has 300 registered users, although it is in the process of being sold to Rakuten, a Japanese e-commerce company, for a purported $900 million. And some of these competitors appear to offer more than WhatsApp. Kakao Talk, launched in 2010 by the South Korean company Kakao Corp., has 133 million users. The company monetizes via advertising and sales of stickers and virtual goods in games. Kakao Talk allows you to send and receive messages, including photos, videos, and contact information, both on one-to-one basis and in groups, all for free. Kakao Talk is reported to have turned its first annual profit in 2012.
Thus, one of the biggest challenges that WhatsApp (and in fact Facebook itself) is facing, and will continue to face, is regional preferences. As stated above, In Brazil and Germany, the U.S.-made WhatsApp is dominant. However in South Korea, Japan, and China, the most popular app in each country tends to be the locally-developed ones, at the level of 86% (Kakao Talk), 46% (Line), and 76% (WeChat), respectively, during the first quarter of 2013. In the U.S., there is no such clear preference for the local apps, with the leading messaging app in the first quarter of 2013 being Facebook’s Messenger, with a meager 13%. WhatsApp and Pinger constituted 8% each of the U.S. texting business.
So, what’s Facebook’s motive in WhatsApp? Certainly, it is not WhatsApp’s money in the bank or some palpable inventory. It’s not the revenue or profit generated in 2013. Some say it is the demographics of WhatsApp users. There is also a claim that a high percentage (70%) of WhatsApp users log onto the service at least once daily. (I don’t believe this, by the way!) So, more adds can be sold, eventually. Others suggest that Facebook thinks that buying WhatsApp will bolster Facebook’s status outside of the U.S. After all, Facebook is blocked in China, whereas WhatsApp is not. However, if Facebook starts adding all those social media stuff into WhatsApp, the latter might get blocked as well in China. With WeChat’s dominance in China and its better offerings when compared to WhatsApp, it’s doubtful that WhatsApp can compete with WeChat in that market, and could actually go the way of Instagram in China. You see, Facebook bought Instagram, the photo-sharing app, set up a shop in Beijing, but is “getting the shaft” because of domestic competition.
If I am to guess Facebook’s motives, I would say it’s the 450 million “eyeballs.” Facebook is somehow of the opinion that it can sell something to those 450 million supposed users of WhatsApp. This is a curious business proposition because I am guessing that most of the users of WhatsApp are also already Facebook users. The rest of this paragraph was taken from Wikipedia, almost verbatim, to explain how I feel about Facebook’s acquisition of WhatsApp. The concept of eyeballs was popularized during the Dot-com boom as an indicator of how much revenue potential a company would have for the future. This led to what is known as the “Eyeball Race” of Silicon Valley. That is a period in Silicon Valley history where the only measure that mattered for any tech startup company was the number of eyeballs. None or very little focus was given on how to effectively monetize on the number of eyeballs. Due to the one-sided focus on eyeballs and to the lack of solid business models this later resulted in the Dot-com bubble.
The main idea of this article is that Facebook shocked the world by acquiring the messenger app company WhatsApp, for a price that’s quite reminiscent of the Dot-Com bubble era.