20 ms·

400,000,000 active users [0] 16,000,000,000 USD ---- $40 per user That's an incredible cost. We can assume Facebook is paying for the userbase, the

by nwh 13y ago

400,000,000 active users [0] 16,000,000,000 USD ---- $40 per user That's an incredible cost. We can assume Facebook is paying for the userbase, the app itself and it's infrastructure would basically run itself. It's less appealing when you realise that there's probably a miniscule fraction of WhatsApp users that don't have a Facebook account. > WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee Now it makes even less sense. [0]: http://blog.whatsapp.com/index.php/2013/12/400-million-stories/ http://blog.whatsapp.com/index.php/2013/12/400-million-stori...

hackinthebochs 13y ago
I conjecture that this price is a reflection of the fact that facebook realizes their stock is way overvalued, and so they used this opportunity to make a huge purchase which would be too expensive otherwise. The fact that a huge amount of the purchase price in stock is a strong signal for this. These same sorts of deals happened in the first internet bubble (although this is clearly different as there is also a huge amount of cash changing hands).
- jacklionheart 13y ago
  This doesn't make much sense to me since most of the transaction was in cash.
  - jeroen 13y ago
    No, it isn't: "The deal is being cut for $12 billion in Facebook shares, $4 billion in cash and an additional $3 billion in RSUs for employee retention." 21% cash.
- bradleyjg 13y ago
  The biggest shareholder hero of dotcom 1.0 was Steve Case buying a real company (Time Warner) with bubble shares. But is whatsapp Time Warner? $1/user/year even with a huge user base is still not that much revenue.
  - ljf 13y ago
    Just under half a billion a year is a decent amount coming in, I'd say!
  - colinbartlett 13y ago
    It might not be a lot of revenue, but I'd hazard a guess that it's pretty inexpensive to run. Hundreds of times cheaper per user than something like Facebook.
  - fleitz 13y ago
    My dotbomb stock hero was always Cuban.
    - tanzam75 13y ago
      Yeah, Mark Cuban actually managed to turn his bubble shares of YHOO into cold, hard cash. How much cash did Steve Case manage to withdraw from the stock market piggy bank?
    - cylinder 13y ago
      With the options he had made so he could retain value even when YHOO crashed. Whatsapp founders will probably do something similar w/ FB.
  - tanzam75 13y ago
    And AOL Time Warner just about ruined the chances of that sort of thing happening again. If any Board of Directors tried to pull off that kind of stock-based deal today, they're going to have a proxy fight on their hands. These days, the shareholders of the target company are going to want cash. But during Bubble 1.0, plenty of bubble companies acquired other bubble companies.
- the_watcher 13y ago
  Why is their stock overvalued? Do you have any evidence of this beyond you thinking there is a bubble? Honestly curious, since it seems to me their stock is rising for a reason: the fundamentals of the company are strong, and they have demonstrated an ability to rapidly react to new trends.
  - throwawaymsft 13y ago
    They have a P/E of ~100. They'd need to grow earnings 7x to reach a typical P/E of ~15. Not saying it's impossible, but they're already very large. They have as many users as they're going to get (who isn't on there now?) so they need to earn 7x the income from the existing base.
    - the_watcher 13y ago
      Well, they continue to add users (albeit more slowly), and the world population is increasing, so I don't see any evidence that they won't add any new users. They actually don't even have 20% penetration of "everyone" by monthly active users, and I'd argue Facebook is on its way to being as ubiquitous as email.
  - nousernamesleft 13y ago
    >Why is their stock overvalued? Because delusional people still didn't learn their lesson from the first bubble. >Do you have any evidence of this Their P/E is 112. That's the very definition of overvalued. The price of their stock makes the company worth far more than they earn. If you purchased facebook, it would take you 112 years to break even on that "investment" at their current earning rate.
    - twistedpair 13y ago
      Consensus analyst 12 month estimate (Feb 15th) is Hi: $82, Lo:$24, Mean: $70. So basically, consensus growth on the year in the stock price is 3%. Compare that to a market of 32% last year. Does not look like the analysts think FB is going to grow much. It's going to take a while to grow into that valuation.
- n1ghtmare_ 13y ago
  I have to say, this really makes the most sense. It seems that a new bubble is growing as we speak, it's just a matter of time before it pops.
psbp 13y ago
Or facebook is trying to trivialize and destroy the startup market.
- gailees 13y ago
  ...or facebook is trying to own messaging. I already have shifted a lot of the work I do on email to facebook messaging.
  - deleted 13y ago
    [deleted]
- philp 13y ago
  At this rate they can only pull that off a handful of times.
  - psbp 13y ago
    Before this people were comparing their value to snapchat's. This is a very unhealthy market that they're creating.
- dba7dba 13y ago
  the startup market of other messenger apps? The ones that are around are already big and profitable (KakaoTalk, LINE etc).
  - psbp 13y ago
    The bubble spreads across all tech startups. Before it was whether your product could be viral enough to match snapchat's $1 billion, now it's whatsapp's $16 billion. This creates a very unhealthy attitude around tech startups that will have a cascading effect on the entire industry. It's like a hegemonic military policy. The strategy doesn't matter, as long as you have a big stick.
  - flyinglizard 13y ago
    @psbp ... and before that it was Instagram's $1b. It was a running joke back then.
mathattack 13y ago
I don't think they're buying it per current user. It's either about paying for future users (granted, triple the user base and it's still a lot) or a game of defense against a potential competitor. They bought the photo company at what seemed an outrageous amount in part to co-opt a competitor. In the end it was profitable. They alter their feed to look more Twitter-like, encouraging people to avoid the competitor. I see this as defense too. It isn't about new users, it's about corporate competition.
- nwh 13y ago
  > triple the user base and it's still a lot WhatsApp current has 430M monthly active users[0], compared with FaceBook's 1.2B[1] monthly active users. Tripling their userbase would make them the same size FaceBook is itself. ED: Corrected as child comments pointed out. [0]: http://blog.whatsapp.com/index.php/2013/12/400-million-stories/ http://blog.whatsapp.com/index.php/2013/12/400-million-stori... [1]: http://investor.fb.com/releasedetail.cfm?ReleaseID=821954 http://investor.fb.com/releasedetail.cfm?ReleaseID=821954
  - ggreenbe 13y ago
    To be honest, why not? I can see WhatsApp having more active users than Facebook in the future considering their current growth %.
    - mathattack 13y ago
      Seems reasonable since they do well on low tech phones. Facebook is limited by the amount of internet connections and smartphones.
  - underwater 13y ago
    Facebook has 1.23B monthly actives and 750M daily actives. Your WhatsApp link is using MAU as a metric.
- Nicholas_C 13y ago
  >They bought the photo company at what seemed an outrageous amount in part to co-opt a competitor. In the end it was profitable. Are you talking about Instagram? Unless I've been living under a rock I haven't heard or read anything that says they're profitable.
theboss 13y ago
Is it possible that this is also for user retention rather than solely adding new users?
sheetjs 13y ago
Try this: FB market cap ~170B .75B users (EDIT: originally quoted FB 1.2B users, but that is the total count and WhatsApp quotes active users) --> market cap implies roughly $225 per active user. In that light, 40/AU is cheap. Even if you assume 50% overlap, 80/AU is still a deal compared to how the market values FB users
- nwh 13y ago
  I was using active users as a metric in my parent comment, using the same measure Facebook has 750M active users for a cost of $227USD per user. [0]: http://investor.fb.com/releasedetail.cfm?ReleaseID=821954 http://investor.fb.com/releasedetail.cfm?ReleaseID=821954
  - sheetjs 13y ago
    That only strengthens my argument: market values at ~225 / active user
    - higherpurpose 13y ago
      And how many decades will Facebook need to make that money from its users? How many decades will it need to make it from Whatsapp?
      - alex_young 13y ago
        Facebook made $2.14 / user in Q4 2013 [0]. That means they need more than 26 years to return that value. Or they need to find a way to increase revenue greatly without alienating users too much... [0] http://files.shareholder.com/downloads/AMDA-NJ5DZ/2971107785x0x721748/be75c513-b84a-486d-a838-25cdc79c6a16/FB_Q413EarningsSlidesFINAL.pdf http://files.shareholder.com/downloads/AMDA-NJ5DZ/2971107785... (page 12)
  - spiantino 13y ago
    1.2B is monthly active, 750 is daily active. FB doesn't publish just registered users.
pitchups 13y ago
Pretty amazing that this is precisely what Microsoft paid for Hotmail in 1998 : $400 million for 10 million users = $40 / User. [1] The parallels are striking : Whatsapp is to messaging today what Hotmail was to messaging in the late '90s. [1] http://news.cnet.com/2100-1033-206717.html http://news.cnet.com/2100-1033-206717.html
- muyuu 13y ago
  It made more sense for MS though. They were basically kickstarting their internet services and had very few users. Facebook can mine some more data from this I guess, but something rather marginal from what they already have.
  - pitchups 13y ago
    True, the reasons are different. But the motivation is the same : to stay ahead of the competition. In my view, and based on my own experience, Whatsapp is being used as a light-weight social network built around messaging and optimized for mobile phones. In fact, I share a lot more stuff with friends and family on Whatsapp - including pictures/videos/messages - than I do on Facebook. The more Whatsapp satisifies my sharing needs, the less I use Facebook. And that is a competitive threat to Facebook. Instagram was similar - a light-weight social network built around photo-sharing. I think Zuckerberg is a deeply strategic thinker trying to avoid the pitfalls of the "Innovator's Dilemma". Both Instagram and Whatsapp are classic examples of what is described in Innovator's Dilemma - light-weight products that can slowly eat into the market share of the incumbent, and ultimately displace it. Edits : formatting.
    - lifeisstillgood 13y ago
      yes yes and yes. But boy - 16 billion.
      - jmathai 13y ago
        The opportunity cost is much larger if they miss out. It's the difference between ponying up tons of cash to stay relevant or fading into obscurity.
smackfu 13y ago
Twitter: 241,000,000 active users 30,230,000,000 USD market cap ---- $125 per user
- adventured 13y ago
  With the caveat being that Twitter isn't rationally worth anywhere near $30 billion. Even if you said their sales was income, they'd be trading at nearly 50 times, and at that point they'd still be worth twice too much. Here's a prediction: as the easy money QE party comes to an end, the stock market melts, Twitter's growth grinds to a complete halt, investors realize there's only so much time in the day and Twitter has lost the messaging space, Twitter is worth $5 to $7 billion if they're lucky.
  - jonknee 13y ago
    > Here's a prediction: as the easy money QE party comes to an end, the stock market melts, Twitter's growth grinds to a complete halt, investors realize there's only so much time in the day and Twitter has lost the messaging space, Twitter is worth $5 to $7 billion if they're lucky. It's not the QE money pumping up Twitter, it's a combination of tech being hot and a limited number of shared available (much of TWTR is still in lockup). If it were QE you'd see all sorts of firms with crazy valuations, but the standard blue chips are still pretty standard.
    - kolbe 13y ago
      QE is most certainly responsible for the crazy SV valuations. While the Fed is printing money to solve depressions in Alabama and Illinois, places like SV, which are growing a >10% a year, are getting all capital benefits.
redthrowaway 13y ago
I suspect they're just trying to protect their market share in messaging, in the same way that buying instagram allowed them to protect their market share in image sharing.
- jacklionheart 13y ago
  Yes, but they've continued to invest in Instagram as a product. Will they do that here as well?
elwell 13y ago
I don't think they want anything. They just don't want WhatsApp to compete with Facebook chat. The nominal fee charged to users will pare down the userbase and perhaps pay off a portion of the cost of purchasing.
- the_watcher 13y ago
  The nominal fee that already exists and hasn't pared down the userbase? Or is there a new fee?
  - elwell 13y ago
    Oh I might be wrong about the fee being new.
sveme 13y ago
As others said before, it's most likely a defensive move, against other interested parties but also against Whatsapp itself. I don't use and thoroughly dislike Facebook but I'm using Whatsapp groups daily with my closest friends and my climbing mates. In that sense Whatsapp has started to move beyond SMS and towards the social network market. With such a large user base and their established mobile presence it would have been fairly easy to challenge Facebook in the social network field, so Zuckerberg might have seen that coming as well. In that light the announcement that Whatsapp will basically stay the same actually makes sense - it will stay the same and will not develop those features that could have threatened Facebook in the long term. Well, I already sent some messages to my friends to move on to threema, which has the added benefit of having encrypted messaging and being located in Switzerland.
- amirmc 13y ago
  > "... it will stay the same and will not develop those features that could have threatened Facebook in the long term." That's fascinating and completely believable. The question will be can FB move those people to their own platform in the future and quietly retire Whatsapp in the future. It's interesting that the CEO of Whatsapp is joining the FB board since that will affect the direction both products take.
  - dba7dba 13y ago
    CEO of Whatsapp prided on not listening in private conversation or collecting personal data, which Facebook ACTIVELY does.
    - yapcguy 13y ago
      The CEO just had a higher price than most other people. To get $16bn cash from Facebook is hilarious. Next time a start-up says they won't pay you market rate because of x, y, and z just walk away and laugh. For the sake of a few thousand dollars in wages, you could make them billions. Don't work for cheap bastards. Funny how engineers are supposed to sacrifice yet we never see a lawyer or accountant charge below market rates, and their work can save businesses millions as well as jail-time.
panarky 13y ago
$40 per user is roughly inline with the $3B Facebook was prepared to pay for Snapchat (though we don't have precise numbers on Snapchat MAUs). This is another defensive move. Hundreds of millions of people sharing rich media in realtime on non-FB services is a genuine threat. It's really a direct result of smart mobile devices. Facebook used to own the user's contacts, but now independent apps have direct access to device contacts without Facebook.
- oaktowner 13y ago
  > Hundreds of millions of people sharing rich media in realtime on non-FB services is a genuine threat. Yup, I agree entirely. This wasn't about getting new users, it was about getting the content to run across their services.
chadillac 13y ago
The part that confuses me is Facebook has a messaging component... I can use it to message international people without incurring international SMS rates (which is a big reason a lot of people I know use WhatsApp). WhatsApp charges annually for this (already free elsewhere) service. So I'm pretty confused why people would use WhatsApp rather than one of the many (Kik, Hangouts, Facebook, etc.) alternatives available? If people could migrate their WhatsApp account they pay for into a Facebook account which is free it's a win/win for FB. They get the users ditching the paid service in exchange for adding nice numbers to their quarterly reports for signups, and they get a nice revenue stream for the hold outs that avoid FB because it's FB but are willing to part with $1/year for that functionality. Smart move on their part, wonder if their name will taint the product for the existing userbase and send them to the aforementioned alternatives. edit: said $10/year, I accidentally a 0.
- smackfu 13y ago
  >WhatsApp charges annually for this (already free elsewhere) service. You get a free trial year. "For all phone types, WhatsApp is free to download and try for the first year. After, you have the option of extending your subscription for $0.99 USD per year."
- dfox 13y ago
  Surprisingly large percentage of FB users use it only/mostly for messaging. WhatsApp is better than FB in that it does only what these users want, works on various lowend phones (e.g. comes preinstalled on Nokia Asha) and works reasonably reliably.
amirmc 13y ago
Why does it make less sense to let it run independently (at least for now)? A team of 50 people are running a service that serves 400M MAU. That's impressive by any stretch and when you factor in that all of those are mobile users that's a compelling case for a company that purportedly had trouble figuring out it's mobile strategy. I guess FB is in the market for any large scale mobile apps (first photos, now messaging) to ensure they have a dominant foothold on mobile.
dba7dba 13y ago
> It's less appealing when you realise that there's probably a miniscule fraction of WhatsApp users that don't have a Facebook account. Remember that while many of those have both WhatsApp and Facebook, they are far more likely to use WhatApp than Facebook. You can ignore facebook but cannot ignore incoming texsts. Still insane.
jamra 13y ago
Maybe they're not just paying for users. Maybe they're paying for the strong infrastructure of the messenger and the talent associated.
- rikf 13y ago
  You get a hell of a-lot of R&D, talent infrastructure and pretty much anything for $16B think Facebook with its engineering talent would find it fairly trivial to replicate the tech. The big consumer internet acquisitions are very rarely about the technologies and more about the installed user base.
  - ulfw 13y ago
    Plus other similar apps like Wechat, Line etc are more advanced.
- ulfw 13y ago
  And what's the point of it? They already have a working push messaging infrastructure for 1+ Billion people.
  - BugBrother 13y ago
    Yeah, at a minimum they should have been able to lower the price by threatening to make the exact WhatsApp functionality a subset of Facebook. (A page out of Microsoft's play book.) Edit: The Facebook Messenger has the features of WhatsApp already?! News to me, so you have a point re FB advertisement. :-)
    - ulfw 13y ago
      Well it is already. The Facebook Messenger app. They bought Beluga in 2011 who produced that app originally. It's just that Facebook seems to have no Marketing folks, nor budget, nor strategy. So it never caught on and Whatsapp sailed past.
myzerox 13y ago
They're buying access to a winner-take-all market.
- sentenza 13y ago
  Remember when we had standards and interoperability? Why would messaging be a winner-take-all market? I mean, it's just pushing around a bunch of bytes. Shouldn't be too difficult to specify.
  - myzerox 13y ago
    It's because of network effects. (I'm not going to switch to the 2nd best app where I can only reach 10% of my friends.)
    - sentenza 13y ago
      But the network effects are still there if you have an interoperable standard. You can use _any_ app that supports the standard and still connect to everybody in the social network. There is no reason why the social network of mankind should remain captured in the userbase of a single messaging app. And it is the abstract social network that does provide the network effects.
      - myzerox 13y ago
        I didn't get which inbox messages would hit, in your scenario. Would I be required to install a new app for checking an additional inbox?
        sentenza 13y ago
        There are some technical quirks if it is supposed to be a decentralized system but still tied to your telephone number as account identification/address. You'd obviously want to be as independent as possible from your service provider, especially here in Europe, where it is possible to take the phone number with you when changing providers. It'd probably have to be a system where the server must verify that the number actually belongs to you by sending you a "traditional" SMS with an access code. You'd also need a trust network among the servers or else there would be servers announcing every telephone number out there as theirs. Regarding the app, I guess any app that supports the protocol would do, even ones that also do other things. This should produce a healty app ecosystem.
the_watcher 13y ago
You also got to add in the 1 million users they have been adding a month. It doesn't substantially change the numbers unless that growth continues for a long time, but Facebook didn't pay for their numbers today, but the numbers they expect them to have in the future.
- tomkarlo 13y ago
  At 400M users, how much more are they really going to grow? Maybe 2-4x. They're at a point where they're almost bounded by the number of people on earth with mobile devices.
  - the_watcher 13y ago
    Well, given that there are roughly 7 billion people on earth, and the number with mobile phones is currently 4.3 billion, that means WhatsApp is at 9% penetration of a still growing market. I think they can grow a little bit more than you estimate, and regardless, 4x of 400mm is an increase of 1.2 billion users.
    - tomkarlo 13y ago
      There's only about 1bn smartphone users, of which Whatsapp probably has 45% penetration, and some other large percentage are on competing platforms. Yes, that 1bn is growing, but it's also moving into market segments with much lower income levels. Even if we think this is going to increase 4x that probably doesn't justify a 12X sales valuation.
      - the_watcher 13y ago
        That one billion number is not static. And it has a lot of room to grow.
        deleted 13y ago
        [deleted]
        deleted 13y ago
IgorPartola 13y ago
When Facebook went public they were valued at around $50/user, a number they will never reach. This is going to be a lesson learned the hard way by the investors and once Facebook implodes it will make every investor much more cautious, reducing the capital available to startups all around.
deleted 13y ago
[deleted]
tomasien 13y ago
This is my least favorite comment after every acquisition ever. What is Facebook worth to the public right now per user? $160. 4x as much - FB makes 4x as much in market cap per user than WhatsApp. So 1. What's to complain about? 2. It wasn't all about users, it's about the network, growth, potential, space 3. Give me some context for why $40 per user for a company that makes a ton of money on their users is too high?
jacklionheart 13y ago
I have trouble imagining that infrastructure supporting 400M users "runs itself".
- encoderer 13y ago
  Services with big fan-out effects can get very expensive to run. But I do believe product simplicity can lead to code and infrastructure simplicity which gets as close as you can in this industry to "runs itself."
hrayr 13y ago
I believe the majority of WhatsApp users are non US, Facebook may be trying to expand further into that market. It's also possible Facebook saw WhatsApp's growth as a major threat if another major player were to acquire them first.
debt 13y ago
I feel like the 'book is having trouble adding new users. This is probably another stab at inflating their numbers for their Q earnings reports. There are a limited number of users out there. Emerging markets aren't growing fast enough and aren't going to be strong soon enough to support the FB's growth rate. It seems investors rely a lot on the daily users metric as it translates into more potential advertising revenue. This acquisition will certainly help that number, daily active users.
highCs 13y ago
400,000,000 active users [0] 16,000,000,000 USD 10 years ---- $4 per user and per year
- beedogs 13y ago
  Yeah, I guess it's cheaper if you divide it by 10.
- adventured 13y ago
  What if they have 40 million users in ten years? And never generate a dime of serious profit in the meantime. Remind me what AOL Messenger, MSN Messenger, ICQ, Yahoo messenger, are worth today.
  - highCs 13y ago
    I notice a difference: facebook acquires other social networks and seems to be enough big to sustain that. What if they have 40 million users in ten years? And never generate a dime of serious profit in the meantime. Then it would be a net loss. But 3B loss for a possible 1 billion customers sustainable business is not huge.
d4nt 13y ago
I was talking to a lawyer earlier today and she said something like "97% of Facebook's value is in their IP (intellectual property)" and I silently thought, no, their entire value is in the fact that they have active users. Without the network effects of active users, they are worth almost nothing. They are like a social networking black hole, what makes them big is that they are already big, and that's all. So if anyone starts taking away their daily active users, even if they were only taking a few percentage points off Facebook's metrics, they are effectively threatening to break Facebook's business model and put them out of business, and it makes sense to spend almost anything they can afford to neutralise that threat.
- fleitz 13y ago
  Technically their giant databases of copyrighted information is IP :) If everyone stopped using Facebook tomorrow they would lose a lot more than 3% of their value, though.
- hangonhn 13y ago
  How did she even come up with that value? Seems awfully precise.
- gamblor956 13y ago
  You silently agreed with her, while not realizing it. Customers (lists/relations/etc) are considered intangible property with value. In the tax and law worlds, IP actually refers to intangible property in general, not just intellectual property (copyrights, trademarks, patents, trade secrets, etc.). However, for most companies, their intellectual property is their most value IP.
mseri 13y ago
With the RSU it's $19bn USD. That would make it even higher to ~$47 per user
- sentenza 13y ago
  I'm sure not management material for an internet juggernaut, but couldn't Facebook have taken something like $1bn to have ten potential What's App killers with full facebook integration written and then used the other $18bn to really diversify by buying something out-of band? Like, I don't know, maybe a steel mill or copper mine or something.
  - mendicantB 13y ago
    It's not about developing an alternative, which will likely flounder anyways, considering that WhatsApp has the momentum and critical mass on users already. It's completely a defensive mechanism. WhatsApp dominates and will continue to dominate markets FB chat could never touch, and may invade current FB chat territory.
Lucadg 13y ago
or maybe they are simple paying to get our cell phone numbers? Something they tried to get from me for a long time and I always refused to give? Now they have it.
rgovind 13y ago
It makes less sense when you realise that most of the user base of whatsapp is OUTSIDE USA
- pyrrhotech 13y ago
  and that they use whatapp because they are poor. It is hard to make money off poor people. Short FB
jonnathanson 13y ago
"We can assume Facebook is paying for the user base" Respectfully, I don't know if that's the right assumption. Facebook has users. A metric shit-ton of them. :) In fact, many of WhatsApp's users are Facebook users, and vice versa. This isn't a user acquisition play. It's a user engagement play. Facebook -- like everyone else in the world -- is well aware that it has an engagement problem. It also has a retention problem, especially with younger users (who are flocking to messenger programs). Finally, Facebook has some challenges internationally, where the social networking space is more regionally fragmented. WhatsApp is a lot bigger overseas than it is in the US (largely because it's a free alternative to SMS in countries where SMS carries significant charges). So what's this really about? This is another defensive acquisition on Facebook's part. Entirely overpriced, in my humble opinion. Instagram was, in retrospect, an incredibly smart defensive buy. WhatsApp at $16 billion? Less clear.
- xerophtye 13y ago
  >WhatsApp is a lot bigger overseas than it is in the US (largely because it's a free alternative to SMS in countries where SMS carries significant charges). Not nitpicking here, just genuinely curious. What do they charge in US for sms? Here the cheapest package i suppose would be 20,000 SMS per month for $1 per month. I normally use the 1200 SMS per week for 10 cents per week though, as my usage isn't that much.
  - usaar333 13y ago
    At this point, I think it's effectively free on every major carrier when the customer has a data plan. I haven't had limits on SMS for at least 4 years (been on Sprint and Verizon).
    - xerophtye 13y ago
      So how much do you pay per month to a carrier?
  - ojii 13y ago
    likely a reason WhatsApp is popular in Europe (or at least Switzerland) is that one is likely to have friends in other countries, and international SMS are a rip-off. At least that's why I use LINE/gtalk/fb messenges a lot these days, as they don't care about where people live/are.
Aqueous 13y ago
Right. The sole reason for this acquisition is to corral all the users who are no longer using Facebook as their primary messaging platform back to Facebook, or at least making it so they don't lose the revenue. Just like with Instagram, their interest is less in bolstering their own service than keeping people from going to their strongest competitors. I guess when you have billions in cash on hand you can keep people from going to your strongest competitors by making them no longer your competitors :-)
prewett 13y ago
It's $4B in cash, $12B in stock, $3B in restricted stock. FB's P/E is 111; normal companies are more like 20, let's pretend that FB is a growth stock and say it should be 30. That means that stock price is overpriced by a factor of 3 (and at least 2). So FB is really only paying $4B + $4B + $1B. And I'm guessing that they are only going to end up actually having to cough up 50% of those restricted stocks, so more like $8.5B. So a little under $20/user. What is the average lifetime value of a WhatsApp user? Seems like $20 is pretty, um, optimistic. But, who knows. People seem to pay for those stupid WeChat stickers, so if WhatsApp has anything like that, it could work. Also, there's the opportunity to become a "platform" and promote games and stuff through the service. That's worked fantastically for KakaoTalk, and WeChat is busy trying to copy it. But I suspect part of it is, what is the lifetime value of a Facebook user? What is the lifetime value of a Facebook user if WhatsApp remains a competitor?
sebastianavina 13y ago
I don't have a facebook account, but I do have my whatsapp... now I feel trapped.
ArcticCelt 13y ago
With their $1 subscription per year model,they should recoup their investment in 40 years.
camillomiller 13y ago
I don't think so. This is a strategy to crack the Asian markets and the markets of developing countries where Facebook is not so used while whatsapp has practically replaced SMS messaging
ajhit406 13y ago
This is an unsophisticated perspective. Have you seen how fast WhatsApp is growing? They could easily cross 1B users in a year. Daily actives are at 72%. They are insanely engaged. The move is probably largely anti-competitive, but there are certainly inroads to drive additional facebook engagement, which further boosts revenues. It's expensive, but remember that FB is a 170B company. Lets just hope that FB doesn't get too invasive with the product.
- hnnewguy 13y ago
  Personally, I think citing user growth numbers is an unsophisticated perspective. Engagement doesn't directly translate into money.
vladiliescu 13y ago
Facebook is trying to buy its perceived competition, i.e. the "next" Facebook before it can actually become The "next" Facebook. Same thing as with Instagram. The fact that they can spend so much money on this (and that their investors allow it) shows just how much they want to remain on top.
- arfliw 13y ago
  Their investors don't have any choice. Mark Zuckerberg has absolute control of Facebook. He can do whatever he wants.
rehack 13y ago
>$40 per user...That's an incredible cost. We can assume Facebook is paying for the userbase I think FB's high profile acquisitions are driven by fear of survival first it was Instagram and now its Whatsapp, which was clearly a very great threat, I am sure, it contributed to at least some double digit percentage drop in daily time spend especially in India... unlike say Google's acquisitions, which are typically done to grow things think YouTube or Android or Robotics companies...
hu_me 13y ago
it remains to be seen how the autonomy works out. whatsapp collects very little data about the user. Phone number, username. No chat history and even name is optional this contrasts with FB's approach of getting all the data. I think the data collection changes would be a good test of autonomy.
neves 13y ago
The value of WhatsApp is that it is a real social network. Its data is much more valuable than the Facebook friends network, because your contact list have the people you really know and communicate. The greatest threat to FB isn't the SMS features, but that it is a better social network than FB itself.
Tycho 13y ago
How much are all those users paying in phone contracts? A lot more than $40 each. This is Facebook commoditizing its compliments: break the SMS cartel, eventually reduce mobile carriers to ISPs, users pay less for their phone contracts and the money they save goes somewhere else (whether Facebook can capture much of that is another matter).

by nwh 13y ago

hackinthebochs 13y ago

I conjecture that this price is a reflection of the fact that facebook realizes their stock is way overvalued, and so they used this opportunity to make a huge purchase which would be too expensive otherwise. The fact that a huge amount of the purchase price in stock is a strong signal for this. These same sorts of deals happened in the first internet bubble (although this is clearly different as there is also a huge amount of cash changing hands).

jacklionheart 13y ago
This doesn't make much sense to me since most of the transaction was in cash.
- jeroen 13y ago
  No, it isn't: "The deal is being cut for $12 billion in Facebook shares, $4 billion in cash and an additional $3 billion in RSUs for employee retention." 21% cash.
bradleyjg 13y ago
The biggest shareholder hero of dotcom 1.0 was Steve Case buying a real company (Time Warner) with bubble shares. But is whatsapp Time Warner? $1/user/year even with a huge user base is still not that much revenue.
- ljf 13y ago
  Just under half a billion a year is a decent amount coming in, I'd say!
- colinbartlett 13y ago
  It might not be a lot of revenue, but I'd hazard a guess that it's pretty inexpensive to run. Hundreds of times cheaper per user than something like Facebook.
- fleitz 13y ago
  My dotbomb stock hero was always Cuban.
  - tanzam75 13y ago
    Yeah, Mark Cuban actually managed to turn his bubble shares of YHOO into cold, hard cash. How much cash did Steve Case manage to withdraw from the stock market piggy bank?
  - cylinder 13y ago
    With the options he had made so he could retain value even when YHOO crashed. Whatsapp founders will probably do something similar w/ FB.
- tanzam75 13y ago
  And AOL Time Warner just about ruined the chances of that sort of thing happening again. If any Board of Directors tried to pull off that kind of stock-based deal today, they're going to have a proxy fight on their hands. These days, the shareholders of the target company are going to want cash. But during Bubble 1.0, plenty of bubble companies acquired other bubble companies.
the_watcher 13y ago
Why is their stock overvalued? Do you have any evidence of this beyond you thinking there is a bubble? Honestly curious, since it seems to me their stock is rising for a reason: the fundamentals of the company are strong, and they have demonstrated an ability to rapidly react to new trends.
- throwawaymsft 13y ago
  They have a P/E of ~100. They'd need to grow earnings 7x to reach a typical P/E of ~15. Not saying it's impossible, but they're already very large. They have as many users as they're going to get (who isn't on there now?) so they need to earn 7x the income from the existing base.
  - the_watcher 13y ago
    Well, they continue to add users (albeit more slowly), and the world population is increasing, so I don't see any evidence that they won't add any new users. They actually don't even have 20% penetration of "everyone" by monthly active users, and I'd argue Facebook is on its way to being as ubiquitous as email.
- nousernamesleft 13y ago
  >Why is their stock overvalued? Because delusional people still didn't learn their lesson from the first bubble. >Do you have any evidence of this Their P/E is 112. That's the very definition of overvalued. The price of their stock makes the company worth far more than they earn. If you purchased facebook, it would take you 112 years to break even on that "investment" at their current earning rate.
  - twistedpair 13y ago
    Consensus analyst 12 month estimate (Feb 15th) is Hi: $82, Lo:$24, Mean: $70. So basically, consensus growth on the year in the stock price is 3%. Compare that to a market of 32% last year. Does not look like the analysts think FB is going to grow much. It's going to take a while to grow into that valuation.
n1ghtmare_ 13y ago
I have to say, this really makes the most sense. It seems that a new bubble is growing as we speak, it's just a matter of time before it pops.

psbp 13y ago

Or facebook is trying to trivialize and destroy the startup market.

gailees 13y ago
...or facebook is trying to own messaging. I already have shifted a lot of the work I do on email to facebook messaging.
- deleted 13y ago
  [deleted]
philp 13y ago
At this rate they can only pull that off a handful of times.
- psbp 13y ago
  Before this people were comparing their value to snapchat's. This is a very unhealthy market that they're creating.
dba7dba 13y ago
the startup market of other messenger apps? The ones that are around are already big and profitable (KakaoTalk, LINE etc).
- psbp 13y ago
  The bubble spreads across all tech startups. Before it was whether your product could be viral enough to match snapchat's $1 billion, now it's whatsapp's $16 billion. This creates a very unhealthy attitude around tech startups that will have a cascading effect on the entire industry. It's like a hegemonic military policy. The strategy doesn't matter, as long as you have a big stick.
- flyinglizard 13y ago
  @psbp ... and before that it was Instagram's $1b. It was a running joke back then.

mathattack 13y ago

I don't think they're buying it per current user. It's either about paying for future users (granted, triple the user base and it's still a lot) or a game of defense against a potential competitor. They bought the photo company at what seemed an outrageous amount in part to co-opt a competitor. In the end it was profitable. They alter their feed to look more Twitter-like, encouraging people to avoid the competitor. I see this as defense too. It isn't about new users, it's about corporate competition.

nwh 13y ago
> triple the user base and it's still a lot WhatsApp current has 430M monthly active users[0], compared with FaceBook's 1.2B[1] monthly active users. Tripling their userbase would make them the same size FaceBook is itself. ED: Corrected as child comments pointed out. [0]: http://blog.whatsapp.com/index.php/2013/12/400-million-stories/ http://blog.whatsapp.com/index.php/2013/12/400-million-stori... [1]: http://investor.fb.com/releasedetail.cfm?ReleaseID=821954 http://investor.fb.com/releasedetail.cfm?ReleaseID=821954
- ggreenbe 13y ago
  To be honest, why not? I can see WhatsApp having more active users than Facebook in the future considering their current growth %.
  - mathattack 13y ago
    Seems reasonable since they do well on low tech phones. Facebook is limited by the amount of internet connections and smartphones.
- underwater 13y ago
  Facebook has 1.23B monthly actives and 750M daily actives. Your WhatsApp link is using MAU as a metric.
Nicholas_C 13y ago
>They bought the photo company at what seemed an outrageous amount in part to co-opt a competitor. In the end it was profitable. Are you talking about Instagram? Unless I've been living under a rock I haven't heard or read anything that says they're profitable.

theboss 13y ago

Is it possible that this is also for user retention rather than solely adding new users?

sheetjs 13y ago

Try this: FB market cap ~170B .75B users (EDIT: originally quoted FB 1.2B users, but that is the total count and WhatsApp quotes active users) --> market cap implies roughly $225 per active user. In that light, 40/AU is cheap. Even if you assume 50% overlap, 80/AU is still a deal compared to how the market values FB users

nwh 13y ago
I was using active users as a metric in my parent comment, using the same measure Facebook has 750M active users for a cost of $227USD per user. [0]: http://investor.fb.com/releasedetail.cfm?ReleaseID=821954 http://investor.fb.com/releasedetail.cfm?ReleaseID=821954
- sheetjs 13y ago
  That only strengthens my argument: market values at ~225 / active user
  - higherpurpose 13y ago
    And how many decades will Facebook need to make that money from its users? How many decades will it need to make it from Whatsapp?
    - alex_young 13y ago
      Facebook made $2.14 / user in Q4 2013 [0]. That means they need more than 26 years to return that value. Or they need to find a way to increase revenue greatly without alienating users too much... [0] http://files.shareholder.com/downloads/AMDA-NJ5DZ/2971107785x0x721748/be75c513-b84a-486d-a838-25cdc79c6a16/FB_Q413EarningsSlidesFINAL.pdf http://files.shareholder.com/downloads/AMDA-NJ5DZ/2971107785... (page 12)
- spiantino 13y ago
  1.2B is monthly active, 750 is daily active. FB doesn't publish just registered users.

pitchups 13y ago

Pretty amazing that this is precisely what Microsoft paid for Hotmail in 1998 : $400 million for 10 million users = $40 / User. [1] The parallels are striking : Whatsapp is to messaging today what Hotmail was to messaging in the late '90s. [1] http://news.cnet.com/2100-1033-206717.html http://news.cnet.com/2100-1033-206717.html

muyuu 13y ago
It made more sense for MS though. They were basically kickstarting their internet services and had very few users. Facebook can mine some more data from this I guess, but something rather marginal from what they already have.
- pitchups 13y ago
  True, the reasons are different. But the motivation is the same : to stay ahead of the competition. In my view, and based on my own experience, Whatsapp is being used as a light-weight social network built around messaging and optimized for mobile phones. In fact, I share a lot more stuff with friends and family on Whatsapp - including pictures/videos/messages - than I do on Facebook. The more Whatsapp satisifies my sharing needs, the less I use Facebook. And that is a competitive threat to Facebook. Instagram was similar - a light-weight social network built around photo-sharing. I think Zuckerberg is a deeply strategic thinker trying to avoid the pitfalls of the "Innovator's Dilemma". Both Instagram and Whatsapp are classic examples of what is described in Innovator's Dilemma - light-weight products that can slowly eat into the market share of the incumbent, and ultimately displace it. Edits : formatting.
  - lifeisstillgood 13y ago
    yes yes and yes. But boy - 16 billion.
    - jmathai 13y ago
      The opportunity cost is much larger if they miss out. It's the difference between ponying up tons of cash to stay relevant or fading into obscurity.

smackfu 13y ago

Twitter: 241,000,000 active users 30,230,000,000 USD market cap ---- $125 per user

adventured 13y ago
With the caveat being that Twitter isn't rationally worth anywhere near $30 billion. Even if you said their sales was income, they'd be trading at nearly 50 times, and at that point they'd still be worth twice too much. Here's a prediction: as the easy money QE party comes to an end, the stock market melts, Twitter's growth grinds to a complete halt, investors realize there's only so much time in the day and Twitter has lost the messaging space, Twitter is worth $5 to $7 billion if they're lucky.
- jonknee 13y ago
  > Here's a prediction: as the easy money QE party comes to an end, the stock market melts, Twitter's growth grinds to a complete halt, investors realize there's only so much time in the day and Twitter has lost the messaging space, Twitter is worth $5 to $7 billion if they're lucky. It's not the QE money pumping up Twitter, it's a combination of tech being hot and a limited number of shared available (much of TWTR is still in lockup). If it were QE you'd see all sorts of firms with crazy valuations, but the standard blue chips are still pretty standard.
  - kolbe 13y ago
    QE is most certainly responsible for the crazy SV valuations. While the Fed is printing money to solve depressions in Alabama and Illinois, places like SV, which are growing a >10% a year, are getting all capital benefits.

redthrowaway 13y ago

I suspect they're just trying to protect their market share in messaging, in the same way that buying instagram allowed them to protect their market share in image sharing.

jacklionheart 13y ago
Yes, but they've continued to invest in Instagram as a product. Will they do that here as well?

elwell 13y ago

I don't think they want anything. They just don't want WhatsApp to compete with Facebook chat. The nominal fee charged to users will pare down the userbase and perhaps pay off a portion of the cost of purchasing.

the_watcher 13y ago
The nominal fee that already exists and hasn't pared down the userbase? Or is there a new fee?
- elwell 13y ago
  Oh I might be wrong about the fee being new.

sveme 13y ago

As others said before, it's most likely a defensive move, against other interested parties but also against Whatsapp itself. I don't use and thoroughly dislike Facebook but I'm using Whatsapp groups daily with my closest friends and my climbing mates. In that sense Whatsapp has started to move beyond SMS and towards the social network market. With such a large user base and their established mobile presence it would have been fairly easy to challenge Facebook in the social network field, so Zuckerberg might have seen that coming as well. In that light the announcement that Whatsapp will basically stay the same actually makes sense - it will stay the same and will not develop those features that could have threatened Facebook in the long term. Well, I already sent some messages to my friends to move on to threema, which has the added benefit of having encrypted messaging and being located in Switzerland.

amirmc 13y ago
> "... it will stay the same and will not develop those features that could have threatened Facebook in the long term." That's fascinating and completely believable. The question will be can FB move those people to their own platform in the future and quietly retire Whatsapp in the future. It's interesting that the CEO of Whatsapp is joining the FB board since that will affect the direction both products take.
- dba7dba 13y ago
  CEO of Whatsapp prided on not listening in private conversation or collecting personal data, which Facebook ACTIVELY does.
  - yapcguy 13y ago
    The CEO just had a higher price than most other people. To get $16bn cash from Facebook is hilarious. Next time a start-up says they won't pay you market rate because of x, y, and z just walk away and laugh. For the sake of a few thousand dollars in wages, you could make them billions. Don't work for cheap bastards. Funny how engineers are supposed to sacrifice yet we never see a lawyer or accountant charge below market rates, and their work can save businesses millions as well as jail-time.

panarky 13y ago

$40 per user is roughly inline with the $3B Facebook was prepared to pay for Snapchat (though we don't have precise numbers on Snapchat MAUs). This is another defensive move. Hundreds of millions of people sharing rich media in realtime on non-FB services is a genuine threat. It's really a direct result of smart mobile devices. Facebook used to own the user's contacts, but now independent apps have direct access to device contacts without Facebook.

oaktowner 13y ago
> Hundreds of millions of people sharing rich media in realtime on non-FB services is a genuine threat. Yup, I agree entirely. This wasn't about getting new users, it was about getting the content to run across their services.

chadillac 13y ago

The part that confuses me is Facebook has a messaging component... I can use it to message international people without incurring international SMS rates (which is a big reason a lot of people I know use WhatsApp). WhatsApp charges annually for this (already free elsewhere) service. So I'm pretty confused why people would use WhatsApp rather than one of the many (Kik, Hangouts, Facebook, etc.) alternatives available? If people could migrate their WhatsApp account they pay for into a Facebook account which is free it's a win/win for FB. They get the users ditching the paid service in exchange for adding nice numbers to their quarterly reports for signups, and they get a nice revenue stream for the hold outs that avoid FB because it's FB but are willing to part with $1/year for that functionality. Smart move on their part, wonder if their name will taint the product for the existing userbase and send them to the aforementioned alternatives. edit: said $10/year, I accidentally a 0.

smackfu 13y ago
>WhatsApp charges annually for this (already free elsewhere) service. You get a free trial year. "For all phone types, WhatsApp is free to download and try for the first year. After, you have the option of extending your subscription for $0.99 USD per year."
dfox 13y ago
Surprisingly large percentage of FB users use it only/mostly for messaging. WhatsApp is better than FB in that it does only what these users want, works on various lowend phones (e.g. comes preinstalled on Nokia Asha) and works reasonably reliably.

amirmc 13y ago

Why does it make less sense to let it run independently (at least for now)? A team of 50 people are running a service that serves 400M MAU. That's impressive by any stretch and when you factor in that all of those are mobile users that's a compelling case for a company that purportedly had trouble figuring out it's mobile strategy. I guess FB is in the market for any large scale mobile apps (first photos, now messaging) to ensure they have a dominant foothold on mobile.

dba7dba 13y ago

> It's less appealing when you realise that there's probably a miniscule fraction of WhatsApp users that don't have a Facebook account. Remember that while many of those have both WhatsApp and Facebook, they are far more likely to use WhatApp than Facebook. You can ignore facebook but cannot ignore incoming texsts. Still insane.

jamra 13y ago

Maybe they're not just paying for users. Maybe they're paying for the strong infrastructure of the messenger and the talent associated.

rikf 13y ago
You get a hell of a-lot of R&D, talent infrastructure and pretty much anything for $16B think Facebook with its engineering talent would find it fairly trivial to replicate the tech. The big consumer internet acquisitions are very rarely about the technologies and more about the installed user base.
- ulfw 13y ago
  Plus other similar apps like Wechat, Line etc are more advanced.
ulfw 13y ago
And what's the point of it? They already have a working push messaging infrastructure for 1+ Billion people.
- BugBrother 13y ago
  Yeah, at a minimum they should have been able to lower the price by threatening to make the exact WhatsApp functionality a subset of Facebook. (A page out of Microsoft's play book.) Edit: The Facebook Messenger has the features of WhatsApp already?! News to me, so you have a point re FB advertisement. :-)
  - ulfw 13y ago
    Well it is already. The Facebook Messenger app. They bought Beluga in 2011 who produced that app originally. It's just that Facebook seems to have no Marketing folks, nor budget, nor strategy. So it never caught on and Whatsapp sailed past.

myzerox 13y ago

They're buying access to a winner-take-all market.

sentenza 13y ago
Remember when we had standards and interoperability? Why would messaging be a winner-take-all market? I mean, it's just pushing around a bunch of bytes. Shouldn't be too difficult to specify.
- myzerox 13y ago
  It's because of network effects. (I'm not going to switch to the 2nd best app where I can only reach 10% of my friends.)
  - sentenza 13y ago
    But the network effects are still there if you have an interoperable standard. You can use _any_ app that supports the standard and still connect to everybody in the social network. There is no reason why the social network of mankind should remain captured in the userbase of a single messaging app. And it is the abstract social network that does provide the network effects.
    - myzerox 13y ago
      I didn't get which inbox messages would hit, in your scenario. Would I be required to install a new app for checking an additional inbox?
      - sentenza 13y ago
        There are some technical quirks if it is supposed to be a decentralized system but still tied to your telephone number as account identification/address. You'd obviously want to be as independent as possible from your service provider, especially here in Europe, where it is possible to take the phone number with you when changing providers. It'd probably have to be a system where the server must verify that the number actually belongs to you by sending you a "traditional" SMS with an access code. You'd also need a trust network among the servers or else there would be servers announcing every telephone number out there as theirs. Regarding the app, I guess any app that supports the protocol would do, even ones that also do other things. This should produce a healty app ecosystem.

the_watcher 13y ago

You also got to add in the 1 million users they have been adding a month. It doesn't substantially change the numbers unless that growth continues for a long time, but Facebook didn't pay for their numbers today, but the numbers they expect them to have in the future.

tomkarlo 13y ago
At 400M users, how much more are they really going to grow? Maybe 2-4x. They're at a point where they're almost bounded by the number of people on earth with mobile devices.
- the_watcher 13y ago
  Well, given that there are roughly 7 billion people on earth, and the number with mobile phones is currently 4.3 billion, that means WhatsApp is at 9% penetration of a still growing market. I think they can grow a little bit more than you estimate, and regardless, 4x of 400mm is an increase of 1.2 billion users.
  - tomkarlo 13y ago
    There's only about 1bn smartphone users, of which Whatsapp probably has 45% penetration, and some other large percentage are on competing platforms. Yes, that 1bn is growing, but it's also moving into market segments with much lower income levels. Even if we think this is going to increase 4x that probably doesn't justify a 12X sales valuation.
    - the_watcher 13y ago
      That one billion number is not static. And it has a lot of room to grow.
      - deleted 13y ago
        [deleted]
      - deleted 13y ago

IgorPartola 13y ago

When Facebook went public they were valued at around $50/user, a number they will never reach. This is going to be a lesson learned the hard way by the investors and once Facebook implodes it will make every investor much more cautious, reducing the capital available to startups all around.

deleted 13y ago

[deleted]

tomasien 13y ago

This is my least favorite comment after every acquisition ever. What is Facebook worth to the public right now per user? $160. 4x as much - FB makes 4x as much in market cap per user than WhatsApp. So 1. What's to complain about? 2. It wasn't all about users, it's about the network, growth, potential, space 3. Give me some context for why $40 per user for a company that makes a ton of money on their users is too high?

jacklionheart 13y ago

I have trouble imagining that infrastructure supporting 400M users "runs itself".

encoderer 13y ago
Services with big fan-out effects can get very expensive to run. But I do believe product simplicity can lead to code and infrastructure simplicity which gets as close as you can in this industry to "runs itself."

hrayr 13y ago

I believe the majority of WhatsApp users are non US, Facebook may be trying to expand further into that market. It's also possible Facebook saw WhatsApp's growth as a major threat if another major player were to acquire them first.

debt 13y ago

I feel like the 'book is having trouble adding new users. This is probably another stab at inflating their numbers for their Q earnings reports. There are a limited number of users out there. Emerging markets aren't growing fast enough and aren't going to be strong soon enough to support the FB's growth rate. It seems investors rely a lot on the daily users metric as it translates into more potential advertising revenue. This acquisition will certainly help that number, daily active users.

highCs 13y ago

400,000,000 active users [0] 16,000,000,000 USD 10 years ---- $4 per user and per year

beedogs 13y ago
Yeah, I guess it's cheaper if you divide it by 10.
adventured 13y ago
What if they have 40 million users in ten years? And never generate a dime of serious profit in the meantime. Remind me what AOL Messenger, MSN Messenger, ICQ, Yahoo messenger, are worth today.
- highCs 13y ago
  I notice a difference: facebook acquires other social networks and seems to be enough big to sustain that. What if they have 40 million users in ten years? And never generate a dime of serious profit in the meantime. Then it would be a net loss. But 3B loss for a possible 1 billion customers sustainable business is not huge.

d4nt 13y ago

I was talking to a lawyer earlier today and she said something like "97% of Facebook's value is in their IP (intellectual property)" and I silently thought, no, their entire value is in the fact that they have active users. Without the network effects of active users, they are worth almost nothing. They are like a social networking black hole, what makes them big is that they are already big, and that's all. So if anyone starts taking away their daily active users, even if they were only taking a few percentage points off Facebook's metrics, they are effectively threatening to break Facebook's business model and put them out of business, and it makes sense to spend almost anything they can afford to neutralise that threat.

fleitz 13y ago
Technically their giant databases of copyrighted information is IP :) If everyone stopped using Facebook tomorrow they would lose a lot more than 3% of their value, though.
hangonhn 13y ago
How did she even come up with that value? Seems awfully precise.
gamblor956 13y ago
You silently agreed with her, while not realizing it. Customers (lists/relations/etc) are considered intangible property with value. In the tax and law worlds, IP actually refers to intangible property in general, not just intellectual property (copyrights, trademarks, patents, trade secrets, etc.). However, for most companies, their intellectual property is their most value IP.

mseri 13y ago

With the RSU it's $19bn USD. That would make it even higher to ~$47 per user

sentenza 13y ago
I'm sure not management material for an internet juggernaut, but couldn't Facebook have taken something like $1bn to have ten potential What's App killers with full facebook integration written and then used the other $18bn to really diversify by buying something out-of band? Like, I don't know, maybe a steel mill or copper mine or something.
- mendicantB 13y ago
  It's not about developing an alternative, which will likely flounder anyways, considering that WhatsApp has the momentum and critical mass on users already. It's completely a defensive mechanism. WhatsApp dominates and will continue to dominate markets FB chat could never touch, and may invade current FB chat territory.

Lucadg 13y ago

or maybe they are simple paying to get our cell phone numbers? Something they tried to get from me for a long time and I always refused to give? Now they have it.

rgovind 13y ago

It makes less sense when you realise that most of the user base of whatsapp is OUTSIDE USA

pyrrhotech 13y ago
and that they use whatapp because they are poor. It is hard to make money off poor people. Short FB

jonnathanson 13y ago

"We can assume Facebook is paying for the user base" Respectfully, I don't know if that's the right assumption. Facebook has users. A metric shit-ton of them. :) In fact, many of WhatsApp's users are Facebook users, and vice versa. This isn't a user acquisition play. It's a user engagement play. Facebook -- like everyone else in the world -- is well aware that it has an engagement problem. It also has a retention problem, especially with younger users (who are flocking to messenger programs). Finally, Facebook has some challenges internationally, where the social networking space is more regionally fragmented. WhatsApp is a lot bigger overseas than it is in the US (largely because it's a free alternative to SMS in countries where SMS carries significant charges). So what's this really about? This is another defensive acquisition on Facebook's part. Entirely overpriced, in my humble opinion. Instagram was, in retrospect, an incredibly smart defensive buy. WhatsApp at $16 billion? Less clear.

xerophtye 13y ago
>WhatsApp is a lot bigger overseas than it is in the US (largely because it's a free alternative to SMS in countries where SMS carries significant charges). Not nitpicking here, just genuinely curious. What do they charge in US for sms? Here the cheapest package i suppose would be 20,000 SMS per month for $1 per month. I normally use the 1200 SMS per week for 10 cents per week though, as my usage isn't that much.
- usaar333 13y ago
  At this point, I think it's effectively free on every major carrier when the customer has a data plan. I haven't had limits on SMS for at least 4 years (been on Sprint and Verizon).
  - xerophtye 13y ago
    So how much do you pay per month to a carrier?
- ojii 13y ago
  likely a reason WhatsApp is popular in Europe (or at least Switzerland) is that one is likely to have friends in other countries, and international SMS are a rip-off. At least that's why I use LINE/gtalk/fb messenges a lot these days, as they don't care about where people live/are.

Aqueous 13y ago

Right. The sole reason for this acquisition is to corral all the users who are no longer using Facebook as their primary messaging platform back to Facebook, or at least making it so they don't lose the revenue. Just like with Instagram, their interest is less in bolstering their own service than keeping people from going to their strongest competitors. I guess when you have billions in cash on hand you can keep people from going to your strongest competitors by making them no longer your competitors :-)

prewett 13y ago

It's $4B in cash, $12B in stock, $3B in restricted stock. FB's P/E is 111; normal companies are more like 20, let's pretend that FB is a growth stock and say it should be 30. That means that stock price is overpriced by a factor of 3 (and at least 2). So FB is really only paying $4B + $4B + $1B. And I'm guessing that they are only going to end up actually having to cough up 50% of those restricted stocks, so more like $8.5B. So a little under $20/user. What is the average lifetime value of a WhatsApp user? Seems like $20 is pretty, um, optimistic. But, who knows. People seem to pay for those stupid WeChat stickers, so if WhatsApp has anything like that, it could work. Also, there's the opportunity to become a "platform" and promote games and stuff through the service. That's worked fantastically for KakaoTalk, and WeChat is busy trying to copy it. But I suspect part of it is, what is the lifetime value of a Facebook user? What is the lifetime value of a Facebook user if WhatsApp remains a competitor?

sebastianavina 13y ago

I don't have a facebook account, but I do have my whatsapp... now I feel trapped.

ArcticCelt 13y ago

With their $1 subscription per year model,they should recoup their investment in 40 years.

camillomiller 13y ago

I don't think so. This is a strategy to crack the Asian markets and the markets of developing countries where Facebook is not so used while whatsapp has practically replaced SMS messaging

ajhit406 13y ago

This is an unsophisticated perspective. Have you seen how fast WhatsApp is growing? They could easily cross 1B users in a year. Daily actives are at 72%. They are insanely engaged. The move is probably largely anti-competitive, but there are certainly inroads to drive additional facebook engagement, which further boosts revenues. It's expensive, but remember that FB is a 170B company. Lets just hope that FB doesn't get too invasive with the product.

hnnewguy 13y ago
Personally, I think citing user growth numbers is an unsophisticated perspective. Engagement doesn't directly translate into money.

vladiliescu 13y ago

Facebook is trying to buy its perceived competition, i.e. the "next" Facebook before it can actually become The "next" Facebook. Same thing as with Instagram. The fact that they can spend so much money on this (and that their investors allow it) shows just how much they want to remain on top.

arfliw 13y ago
Their investors don't have any choice. Mark Zuckerberg has absolute control of Facebook. He can do whatever he wants.

rehack 13y ago

>$40 per user...That's an incredible cost. We can assume Facebook is paying for the userbase I think FB's high profile acquisitions are driven by fear of survival first it was Instagram and now its Whatsapp, which was clearly a very great threat, I am sure, it contributed to at least some double digit percentage drop in daily time spend especially in India... unlike say Google's acquisitions, which are typically done to grow things think YouTube or Android or Robotics companies...

hu_me 13y ago

it remains to be seen how the autonomy works out. whatsapp collects very little data about the user. Phone number, username. No chat history and even name is optional this contrasts with FB's approach of getting all the data. I think the data collection changes would be a good test of autonomy.

neves 13y ago

The value of WhatsApp is that it is a real social network. Its data is much more valuable than the Facebook friends network, because your contact list have the people you really know and communicate. The greatest threat to FB isn't the SMS features, but that it is a better social network than FB itself.

Tycho 13y ago

How much are all those users paying in phone contracts? A lot more than $40 each. This is Facebook commoditizing its compliments: break the SMS cartel, eventually reduce mobile carriers to ISPs, users pay less for their phone contracts and the money they save goes somewhere else (whether Facebook can capture much of that is another matter).