5 ms·

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. What if they're worried about an independent

by defen 12y ago

> There is no metric by which Whatsapp is worth 19B, except for the fact that Facebook can spend that much money. What if they're worried about an independent Whatsapp being a threat to FB's business model? As in, maybe Whatsapp isn't "worth" $19B (whatever that means) but it's a threat to destroy $50B of Facebook shareholder value? In that case it would be rational to buy them out to ensure that doesn't happen.

reza_n 12y ago
If Whatsapp puts $50B of Facebook value at risk by simply existing, that means that $50B had little value to begin with.
- aetherson 12y ago
  I think that so far it suggests that that hypothetical $50B was worth $31B + whatever positive value WhatsApp has.
- austenallred 12y ago
  Saying that a product used by 500 Million people (that's ~7% of the population of planet Earth) earned its value by "simply existing" is a pretty hand-wavy. That's incredibly difficult to do.
  - reza_n 12y ago
    I didnt really say that. I said that if it puts Facebook's value at risk, what exactly was that value? Why is it zero sum?
- _broody 12y ago
  This. Facebook did really throw startup valuation out of whack starting with the Instagram acquisition and following up to Whatsapp. They appear to have no idea what they're doing with their money, they're in a rather vulnerable spot with their core business, and their demented frenzied spending seems to have infected everyone around them.
  - krschultz 12y ago
    Instagram has turned out to be an amazing acquisition for Facebook. Facebook make >$12 billion dollars in 2014. You're saying Instagram wasn't worth 1 months revenue for Facebook? It's a double digit percentage of all time people spend interacting with Facebook's app constellation.
gruntled 12y ago
Warren Buffett looks for investments with an economic moat around their economic castle. If a startup could get close to doing that much damage to Facebook, maybe Facebook's business isn't very defensible.
- jallmann 12y ago
  Successful social businesses have a big moat in the form of network effects. If it were any easier to cross the social-networking moat, Facebook would not have paid $19 billion for Whatsapp. Attracting and retaining users is hard. The numbers needed to match Facebook are big. The fact that Whatsapp, Viber, Line, etc are even able to approach those numbers speaks volumes: they have succeeded in executing on their businesses, and there is demand in the market for solid messaging products that evidently the incumbents have not been able to fill. Buying out a (exceptionally successful) startup before it becomes a potential competitor makes total sense.
  - btilly 12y ago
    Successful social businesses have a big moat in the form of network effects. If it were any easier to cross the social-networking moat, Facebook would not have paid $19 billion for Whatsapp. Attracting and retaining users is hard. I know of multiple ways of trying to estimate the magnitude of network effects. All come up with social networks creating O(n log(n)) value for users. If true, that result demonstrates that network effects are significant, but a better competitor does not have to have nearly the scale you'd think to be able to compete head on against the big giants. That said, I wouldn't recommend going head to head versus FB for your next startup. But there will be no shortage of future companies posing a threat to FB like the one that FB posed to MySpace before it. And like MySpace posed to Friendster earlier on. Let's be honest. FB has a lot of advantages here. They are the first mover, they have a ton of resources, and they have appropriate levels of paranoia about this issue. But still I'd give them substantially less than even odds of being the social king when, say, 2030 rolls around.
    - jallmann 12y ago
orblivion 12y ago
> maybe Whatsapp isn't "worth" $19B (whatever that means) It means it'll give an appropriate ROI for 19B > but it's a threat to destroy $50B of Facebook shareholder value If you think the destroyed 50B is greater than the expected value of the next best option for those 19B, then I suppose it's justified. But then again, that does mean that it's relatively easy to poke at Facebook's empire. I think it implies there's not a very efficient market. It means these things can keep happening over and over, draining Facebook's bank account, until it's no longer worth it for them to keep buying. (This may be what the other poster was alluding to by saying that the 50B isn't actually worth much.)
- AJ007 12y ago
  Benedict Evans has made strong points about how mobile and the open address book has changed Facebook's position significantly. Well worth reading or listening to some of the a16z podcasts about the topic. I think it is a very positive thing for the current ecosystem that there are many mobile apps with which we can communicate and share content. Contrast this with Google's dominance of search for the past decade. The bigger question to me isn't if Facebook wins or loses but what control Google and Apple are able to exert on communications platforms in the future. (Possibly none)

by defen 12y ago

reza_n 12y ago

If Whatsapp puts $50B of Facebook value at risk by simply existing, that means that $50B had little value to begin with.

aetherson 12y ago
I think that so far it suggests that that hypothetical $50B was worth $31B + whatever positive value WhatsApp has.
austenallred 12y ago
Saying that a product used by 500 Million people (that's ~7% of the population of planet Earth) earned its value by "simply existing" is a pretty hand-wavy. That's incredibly difficult to do.
- reza_n 12y ago
  I didnt really say that. I said that if it puts Facebook's value at risk, what exactly was that value? Why is it zero sum?
_broody 12y ago
This. Facebook did really throw startup valuation out of whack starting with the Instagram acquisition and following up to Whatsapp. They appear to have no idea what they're doing with their money, they're in a rather vulnerable spot with their core business, and their demented frenzied spending seems to have infected everyone around them.
- krschultz 12y ago
  Instagram has turned out to be an amazing acquisition for Facebook. Facebook make >$12 billion dollars in 2014. You're saying Instagram wasn't worth 1 months revenue for Facebook? It's a double digit percentage of all time people spend interacting with Facebook's app constellation.

gruntled 12y ago

Warren Buffett looks for investments with an economic moat around their economic castle. If a startup could get close to doing that much damage to Facebook, maybe Facebook's business isn't very defensible.

jallmann 12y ago
Successful social businesses have a big moat in the form of network effects. If it were any easier to cross the social-networking moat, Facebook would not have paid $19 billion for Whatsapp. Attracting and retaining users is hard. The numbers needed to match Facebook are big. The fact that Whatsapp, Viber, Line, etc are even able to approach those numbers speaks volumes: they have succeeded in executing on their businesses, and there is demand in the market for solid messaging products that evidently the incumbents have not been able to fill. Buying out a (exceptionally successful) startup before it becomes a potential competitor makes total sense.
- btilly 12y ago
  Successful social businesses have a big moat in the form of network effects. If it were any easier to cross the social-networking moat, Facebook would not have paid $19 billion for Whatsapp. Attracting and retaining users is hard. I know of multiple ways of trying to estimate the magnitude of network effects. All come up with social networks creating O(n log(n)) value for users. If true, that result demonstrates that network effects are significant, but a better competitor does not have to have nearly the scale you'd think to be able to compete head on against the big giants. That said, I wouldn't recommend going head to head versus FB for your next startup. But there will be no shortage of future companies posing a threat to FB like the one that FB posed to MySpace before it. And like MySpace posed to Friendster earlier on. Let's be honest. FB has a lot of advantages here. They are the first mover, they have a ton of resources, and they have appropriate levels of paranoia about this issue. But still I'd give them substantially less than even odds of being the social king when, say, 2030 rolls around.
  - jallmann 12y ago

orblivion 12y ago

> maybe Whatsapp isn't "worth" $19B (whatever that means) It means it'll give an appropriate ROI for 19B > but it's a threat to destroy $50B of Facebook shareholder value If you think the destroyed 50B is greater than the expected value of the next best option for those 19B, then I suppose it's justified. But then again, that does mean that it's relatively easy to poke at Facebook's empire. I think it implies there's not a very efficient market. It means these things can keep happening over and over, draining Facebook's bank account, until it's no longer worth it for them to keep buying. (This may be what the other poster was alluding to by saying that the 50B isn't actually worth much.)

AJ007 12y ago
Benedict Evans has made strong points about how mobile and the open address book has changed Facebook's position significantly. Well worth reading or listening to some of the a16z podcasts about the topic. I think it is a very positive thing for the current ecosystem that there are many mobile apps with which we can communicate and share content. Contrast this with Google's dominance of search for the past decade. The bigger question to me isn't if Facebook wins or loses but what control Google and Apple are able to exert on communications platforms in the future. (Possibly none)