Wha The? Facebook Agrees To Buy WhatsApp Messaging Service For $16 Billion

February 20, 2014  |  

Facebook has announced its purchase of text messaging app WhatsApp for an eye-popping $16 billion ($4 billion in cash, $12 billion in stock). And the price could go even higher as WhatsApp founders and staffers continue to roll in stock units for the next four years. WhatsApp users pay $1 per year for a subscription and the first year is free. Facebook reported $7.9 billion in revenue for 2013 and there are no immediate plans for trying to make any money on the new app.

The deal makes the $1 billion Facebook paid for Instagram look small (well, not really, but you know what we’re saying). And it kind of makes Snapchat look smart (maybe?) for turning down the $3 billion that Facebook offered them.

Mark Zuckerberg and the Facebook gang justify the price by citing the growth of WhatsApp. The app is way more popular internationally than it is here in the US. It has 450 million users around the world and, according to a press release posted on the Facebook blog, 70 percent of those users are active on the app daily. “WhatsApp is on a path to connect 1 billion people,” Zuckerberg said in a statement. “The services that reach that milestone are all incredibly valuable.” Facebook has 1.2 billion users around the world.

Having reached this level of ubiquity, Facebook is now concerned about hanging on to those users and making sure they’re not all geriatric. There are ongoing murmurs about the aging population on Facebook, and The New York Times posits that this move is part of an effort to continue to attract a younger crowd.

“The acquisition also reflects a new strategy at Facebook: The company intends to acquire or build a family of applications instead of simply buttressing its core social network,” the paper writes.

Jan Koum, WhatsApp’s founder and CEO, has been in contact with Zuckerberg since 2012. This final deal was hashed out on Valentine’s Day over chocolate-covered strawberries that the Facebook exec had meant to share with his wife Priscilla. Koum assured users yesterday that nothing about WhatsApp would change with the deal. Once the deal closes, Koum becomes a Facebook executive and a member of the board.

The deal raises questions about the value of all these social media and digital companies, with many of them highly valued even when they don’t actually generate any revenue. Business Insider points out that it’s the fastest-growing app in history and, even at $1, with hundreds of millions of users, that’s hundreds of millions of dollars.

And beyond dollars, there’s value to those users. As we’ve already said, Facebook is trying to hang on to its users as well as gain a new, younger crowd. It’s making billions in annual revenue from advertising, and having those users is a major selling point.

Are you still an avid FB user? Anything in particular that you’d like to see the social network add?


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