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February 21, 2014

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Facebook US$19b for WhatsApp

Source: Shanghai Daily | February 21, 2014, Friday | Print Edition

Facebook Inc will buy fast-growing mobile-messaging startup WhatsApp for US$19 billion in cash and stock in a landmark deal that places the world’s largest social network closer to the heart of mobile communications and may bring younger users into the fold.

The deal involves US$4 billion in cash, US$12 billion in stock and US$3 billion in restricted stock over several years. The WhatsApp deal is worth more than Facebook raised in its own IPO and underscores the social network’s determination to win the messaging market.

Founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley fairy tale, rocketing to 450 million users in five years and adding 1 million daily.

“No one in the history of the world has ever done something like this,” Facebook Chief Executive Mark Zuckerberg said on Wednesday.

Zuckerberg, revealed on Wednesday that he proposed the tie-up over dinner with CEO Koum just 10 days earlier.

WhatsApp was the leader among a wave of smartphone-based messaging apps that are now sweeping across North America, Asia and Europe. Although WhatsApp has adhered strictly to its core functionality of mimicking texting, other apps, such as Line in Japan or Tencent Holdings Ltd’s WeChat, offer games or even e-commerce on top of their popular messaging features.

The deal provides Facebook entree to new users, including teens who prefer WhatsApp and rivals.

“People are calling them ‘Facebook Nevers,’” said Jeremy Liew, an early investor in Snapchat, another red-hot messaging company.

How the service will pay for itself is not yet clear. Zuckerberg and Koum did not say how the company would make money beyond a US$1 annual fee, which is not charged for the first year.

“The right strategy is to continue to focus on growth and product,” Zuckerberg said.

Zuckerberg and Koum said that WhatsApp will continue to operate independently, and promised to continue its policy of no advertising.

Rick Summer, an analyst with Morningstar, warned that the deal may point to an inherent weakness in Facebook, which has seen growth slow.

“This is a tacit admission that Facebook can’t do things that other networks are doing,” he said.

Shares in Facebook slid 2.5 percent to US$66.36 after hours, from a close of US$68.06 on the Nasdaq.

Messaging App-eal

Hundreds of millions of people have downloaded messaging apps such as  WhatsApp to their smartphones and tablets. Some of the other most popular messaging apps were developed in Asia — or are tied to Asian companies — as competitors vie for dominance.

LINE

Developed by Naver Corp in 2011, LINE is a free messaging app that has become hugely successful in Japan and Southeast Asian countries such as Thailand. It built its popularity around cute “stickers” of animal or comic characters that users can share in chat rooms. Last November, 300 million people were using LINE worldwide. It raked in revenue of US$423 million in 2013.

Viber

Created by Cyprus-based Viber Media, Viber offers its core Internet phone call function free to its 280 million users. Japan’s top online retailer Rakuten Inc said last week it will buy Viber for US$900 million, as the retail giant seeks to expand outside Japan.

WeChat

China’s dominant mobile messaging app is WeChat, launched in 2011 by Tencent Holdings Ltd. Tencent said WeChat had 272 million active users last year, including more than 100 million abroad. WeChat has added a payment feature for e-commerce, challenging Chinese online retail giant Alibaba.

Kakao Talk

Created in 2010 by Kakao, a South Korea startup, Kakao Talk spread quickly in South Korea. It has become the go-to free messaging service used by nearly all Korean smartphone users, giving birth to new idioms such as “Let’s do Ka Talk.” Last month, Kakao Talk had 130 million users and is looking to become a Internet portal and e-commerce platform. Tencent became Kakao’s second-biggest shareholder in 2012.

 

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