Facebook has dipped into its wallet to make its biggest acquisition to date, splurging almost $US19 billion dollars to buy mobile-messaging app WhatsApp.
Four billion dollars of that is upfront, which is more than the $US3 billion knocked back by its previous target SnapChat last year.
The Facebook-WhatsApp tie-up is the biggest tech deal since the $US124 billion marriage of AOL and Time Warner in 2001.
So Facebook is finally growing up, the listing hiccups are a thing of the past and, like a grown-up company, it’s happy to splurge to get the job done.
Is it money well-spent? Well, that depends on what Facebook thinks it's paying for.
Scale is one factor, but there is another factor at play
WhatsApp has more than 450 million members, with one million users being added daily. According to Facebook, WhatsApp will have one billion customers in just over a year, provided the current growth rate is maintained.
Facebook is pouring in the billions because that is a lot of people who are now about to get connected to the Facebook eco-system.
Eco-system – that’s the real value-add for Facebook, because the social network is essentially following in the footsteps of Google and Amazon.
Gartner research director Brian Blau says that it’s time Facebook got serious about expanding its business model and provide complementary apps and services, much in the same way as other major technology companies do.
“Google and Amazon, they have all gone through this journey and either made acquisitions or built those businesses organically,” Blau says.
The bottom line is if you want to be a major consumer technology platform, you need to be diverse.
Facebook’s journey started with Instagram and has progressed to WhatsApp. Along the way it’s had a stab at home-grown products like Facebook Home and Facebook Paper, and also picked up revenue-generating businesses like Parse, a cloud outfit that hosts back-end services for app developers.
WhatsApp’s audience is valuable to Facebook – although not in a $US16 billion for one billion users kind of an equation, because the basic metrics just don’t justify Mark Zuckerberg paying more than 10 per cent of Facebook’s market cap for WhatsApp.
But the messaging volume on WhatsApp is apparently approaching the entire worldwide SMS messaging volume of mobile carriers. That kind of growth is hard to ignore, especially when Facebook is counting on applications beyond its main social network to reach more mobile users.
Also hard to ignore is the enormous data volume that will now flow under the purview of Facebook. When it comes to the mobile world, data is the window into behaviour and Facebook clearly believes that the insight gained from this behavioural data is worth every penny.
Finally, it would be tempting to see this as a sign of Facebook buying its way towards staying relevant when it comes to engaging with the teenage market. But that’s not really the key focus here, because while teens may not be as engaged as before, the older generation is far more engaged.
Social media platform Spring.me’s founder Colin Fabig says that engagement issue is linked to a natural generational change.
“I would say that the older generation is getting more engaged, which is the same for every platform," he says. "If you look at YouTube, older people are using it more."
According to Fabig, for Facebook the key consideration remains keeping customers logged on for a while when they come to a service/platform – and making sure they come back.
“I think the future is really about having logged in users, because the details help you understand the customer and the targeting ability for advertising becomes so much stronger,” Fabig says. “The real race in the future will be for logged in members rather than eyeballs.”
Facebook believes that WhatsApp is a key partner in its aspirations to win this race and while the mega-billion-dollar buy is unlikely to start showing immediate returns, Zuckerberg’s sights are set much, much further.
Sixteen billion dollars is a lot of dough to spend – even if a lot of its funny money – but don’t expect Facebook to put away its wallet just yet.