The social media world and Wall Street are all abuzz about Facebook’s whopping $19 billion cash-and-stock deal for rapidly growing WhatsApp. Analysts are all over the map on the deal. What does this mean for Facebook and for social media?
“WhatsApp had every option in the world,” Facebook CEO Mark Zuckerberg said Wednesday on a conference call to discuss the deal.
And he’s paying a lot to add those options to Facebook’s empire.
“Facebook is clearly taking out one of its main competitors,” Paul Sweeney, a Bloomberg Industries analyst, explained. “They are buying 450 million loyal users and an extraordinary growth story, but at a staggering cost.”
The deal makes sense for both partiess, said Eden Zoller, Principal Analyst, Consumer Telecoms at research firm Ovum:
“The social messaging market is growing rapidly, with messaging volumes to reach 69 trillion with subscribers growing to 1.8 billion by the end of 2014 according to Ovum forecasts. An immediate benefit to Facebook in the WhatsApp acquisition is that it has enabled two strong social messaging players to be on the same team. WhatsApp is a player which is strong in both mature markets as well as emerging markets across Asia and the Middle East, which present a significant growth opportunity for Facebook. At the same time, Facebook is growing its mobile footprint with close to a billion monthly active mobile users.
“This makes innovation in mobile services and capabilities an imperative, either organically or by acquiring best in class applications like WhatsApp. With the acquisition Facebook has gained access to WhatsApp’s large repository of phone numbers, which was a missing link for Facebook’s user information. The access to phone numbers now bridges the offline and online worlds of Facebook users.
“WhatsApp will also enhance Facebook’s mobile strategy and make the service grow faster and be stickier with mobile first users. Facebook will in turn provide WhatsApp with the funds and resources it needs to develop the service and become an even stronger competitor in an increasingly over crowded messaging market.”
Jim Patterson, CEO of Cotap Inc., a messaging service for businesses, sees Facebook beating an opponent through buying it.
“They just took out their primary threat and they recognize that overnight it makes them the leader in the mobile messaging space,” he told Bloomberg. “It was clearly the first mobile app other than Facebook that was going to get to 1 billion users.”
Debra Aho Williamson, an analyst at EMarketer, pointed out that Facebook “seem[s] to have made a pretty strong statement with this acquisition.Facebook has come to the realization that it needs a portfolio of apps to reach people with different use cases, different demographics, or different ways of communicating.”
But one analyst told CNBC that the deal was “crazy money.”
“This is crazy money. I think they massively overpaid for this, they’ve done it because they are desperate,” Rob Enderle, principal analyst at Enderle Group said as reported by website Tech 2.
Ovum’s In-Depth Analysis
Zoller, the Ovum analyst, sees challenges ahead as Facebook blends WhatsApp into its offerings.
“There are questions as to how Facebook will position WhatsApp and its own Facebook’s own Messenger application in the longer term. In the short term at least they will continue to operate as standalone, separate applications. Facebook Messenger has met with success and according to Facebook the application saw a 70 percent increase in usage during the fourth quarter of 2013,” he explained in an email.
“However, it seems likely that that he two messaging services will eventually be merged, possibly under the WhatsApp brand that has greater resonance with consumers that Facebook Messenger.
“Facebook will need to develop WhatsApp but must ensure it does so in a way that does not compromise the appeal of the core service that has proved so popular with users. Under its own management, WhatsApp has made a point of staying true to its messaging roots and aimed to remain a pure play messaging service by avoiding broadening the platform to support additional services such as games.”
