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Facebook Acquires WhatsApp for $19bn (£11bn)

Social media giants Facebook have purchased smartphone messaging app WhatsApp in a deal worth $19bn.

According to official statistics, WhatsApp has around 450 million monthly users. The makers of the app claim that it registers 1 million new users every day.

For those not in the know, WhatsApp is an Internet-based messaging service that allows people to get around text message charges. It works in much the same way that SMS (or ‘text messaging’) works, but crucially, it is free. For a small fee of $1 a year, it is possible to upgrade the service.

This is by far Facebook’s largest acquisition to date and has been met with some scepticism, but Facebook founder Mark Zuckerberg doesn’t seem daunted by the huge price tag; he described WhatsApp as “incredibly valuable” in a statement announcing the deal.

Prior to this deal, Facebook’s biggest purchase had been photography app Instagram, for which they paid $1bn.

Richard Taylor, North America Technology Correspondent with the BBC, said, “Some are seeing the $19bn price tag as further evidence of swollen valuations of companies as the sector experiences what may yet prove to be another dotcom bubble. WhatsApp does give Mark Zuckerberg inroads into international markets and, as importantly, to a younger demographic. But what is less clear is whether the finances will add up in the long term”.

The acquisition includes $4bn in cash, about $12bn in Facebook shares and about $3bn in stock options for WhatsApp founders and employees (of which there are around 50).

WhatsApp co-founder Jan Koum has also become a member of Facebook’s board of directors. “We’re excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world,” said Mr. Koum. Koum has also stated that he does not intend to allow advertising on the app.

Zuckerberg stated that he believed that WhatsApp was well on its way to having a Billion users.

In an interview with BBC News, senior research analyst with eMarketer Cathy Boyle said, “WhatsApp actually has greater penetration in a lot of international markets than Facebook,” It is possible that by linking the two services, Facebook will be able to increase its customer base. She then went on to say, “WhatsApp is trying to siphon the billions that the telecom industry would make from [traditional SMS text messaging]” if that is Facebook’s intention (and we have to consider it as one of them), then it actually makes good business sense.

SOURCES:

http://www.bbc.co.uk/news/business-26266689

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