The landmark deal puts the world’s largest social network at the heart of mobile communications.
WhatsApp, co-founded by Ukrainian immigrant Jan Koum, is a start-up fairy tale, rocketing to 450 million users in five years. It allows messages to be sent across borders between different brands of smartphone devices – reducing users’ reliance on network text messages.
The deal provides Facebook with access to new users, including teens who eschew the mainstream social networks but prefer WhatsApp and rivals, according to analysts.
“People are calling them ‘Facebook Nevers,’” said Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat.
While 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.
Facebook Chief Executive Mark Zuckerberg and Koum, speaking during a conference call, did not outline how the company would make money beyond a $1 (0.73 euros) 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.
“Communication is the one thing that you have to use daily, and it has a strong network effect,” said Jonathan Teo, an early investor in Snapchat, another red-hot messaging company that flirted year ago with a multi-billion dollar acquisition offer from Facebook.
“Facebook is more about content and has not yet fully figured out communication.”
Zuckerberg, who famously closed a $1 billion (730m euros) deal – its biggest before the WhatsApp purchase – to buy photo-sharing service Instagram over a weekend in mid-2012, revealed on Wednesday that he proposed the tie-up over dinner with CEO Koum just 10 days earlier, on the night of February 9.
Koum’s eastern European background was key to WhatsApp’s creation, according to Jim Goetz, the partner at Sequoia Capital who backed the company. Unlike companies such as Google and Facebook, which try to learn as much as possible about each user, WhatsApp does not collect personal information such as name, gender, or age.
“It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police,” Goetz wrote. “Jan’s childhood made him appreciate communication that was not bugged or taped.”
Koum’s view was evident in a tweet he wrote last year about Iran and Turkmenistan blocking WhatsApp.
“When government gets in the way, consumers and freedom to communicate suffers,” he wrote.
He also sees advertising as an imposition.
“When advertising is involved, you the user are the product,” Koum wrote in a 2012 blog post, disparaging the effort other companies make to collect personal data. That same year, he quoted singer Kanye West in a tweet, writing, “You think you free but you a slave to the funds, baby.”