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Facebook-WhatsApp: smart buy or way too costly?


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Facebook-WhatsApp: smart buy or way too costly?

There has been another huge purchase by social media site Facebook. It is buying WhatsApp, the fast-growing instant messaging service.

Facebook Chief Executive Mark Zuckerberg, who is paying $19 billion (13.8 billion euros), praised the speed at which his new acquisition has grown: “No one in the history of the world has ever done something like this.”

In the five years since it was set up, WhatsApp has amassed over 450 million users, adding an average of one million daily.

It handles 50 billion messages every day – and growing – even as the number of SMS texts that are sent is declining.

Eighteen billion of those are outgoing messages, many to multiple WhatsApp recipients. As with other messaging services, users can send photos, videos, and audio messages.

Facebook obviously sees this as the future, as Tim Bradshaw, a technology reporter with the Financial Times explained: “This is a very hot market at the moment, there have been many different of these chat apps popping up. There’s WeChat in China, there’s Line in Japan and other parts of Asia – but WhatsApp is by far the biggest of all of them, which is why Facebook has paid such a huge price.”

The message of youth

The advantage for Facebook is that it gets access to younger users who have never joined the social networking site and are not likely to.

They are increasingly using instant messaging, via their internet connected smart phones, rather than text messages.

“When you look at how much growth WhatsApp has managed to achieve over the last number of years from about 200 million users to 450 million users – which is way more than the likes of Twitter – I think it is a way for Facebook to engage the younger market it has been losing favour with over recent quarters,” said Brenda Kelly, a market analyst with IG.

Facebook – which has seen its growth slow recently – also gains a massive amount of data about real-time social interactions.

$19 billion!

On Wall Street investors obviously felt it was a very expensive acquisition – with Facebook paying $42 (30.6 euros) for every WhatsApp customer – and its shares fell in value.

Rick Summer, an analyst with Morningstar, said: “This is a tacit admission that Facebook can’t do things that other networks are doing.”

He pointed out that Facebook had photo-sharing and messaging before it bought Instagram and WhatsApp.

“They can’t replicate what other companies are doing so they go out and buy them. That’s not all together encouraging necessarily and I think deals like these won’t be the last one and that is something for investors to consider.”

It is not clear how Facebook can make any real money from WhatsApp. Zuckerberg said there are no plans to run adverts on the service.

Ukrainian roots

WhatsApp is a Silicon Valley startup fairy tale, founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton.

Chief Executive Officer Koum, 37, grew up mostly in the Ukraine having arrived in the United States at the age of 16, and his eastern European background was key to WhatsApp’s creation, according to Jim Goetz, a partner at venture capital group Sequoia Capital which 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, Goetz wrote in a blog post, and messages are deleted from servers once delivered.

“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.”

Last month, as the crisis in his home country of Ukraine escalated, Koum posted photos of revolutionaries and tweeted “praying for peace and quick resolution to the crisis #ukraine #freedom.”

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