Whoa: Why Facebook Dropped $19 Billion on an App Startup
Facebook's multi-app strategy just got a lot stronger--and it only cost $19 billion.
When I spoke recently with Serkan Piantino, Facebook's engineering head in New York, he said when looking to the future of the social network, look for more portals to it on your phone. Look for more apps.
He said there's "a whole universe" of sharing behaviors that Facebook understands--and wants to master. And the company is no longer attempting to make sure those behaviors happen in one place. First there was the acquisition of Instagram, and then the launch of Paper. Now, by acquiring the multi-platform messaging application WhatsApp, it's abundantly clear that Facebook is investing heavily in its own universe of apps.
Heavily, in fact, is an understatement. The whopping $19 billion acquisition includes $4 billion in cash, $12 billion in stock, and up to $3 billion set aside in restricted stock (it will vest over four years) for WhatsApp's founders and employees, according to a regulatory filing.
It's a huge sum for a company with 55 employees and a simple app--it lets users send text, image, and audio messages across devices, and without relying on a data network. But WhatsApp has is 450 million users, most of whom are extremely loyal--70 percent use it daily. The acquisition will certainly give Facebook access to a lot of valuable user data. And WhatsApp is one of the biggest mobile messaging systems on the planet--with 19 billion messages sent over WhatsApp every day, it has nearly reached the scale of the entire global SMS, or text messaging, system.
Facebook CEO Mark Zuckerberg said that WhatsApp as a company has impressed him for gaining nearly half a billion users in five years. "No one in the history of the world has done anything like that before," he said on a call with investors and press Wednesday. He also mentioned that he proposed the deal to WhatsApp co-founder and CEO Jan Koum only 11 days ago.
Koum, who is originally from Ukraine, will join Facebook's board of directors. He and co-founder Brian Acton are former employees of Yahoo.
"Our goal was to build a service that could be used by everyone, across every platform and any phone," Koum said on the goal. It's a goal that sounds remarkably similar to Zuckerberg's recently announced plan to connect everyone on the planet.
In a post on its Newsroom site, Facebook explained the WhatsApp team will be allowed to operate somewhat autonomously within Facebook.
Facebook fosters an environment where independent-minded entrepreneurs can build companies, set their own direction and focus on growth while also benefiting from Facebook's expertise, resources, and scale. This approach is working well with Instagram, and WhatsApp will operate in this manner.
Koum blogged also, reiterating that the merger is giving the WhatsApp team "flexibility to grow and expand," and that the experience of using it will not change for users.
You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using. And you can still count on absolutely no ads interrupting your communication.
WhatsApp is already based nearby in Mountain View. If the deal doesn't go through, Facebook will pay WhatsApp $1 billion in cash and $1 billion in shares. You know--about twice what it paid for all of Instagram.
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.