Was WhatsApp's Acquisition by Facebook Driven Solely by Revenue?
There is a common misconception that Facebook acquired WhatsApp primarily due to its revenue before the acquisition. However, this is far from the truth. The acquisition was driven by the potential value WhatsApp could bring to Facebook, rather than its immediate revenue. This article delves into the reasons behind the acquisition and the benefits Facebook gained from it.
Revenue vs. Potential Value
When Facebook acquired WhatsApp in 2014 for $19 billion, it was not a decision made based on the existing revenue. Instead, the acquisition was motivated by the potential future value WhatsApp could create for the company. WhatsApp's massive user base, various business tools, and its burgeoning ecosystem provided Facebook with significant opportunities for growth.
WhatsApp as a Valuable Asset
Before the acquisition, WhatsApp was already positioned as a powerful tool for businesses, offering features like WhatsApp for Business, WhatsApp Payment, and WhatsApp Stories. These features, combined with its massive user base of over 1.5 billion users, positioned WhatsApp as a strategic asset for Facebook.
Key Benefits of the Acquisition
1. **Objective Value to Metrics**: The acquisition gave Facebook a tangible value to important metrics such as MAU (Monthly Active Users), DAU (Daily Active Users), and the number of messages sent. Facebook was already leading in these areas, but the acquisition solidified its dominance and provided a clear valuation for its messaging services.
2. **Rise in Facebook’s Valuation**: Within six months of acquiring WhatsApp, Facebook's valuation increased by over $50 billion. While other factors may have contributed to this rise, the acquisition was a significant driver. WhatsApp's potential for growth in eCommerce, advertising, and customer support solutions added considerable value to Facebook's portfolio.
3. **Monetization Potential**: Small and medium businesses were already using WhatsApp for marketing and eCommerce. This made it easier to develop and monetize features within WhatsApp. With the potential to drive revenues comparable to Facebook's own, WhatsApp offered Facebook a new revenue stream.
4. **Market Dominance**: The acquisition of WhatsApp and Instagram removed a potential global competitor, making it harder for competitors like Snapchat, Twitter, and LinkedIn to challenge Facebook's dominance. This reinforced investor confidence and contributed to Facebook's current valuation of over half a trillion dollars.
User Insights and Valuation
Facebook's user base extends beyond just WhatsApp, with over a billion daily active users. Additionally, Instagram is closing the gap rapidly. These users collectively generate a significant amount of user insights for Facebook. Approximately 50 billion messages are exchanged on WhatsApp daily, while 20 billion are sent on Messenger. These insights allow Facebook to experiment with new features and develop new products, fostering its continued growth.
Valuation of WhatsApp
In my opinion, WhatsApp's current user base and engagement levels make it worth more than $50 billion, and possibly even $100 billion today. Based on its user engagement and monetization potential, the acquisition price of $19 billion was, in retrospect, a fair deal. The long-term value generated from WhatsApp far outweighs the initial cost of acquisition.
Therefore, while the primary goal wasn’t to increase immediate revenue, the acquisition of WhatsApp by Facebook has undoubtedly driven immense value for the company through strategic assets, user insights, and market dominance.