USA/FILE: Founder and CEO of Facebook Mark Zuckerberg excited by the company's $19 billion (USD) acquisition of WhatsApp, a messaging application that erases messages after delivery

Record ID: 641336

  • Title: USA/FILE: Founder and CEO of Facebook Mark Zuckerberg excited by the company's $19 billion (USD) acquisition of WhatsApp, a messaging application that erases messages after delivery
  • Date: 20th February 2014
  • Summary: SAN FRANCISCO, CALIFORNIA, UNITED STATES (FEBRUARY 20, 2014) (REUTERS) (VIDEO QUALITY AS INCOMING) (SOUNDBITE) (English) ERIC SETTON, CO-FOUNDER OF TANGO, SAYING: "If you look at the total number of messages exchanged on a daily basis on these messaging services, this is already twice as much as the SMS' on services like AT&T or Verizon. So, this has completely changed th
  • Embargoed: 7th March 2014 12:00
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  • Location: Usa, Bosnia and Herzegovina
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  • Country: USA
  • Topics: Business,Communications,Industry,Technology
  • Reuters ID: LVAAISYIC77PYVMOOZZL7BNY6UOM
  • Story Text: Facebook Inc will buy fast-growing mobile-messaging startup WhatsApp for $19 billion (USD) in cash and stock in a landmark deal that places the world's largest social network closer to the heart of mobile communications and may bring younger users into the fold.
    The transaction involves $4 billion in cash, $12 billion in stock and $3 billion in restricted stock that vests over several years. The WhatsApp deal is worth more than Facebook raised in its own IPO and underscores the social network's determination to win the market for messaging.
    Founded in 2009 by former Yahoo Inc employees, a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley startup fairy tale, rocketing to 450 million users in five years and adding another million daily.
    "We believe WhatsApp is on a path to reach over one billion people worldwide in the next few years. Internet services that reach a billion people are all incredibly valuable and we believe WhatsApp will be as well. Our focus will remain on connecting more people and increasing engagement. But in the long-term, we look forward to seeing what the team can do to build a really great business," Facebook Chief Executive Mark Zuckerberg said on a conference call on Wednesday (February 19).
    Zuckerberg, who famously closed a $1 billion deal 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 Feb. 9.
    "Everyday over 19 billion message are sent on WhatsApp, over 650 million photos are shared, our community is growing rapidly with over one million new users joining everyday and in key growth regions WhatsApp has become an important communication tool and part of daily life, with incredible growth and penetration. WhatsApp has achieved much of what we set out to do, but we still have a lot more work to do, that's why I am very excited for us to be combining with Facebook," Koum said on the same call.
    WhatsApp was the leader among a wave of smartphone-based messaging apps that are now sweeping across North America, Asia and Europe. Although 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.
    The deal provides Facebook entree to new users, including teens who eschew the mainstream social networks but prefer WhatsApp and rivals, which have exploded in size as private messaging takes off.
    Facebook has been buying apps with large numbers of young users as part of Zuckerberg's strategy of helping users share any kind of content with anyone.
    The company's $1 billion deal to buy photo-sharing application Instagram in 2012 and its recent $3 billion failed overture to buy SnapChat - used by teenagers to send texts and photos that disappear after a few seconds - followed unsuccessful attempts to develop rival apps.
    "So this is clearly not a fundamental decision, it's a defensive decision - keep it away from Google, keep it away from Apple, and make sure you don't keep losing teens and keep losing engagement which is the existential threat for Facebook. But you couldn't have two more distinct and possibly difficult to reconcile cultures," explained Max Wolff, Chief Economist and Strategist for ZT Wealth.
    "You go to WhatsApp because you don't want a permanent record of what you say. You want it zapped from their server after it's delivered to your friend. You don't want it floating around forever. You don't want to see ads and you're willing to pay 99 cents for the second year of that service. That's literally 180 degrees from the Facebook, which is everything is eternal. Everything is open to everybody. Everything is advertised and all the metadata is collected. So, really not so compatible."
    Analysts estimate WhatsApp users share 19 billion messages, 600 million photos, 200 million voice messages, and 100 million video messages per day.
    "I think clearly there's enormous value not only in the company but in the 450 million people engaged on a daily basis that they're acquiring today. And it's really one of the hottest spaces in mobile that is going to be disrupting space after space starting with communication, but maybe tomorrow content and entertainment, and, you know, a few years from now services and ecommerce. So, they're getting a strong foothold in this market by this acquisition," said Eric Setton, founder of a Tango, a similar messaging application to WhatsApp.
    "If you look at the total number of messages exchanged on a daily basis on these messaging services, this is already twice as much as the SMS' on services like AT&T or Verizon. So, this has completely changed the face of communication," added Setton.
    How the service will pay for itself is not yet clear.
    Zuckerberg and Koum on the conference call did not say how the company would make money beyond a $1 annual fee, which is not charged for the first year. Zuckerberg and Koum said that WhatsApp will continue to operate independently, and promised to continue its policy of no advertising.
    "The innovation will have to come in the future in how and if they can integrate this in a meaningful way into the offerings they already have and figure out a way maybe to charge people for some of the communications they do inside Facebook. Cause remember again with 1.2 billion users if you find a way to monetize some of what people are doing inside your system and a significant number of those people buy in, you're talking about hundreds of millions of dollars right off the bat," said Wolff.
    Facebook is paying $42 per user with the deal, dwarfing its own $33 per user cost of acquiring Instagram. By comparison, Japanese e-commerce giant Rakuten just bought messaging service Viber for $3 per user, in a $900 million deal.
    Venture capitalist Sequoia Capital, which invested in WhatsApp in February 2011 and led three rounds of financing altogether, holds a stake worth roughly $3 billion of the $19 billion valuation, according to people familiar with the matter.
    Facebook pledged a break-up fee of $1 billion in cash and $1 billion in stock if the deal falls through.
    Facebook was advised by Allen & Co, while WhatsApp has enlisted Morgan Stanley for the deal.
    On Thursday (February 20) Facebook shares closed up 2.3 percent at $69.63 on the Nasdaq after falling as much as 3 percent in early trading as investors got over the initial sticker shock of the deal value.
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