Four Numbers That Explain Why Facebook Acquired WhatsApp
WhatsApp Co-Founders Jan Koum and Brian Acton
Earlier today, Facebook announced its acquisition of WhatsApp for $16 billion. It’s a spectacular milestone for the company’s co-founders Jan Koum and Brian Acton, and their remarkable team.
From the moment they opened the doors of WhatsApp,…
Okay, the numbers are huge, so if you look at it per user compared to something like Instagram, it sorta makes sense, and theoretically, Facebook knows how to monetize users and sell ads, so more users = more revenue, etc.
But I don’t completely buy it. Instagram made sense - it was pretty clear how they were going to monetize, stream-based monetization was pretty understood both by advertisers and by users. It was inevitable. Brands loved the “cool” of instagram, users spent a ton of time there, and had a habit of welcoming content from people they knew personally.
And you can compare it to the Twitter market cap and their ad revs, but Twitter is PUBLIC, and it’s basically catnip to advertisers for it’s earned media amplification and easy metrics in a public sphere.
Whats app has none of these. It’s not clear how ads will fit in. It’s not clear brands are dying for more media space on the web. There’s no community, no habit of engagement with content creator strangers (okay, some), and no easy metric solution. No obvious potential for earned media amplification of your paid media.
And it’s GOTTA be ads - Facebook has been woeful in non-advertising revenue - gifts, etc.
That $1/yr per user will amount to some significant revenue, eventually, though I don’t know what their conversion rates will be and I don’t know how easy it’ll be for kids to circumvent that or move on to something else. But best case - everyone converts, they keep their user rate, no one cheats, everyone pays, infrastructure overhead is lean - it comes nowhere near justifying the valuation.
This can all be overcome, and utilitarian ties into Facebook that retain the users in the FB ecosystem will be obvious steps. But the rest? It will be hard, to say the least. A hard sell to advertisers, and hard to retain the users in an ecosystem of numerous low-friction-to-switch competitors.
I doubt many advertisers are sitting here going “OMG YES! NOW THEY WILL SELL ADS!” Like they were with Instagram.