Why Facebook Paid $19 Billion For WhatsApp

WhatsApp LogoMarketers can learn from Facebook’s recent acquistion of WhatsApp. CEO Mark Zuckerberg agreed to pay 19 billion dollars for “WhatsApp, a company with at most $300M revenues, and 55 employees,” Forbes reports. Although many criticized Zuckerberg, suggesting that the numbers do not add up, Facebook’s CEO remains confident in his decision. According to The Wall Street Journal, Zuckerberg tells critics that the mobile application “has the potential to reach over a billion users.”

Canadian publication The Globe and Mail and Forbes agree. Forbes praises the move, suggesting that Zuckerberg was aiming to strategically increase Facebook’s relevancy. Studies show that young users continue to abandon the social media giant. Time magazine estimates that 11 million young users have left Facebook since 2011. David Ebersman, Facebook’s chief financial officer, confirms: “We did see a decrease in [teenage] daily users [during the quarter], especially younger teens.”

“I believe that they paid as much as they did so that they could enhance Facebook’s communication ability,” explains Jeremy Simpson, Director of Marketing at Suburban Marketing. “While it seems that they may have overpaid, they may just be trying to recapture some of the 11 million users that they have lost.”

WhatsApp will help compensate for that loss, The Globe and Mail predicts. “About one million people a day sign up to use WhatsApp and, once there, they are mainly fierce and loyal users – and a good many of them are under 25 years old.” The Globe and Mail continues, “Facebook’s purchase doesn’t seem nearly so extravagant when one thinks of it as paying just under $40 a head for a dedicated young user in the very demographic that is increasingly losing interest in Facebook’s flagship product.”

In addition to purchasing an app appealing to young teens, the acquisition also expands Facebook’s breadth, Forbes explains. WhatsApp constitutes a messaging service. Zuckerberg already acquired an image sharing industry leader (Instagram) two years ago, and — of course — Facebook continues to hold the top spot for social media platforms. Owning different platforms and services will strengthen the companies’ position as an industry leader.

Sources:
http://www.forbes.com/sites/adamhartung/2014/02/24/zuckerbergs-3-smart-leadership-lessons-from-facebook-buying-whatsapp/
http://www.theglobeandmail.com/globe-debate/columnists/19-billion-for-whatsapp-is-a-fair-price-to-keep-young/article17027086/
http://online.wsj.com/news/articles/SB10001424052702303426304579403160484584946
http://business.time.com/2014/01/15/more-than-11-million-young-people-have-fled-facebook-since-2011/

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