Facebook buys WhatsApp for $19bn – is it worth it?

Five years ago Jan Koum, a Ukranian-born immigrant living in California, registered a new company that would make him a millionnaire. The texting service he imagined had a few basic rules: no advertising, a respect for privacy and a hassle-free experience.

Today that company, WhatsApp, is the single-most-used independent smartphone app in nearly every country in the world. It has hundreds of millions of users, and processes as many as 20bn messages per day.

Facebook knows it has paid a sum that will bring in extraordinary talent, connect it to new audiences while eliminating the competition Jason Goodman, digital entrepreneur

Some suggest it has grown larger than Twitter, while its ability to send text messages across the world free of charge, is smashing the traditional mobile pricing model to pieces.

Now, in a final recognition of the strides it has made in just five years, Facebook has acquired the company for a staggering sum of $19bn (£11.4bn), in one of the largest technology deals ever made.

Chasing numbers, and new audiences

But for Facebook the acquisition is, to some extent, a concession of weakness. Richard Huntington, strategy director of Saatchi & Saatchi told Channel 4 News the move was “a desperate attempt to claw back some relevance”, and boost its growth potential.

As swathes of young people leave the decade-old social network for new platforms, Facebook – which in 2012 paid $1bn for the photo service Instagram and last November unsuccesfully offered to buy Snapchat for $3 billion – is going where the users are.

Chasing numbers, and new audiences

But owning WhatsApp is not just about winning back young people. The service, which has just 35 employees, is changing how we communicate.

As well as young people, its users now include charities who send photos from abroad to their headquarters in the UK, as well as doctors in India who send updates to each other within the hospital to save time, its founder says.

Its commitment to security means that people in politically unstable parts of the world have used it to stay under-the-radar.

This is in stark contrast to Facebook, whose own instant messaging venture – Facebook messenger – has been fairly lacklustre. And recent security concerns in the wake of the NSA surveillance scandal has damaged trust.

Buying WhatsApp offers the chance of starting a new chapter.

“This is Facebook thinking corporately: buying up the competition and diversifying their portfolio, so they are not so heavily reliant on the main Facebook brand,” says Huntington.

Stephen Pirrie, social strategy director at AnalogFolk, told Channel 4 News:

“Facebook is a distinctly American company with a predominantly Westernised user population. WhatsApp’s headquarters is approximately seven miles from Facebook and Mark Zuckerberg and Jan Koum move in similar circles.”

Integration of these two companies should be easier to manage than previous deals such as Ebay’s beleaguered purchase of Skype in 2009.

Do the numbers add up?

But is the $16m figure worth it? The simple answer is, it depends.

To most, including its shareholders it seems, this deal may feel like a technology giant, fearful of losing its edge in the marketplace, throwing an enormous money at the problem.

But those in the technology world argue differently.

Jason Goodman, a digital entrepreneur and chief executive of digital agency Albion, told Channel 4 News:

“Facebook knows it has paid a sum that will bring in extraordinary talent, connect it to new audiences while eliminating the competition. Make no mistake. If they had not bought it now, Google or Microsoft would have invariably got there first.”