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Wednesday, July 18, 2018

Unite and conquer

Facebook has bought out a potential competitor in WhatsApp. But imitators hover

Published: February 21, 2014 3:44:55 am

Even in an industry accustomed to inflated technology acquisitions and public offerings, Facebook’s surprise $19 billion cash and stock buyout of smartphone messaging service WhatsApp created a virtual splash. “Do they also get the state of Florida?” tweeted one incredulous observer. Development economist Charles Kenny pointed out that Facebook’s investment in WhatsApp is equal to the World Bank’s total annual lending. It’s a far cry from the days when Google’s $1.65 billion purchase of YouTube in 2006 was considered profligate. So what pushed Facebook to pull out the chequebook?

While Facebook seems to be ubiquitous, there have been concerns that the all-important pre-teen and teen demographic is turning away from the social network, put off by having to acknowledge their parents and by Facebook’s too-cavalier approach to user privacy, and towards instant messaging services like WhatsApp or Snapchat (which Facebook tried and failed to buy last year). It’s an aphorism that the services these digital natives embrace today will be adopted by the rest of us tomorrow. So, in acquiring WhatsApp, Facebook has rid itself of a potential competitor, one that boasts 450 million active users (more than Twitter). WhatsApp is also popular in Asia, a market Facebook has not been nearly as successful in penetrating as others.

This explains why it made sense for Facebook to buy WhatsApp, not why it felt compelled to fork out around 10 per cent of its current market capitalisation for it. What attracts users to WhatsApp is not just the convenience of an internet-based text messaging service, but the no ads, no data collection ethos that underpins its operations. Facebook has pledged to let WhatsApp run independently, and the latter’s founders have reiterated the “no ads” rule, but that raises questions over monetisation and that $19 billion price tag. Facebook will have to tread carefully — if it tries to make money from WhatsApp, it may just encourage users to migrate to similar services.

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