Another day, another acquisition.
While companies are secretly filing IPOs left and right, there’s one company that will never have to worry about going public — WhatsApp. If you haven’t heard about Facebook’s whopping $19 billion acquisition of the 55-employee mobile app company by now, it’s the latest bit of news that’s making everyone go crazy with the question: Why?
Though there’s a lot of speculation in the air as to why on earth Facebook would pay approximately 10% of its own worth for an app that, yes, many people in the U.S. don’t even use, we can’t be entirely sure what the Palo Alto company is planning on doing with this app.
I didn’t want to add to the thousands of articles and blog posts already on the Internet about the WhatsApp acquistion, but there’s one small observation that I’ve had on my mind that I’ve yet to see in anything I’ve read so far. That observation? The fact that something like this has been in the works for a while now.
In July 2013, The New York Times published For Developing World, a Streamlined Facebook. It’s a fascinating article that talks about how Facebook has been working on its project, Facebook for Every Phone, which is dedicated to getting the social network onto feature phones which are still used in countries like India and Brazil. Because I’m an iPhone user, I haven’t been able to play around with Facebook for Every Phone, but at the time I read this article, I thought it was a pretty cool initiative Facebook was working on. In fact, in May of that year, Facebook was making deals with phone manufacturers like Nokia, offering $99 feature phones that included free Facebook service for carriers like Bharti Airtel. Interestingly enough, just yesterday, Bharti Airtel became the first Indian company to cross 200 million mobile subscribers. Is this just a coincidence that Facebook, nearly a year ago, had teamed up with Bharti Airtel? I think not.
Though I didn’t hear much about Facebook’s interest in Third World countries after that, in October, Facebook picked up Onavo, an acquisition that did get press, but not to the extent that WhatsApp has (not entirely surprising, considering that the WhatsApp acquisition is anywhere from 95 to 190 times pricier). The interesting part about Onavo was that, not only was it one of the Israeli-based companies Zuckerberg was interested in, but also the fact that Onavo helps to reduce mobile data usage, which means that it has the ability to cut down on phone bills. Yet again, another smart move by Facebook that left people a little confused.
This brings us to WhatsApp, which brought about a lot of confusion when the news first broke. After all, who actually uses WhatsApp in America (omg like #tbt)? Some publications have surmised that this move was made in part because Facebook doesn’t have the best track record with mobile applications (other than its official app). Consider the initial reactions to Facebook Home and the non-success of Facebook Paper, Facebook’s newest mobile application. Though these thoughts certainly make sense, looking at WhatsApp’s user data as well as Facebook’s past acquisition, it would also make sense that Facebook is really looking to really take over Third World countries now.
Take a look at these two graphs from App Annie. The first graph is for WhatsApp on iPhone and the second graph is for WhatsApp on Android. I’ve compared India and Brazil, two countries that still use feature phones, as well as the United States to see how the app stacks up among these three countries.
In this first graph, you can see that the download rank in Brazil and India have both been fairly steady, hovering around one to five in terms of platform rankings. WhatsApp in the United States, on the other hand, only recently climbed to that region, mostly likely in part to all of the press from the acquisition.
What’s even more interesting is this second graph for Android, where WhatsApp ranks first in overall, applications and communication for both Brazil and India (United States, not so much). It’s no wonder that Google also wanted in on WhatsApp, but could “only” offer $10 billion.
If you’re still wondering why Facebook forked over $19 billion (though I’ll admit, that’s still a HUGE amount of money), let’s review what we’ve observed: Facebook has been wanting to expand to Third World countries because they’re growing and have so much untapped potential. Countries like Japan, Korea and China are already hooked on LINE, KakaoTalk (possibly filing for an IPO) and WeChat, respectively, but India, for example, has mostly been using WhatsApp, which is popular among multiple countries.
Facebook’s past acquisitions have been mobile-first, with an emphasis on reaching out to Third World countries. WhatsApp is extremely popular among Third World countries since, for just 99 cents, people can engage in cross-platform mobile messaging without having to pay for SMS.
In summary, WhatsApp is a gold mine for Facebook. Though Google would have been happy to have WhatsApp, Facebook needed WhatsApp in order to effectively tap into Third World countries. It’ll be exciting to see how exactly Facebook is planning on implementing WhatsApp. Though I don’t see ads in the future of WhatsApp (WhatsApp is very adamant about having no ads, though only time will tell) at this point, I think Facebook is now looking to see how they can leverage this immense user base potential they have after the acquisition.