Why Facebook Thinks WhatsApp is Worth $16B

Facebook is paying much more for WhatsApp than it did for Instagram. On Wednesday, Facebook announced the latest move in its quest for mobile social domination: it plans to buy popular messaging app WhatsApp for $16 billion in a cash and stock deal.

Techbubble 2.0: The irrational exuberance that quite a few sense here in Silicon Valley certainly reminds us of the first tech bubble of the 1990s. Deja vu all over again ? The current string of acquisitions with valuations defying gravity certainly echoes the acquisition of Geocities by Yahoo in 1999, or Microsoft acquiring WebTV in 1997. Same rationale then and now: it's all about land grab. Oh really ? I am not particularly convinced that emerging markets adoption of WhatsApp, a free app, will translate in dollars and sense for Facebook. No barriers to competition, except perhaps the carriers who will have certainly the last word on anything that happens on their networks. Who remembers that little Israeli startup called ICQ ? Messaging was already hot in the 1990s or was it.

ICQ was gobbled by Yahoo for a billion. Geocities was shut down in 2001. WebTV was shut down in 1999. Gains never materialized for Yahoo and Microsoft. And then the pop, when San Francisco transformed itself almost over night from boom town into a dead zone with the mother of U-haul shortages, ever and of course the best traffic in decades - at least something to be looking forward to. -By Philippe Mora.

[Thank You MIT Technology Review | By Rachel Metz 02.20.14]
If that sounds like a heck of a lot of money, it should. Facebook says it will pay $4 billion in cash and $12 billion in stock for WhatsApp, which lets users avoid paying SMS messaging fees by sending messages to others straight through its app (the app works on a variety of mobile platforms, iOS, Blackberry, Android, and Windows Phone). WhatsApp’s founders and workers will get an additional $3 billion in restricted stock units that vest during the four years after the deal is done, Facebook says.

You might be thinking, “That’s like 16 Instagrams!” Well, on the face of it, yes. Facebook spent $1 billion for Instagram back in 2012, when it was the hottest photo-sharing app around—at the time, it seemed like an obscene amount of money.

But Facebook obviously thinks WhatsApp is worth far more, and some of the numbers it shared about WhatsApp’s users indicate why. WhatsApp has 450 million monthly users, 70 percent of which (so, 310 million) use the service daily. Instagram, by comparison, currently has one-third as many monthly active users.

Facebook also noted that the number of messages being sent through the company’s service is “approaching the entire global telecom SMS volume” (according to telecom market researcher Informa, this was expected to total 19.5 billion last year). And the app continues to bring in over a million new users each day.

That’s the kind of growth that Facebook can’t ignore if it wants to remain a leader in the social networking and communication space, and the company knows it. As more and more users migrate to messaging apps like WhatsApp, it behooves Facebook to own the hottest of the bunch. Smartly, it’s keeping the WhatsApp brand, as it did with Instagram, which will likely help it keep up its growth.

But beyond the question of whether or not WhatsApp is worth the money Facebook is eagerly shelling out for it, another is bound to emerge as the acquisition moves forward: what’s the next WhatsApp?

[Read More: http://www.technologyreview.com/view/524956/why-facebook-thinks-whatsapp-is-worth-16b/]