$16 Billion dollars for WhatsApp, but why?

Facebook acquired WhatsApp for 16 billion dollars (16 times the value of Instagram), spending 4 billion in cash and 12 billion in Facebook stock (an additional 3 billion stock will be included in the next four years) and the internet went crazy all day yesterday and today.

WhatsApp is an app that replaces the text-messaging system and lets users send messages to contacts of which you know the numbers, and it also gives you the possibility to make group chat. It is one among many similar services, with 450 million active users, while other competitors are doing well too like Viber, Kik, ChatON, etc.

The popularity is one of the most important aspects of WhatsApp. It’s huge in India, and it’s even available on phones like Nokia Asha line, since those phones require small or nonexistent data fees. The service is free to download, but you have to pay after the first year 0.99$ per next years. When crunching the numbers it means that if the whole 450 million users would pay 0.99$ per year, then WhatsApp would generate 450$ million in total revenue.


Why 16 Billion dollars?

Mark Zuckerberg said that because the service is on track to have more than a billion users, it’s a rare mass-market service that is “extremely valuable.” Zuckerberg stated that the acquisition fuels Facebook’s mission to make the world more open and connected. Zuckerberg said buying WhatsApp helps Facebook’s project its mission to provide Internet access to the two-thirds of the world not yet connected. Since most of that growth is expected in the developing markets where WhatsApp is popular, WhatsApp appears to have been suddenly elevated to a key component of that strategy.

Zuckerberg also made clear that Facebook didn’t acquire WhatsApp to replace Facebook Messenger. He said both services have different use cases with Messenger acting more like email and WhatsApp more real-time and will remain independent, each with support. Like Instagram before it, Facebook’s acquisition of WhatsApp doesn’t add up if you just look at the numbers. But Facebook paid $16 billion for it because it achieved what Facebook couldn’t on its own: Significant mindshare and active use in parts of the world where the mobile market is poised to explode in the coming years.

Everyone that deals with mobile in a form or another is targeting those markets, Asia, Africa and South America. After today, it’s practically guaranteed that almost all of those phones will be running an app owned by Facebook.