Brenton Chin's Blog

Facebook is nearing the finish line of its $19 billion dollar acquisition of the Internet messaging service WhatsApp.

A crazy amount of money in my opinion for such a simple app. To contrast this, Facebook purchased Instagram for a mere one billion, and offered Snapchat 3 billion for ownership rights. So, I thought it would be helpful to try to break down why Facebook is willing to pay this much for Whatsapp.

Reason 1: The next billion users

Facebook may have a whopping 1.2 billion active users, but their growth has been slowing and shrinking over the past few years. With most of Facebook’s user base from North America and Europe, Facebook does not have the user base that Whatsapp has in Asia and Latin America. I’m guessing that once Facebook gets their service to 2-3 billion people, there will be even more profound ways that they can monetize the site.

Reason 2: Alternatives to SMS

Whatsapp is becoming the SMS of the future. Myself, along with many of friends use Whatsapp much more than we do SMS. Being a sales rep at a cell phone retailer, I can attest to the fact that consumers at large are purchasing high-usage data plans. With Whatsapp having features such as group-chat and the ability to send messages through wifi/cellular networks, it is making SMS become obsolete.

Reason 3: Engagement

WhatsApp appears to be the only app that has a higher engagement levels than Facebook itself. Mark Zuckerberg, the founder of Facebook has admitted this and believe it is a crucial acquisition because it is an app that users are extremely passionate about. When users are passionate and engaged with the content of an app, integrating advertisements and finding sources of monetization becomes a lot easier.

Watch the video below to see a panel discuss the impact the acquisition of Whatsapp will have on Facebook