Industry Experts Still Scratching Their Heads over Facebook – WhatsApp Deal

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In a blog we recently posted, Facebook acquired WhatsApp which is a popular messaging service.  The finalization of this deal indicates the highest level of technological mergers and acquisition in the past few years. The deal is valued at $19 billion; quite a significant amount, and Facebook’s greatest deal so far in terms of the amounts involved. Consider the entire market, and this is the fifth largest technological deal. Comparing this period with last year, technological merger and acquisitions have risen by 39% and are worth $42.2 billion. Ever since the year 2000, this is the highest worth of technological deals.

Coming back to Facebook and WhatsApp, the industry experts are having a hard time as they try to analyze why Facebook made this deal in the first place. WhatsApp may be popular, but compare it with Facebook, and it still has a long way to go both in terms of users and revenues. As of now, the messaging service is used by nearly 450 million people across the globe and the company states there are over a million signups on a daily basis.  The service is free for the first 12 months of use, and later on a $1 fee is charged on a yearly basis. WhatsApp has not revealed the number of people who actually pay this charge. However, what is known is the fact that WhatsApp has no other means of earning revenue because it does not utilize advertising.

The CEO of Facebook, Mark Zuckerberg has claimed that WhatsApp will reach over a billion users by the year 2016.  As of now, WhatsApp has over 50 employees. Suppose the companies invest around $50 million for bandwidth and servers. By 2016, the investment will accumulate to $75 million. If WhatsApp still maintains a stance against advertising, they will probably incur losses until they increase their fee or decrease their spending. The industry experts claim they will actually have to do both if they want to justify the amount they have taken from Facebook.

Suppose WhatsApp can convince some of their users to pay, let us say this number is 100 million. At this rate, their income will be around $675 by 2016, far less than their price tag.

People are still pondering over this situation, but what everyone is aware of is that Facebook is keen to maintain their stance as the number one social platform of all times. They probably have plans for WhatsApp and will make it work out in their favor or they would not have made this decision.  

Source: www.dealbook.nytimes.com

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