Facebook has made another foray into the mobile app space with its purchase of messaging company WhatsApp for $19 billion. Focus now will be on how an ad-free subscription based products fits into Facebook's eco-system.

1. Facebook Buys
WhatsApp
Ciaran Norris
20th Feb 2014
Background
Facebook has bought mobile messaging service WhatsApp for around $19 billion just days after
rival app Viber was bought for $900 million by Japanese tech company Rakuten. Though not widely
known in the US, globally WhatsApp has over 450 million active users, a number it achieved in
record time. The app allows people to send unlimited messages to other users: it’s free for the first
year, and costs $1 a year after that. Both acquisitions highlight the increasing amount of time spent
in messaging apps.
Details/Implications
WhatsApp was founded by two former Yahoo! engineers and has been built with entirely on word of
mouth and with 3 guiding principles of ‘No Ads, No Games, No Gimmicks’, differentiating them
from rival services such as Line & WeChat which rely on advertising or gaming & in-app purchases
for revenue. Instead WhatsApp charges users $1 a year after the first year, which is free – when
mobile customers can often pay that much to send less than ten text messages, its appeal isn’t
hard to understand.
It is apparently profitable, because it has so few employees and saves on server costs by deleting
messages once they have been sent. Like other messaging apps it also makes use of the simple
interface with contacts on a phone so that users can very quickly connect with all their friends,
rather than having to build up a social graph.
This is a very different strategy to Facebook which relies on monetizing user data through
advertising. Facebook has said that it has no plans to change WhatsApp’s model, and that the
company will remain independent. One of WhatsApp’s founders is also going to join Facebook’s
board. Much of the coversage of the acquisition will focus on whether Facebook will stick to this
promise: Instagram was ad free when it was acquired, though its founders hadn’t been so vocal
about not running advertising.
There are other ways that Facebook could build on its new acquisition’s success to date other than
ads. Its penetration is greatest in many markets Facebook has yet to conquer in the way it has
places like the US, UK & Australia. The fact that it allows people to communicate via wi-fi means it
has great appeal in developing markets where data charges can be expensive: Facebook should now
be able to use that global popularity to continue to drive the growth of its core services.
Facebook also has much more server capacity than WhatsApp has had to date so it will be
interesting to see whether the policy of deleting sent messages from its databases will continue, or
whether Facebook will look to use that data to improve targeting on its ad-funded products. This
will obviously be dependent on how it manages such a move: when Google centralized all of its
privacy and data usage policies it got in hot water in the EU.
Summary
How Facebook decides to further monetize WhatsApp beyond its existing subscription model makes
interesting speculation but is ultimately not the real point here. On mobile devices consumer
attention is more fragmented than ever: as analyst Ben Thompson put it: “attention is a zero sum
game; every minute spent in Snapchat or LINE or WhatsApp is a minute not spent in Twitter or
Facebook or Instagram”.
As part of its new multi-app strategy (including Instagram & Paper) Facebook obviously decided it
needed access to more of those minutes. Brands meanwhile need to focus on how they can create
truly valuable experiences to earn the attention to win some of those minutes back.