The document discusses the potential acquisition of WhatsApp by Facebook, highlighting the strategic fit and expected growth in mobile communications, especially in emerging markets. It outlines both the opportunities and risks associated with the acquisition, including competition, monetization challenges, and regulatory concerns. The recommendation leans towards forming a strategic alliance initially, with possible acquisition later if uncertainties can be resolved.

1. Facebook and WhatsApp:
Acquire or Ally?
Group 3
Sarah Bennani Vladimir Pushmin Anton Telepnev Maria Zatkova
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2. "WhatsApp is a great company and it's a great fit for us.”
Mark
Zuckerberg
Industry outlook
Number of mobile
communications subscribers
would increase by 471% between
2017 and 2018 and exceed 4
billion
Emerging markets are
becoming a center of growth,
where Asia Pacific region is
leading
Number of mobile
communications users would
increase from 1 billion to 2,9
billion between 2014 and 2017
Chat application’s annual
revenue would increase from
$1 billion to $25 bullion
between 2013 and 2017
User volume Fill global gaps Monetization Users tracking Defense from rivals
Synergies
• Facebook would be
able to add 450 million
WhatsApp users
• Facebook has lower
daily active users >
63% vs 72%
• WhatsApp is growing
faster than majors > 1
million user per day
• WhatsApp is a leader
in Asia and Latin
America, where
Facebook have
difficulties to enter
• In India, WhatsApp
have 76% reach, while
Facebook only 52%
• WhatsApp will support
“Internet.org” initiative
• Facebook can add $20
million to its revenue
stream from WhatsApp
• But, the main gain is
that chat application’s
annual revenue would
increase from $1 billion
to $25 billion, which can
be captured by
Facebook
• Facebook will have an
opportunity to use data
from WhatsApp users to
drive its advertising
revenue
• Google and Microsoft
was in active discussion
to acquire WhatsApp

3. The high cost of acquisition combined with monetization issues may
result in failure to achieve a return on this investment
Financial risks Strategic risks
Growth perspectives
WhatsApp is facing a high level of
competition from many specialized
messengers that can limit its growth
outside Western countries.
Extremely high cost
$19B is 13 times Facebook's entire
2013 net income - and almost 2.5
times Facebook's (950 WhatsApp's)
2013 gross revenues! WhatsApp’s
value can be overestimated.
Monetization issues
WhatsApp’s revenue (£20M in 2013)
and privacy concerns create new
challenges for Facebook to return its
investment.
Cannibalization of Facebook apps
WhatsApp messaging app, Facebook Messenger app and Facebook's core app offer similar
services. So these offerings are at high risk of cannibalizing each other’s market share,
resulting in loss of value for the Facebook.
Data collection concerns
WhatsApp is based on advert free model
that is conflicting with Facebook’s data
collection for adverts practices.
Compliance risks
• Facebooks acquisition of WhatsApp is at risk of being banned by Competition Commission of India who claim that it would result in unfair
trade practices in the Indian marketplace.
• Another problem is Federal Trade Commission that guard privacy of WhatsApp users and threatens to ban this merger in case of data
sharing between WhatsApp and Facebook, while ads is a big share of Facebook’s income.

4. Strategic alliance vs acquisition decision making based on available
capabilities/resources and mutual collaboration outcomes
1 Resources/synergies Facebook &
WhatsApp desire
• Communication is their common feature, however
the scale is not the same: Integration problems
may occur
• High uncertainty in the real value of WhatsApp
2 Market place Facebook & WhatsApp
compete in
• Two companies having the same vision -
connecting billion of people around the world
• Same market -> for Facebook, it would reduce the
number of players and competitors
3 Competencies at collaborating
• Based on the contract, WhatsApp would stay
independent
• After all, it is a property of Facebook= saving and
developing its core business is a priority at any
event
The advise based on “Three sections” framework
• Firstly, develop a strategic alliance, for better
understanding of core strengths, weaknesses,
capabilities and cultures of both companies involved ->
expanding the vision of possibilities
• If the uncertainty goes down, the collaboration is
valuable and feasible for acquisition
Based on “three sections” framework, the
advise is: