Updated, Thursday 2:30 p.m.
Late Wednesday, Facebook announced its purchase of WhatsApp for $16 billion. $4 billion in cash and $12 billion in Facebook stock were granted to the company, with an additional $3 billion worth of Facebook stock to come.
WhatsApp makes a glorified texting app. It lets you send text and pictures to another WhatsApp user’s phone. Free to use for the first year, it costs $1 annually after that.
Why, you may be wondering, would Facebook spend $19 billion on it?
To answer, it helps to tell a story about two of my friends. They’re dating. Last year, one of them—we’ll call him Nick—lived in the small African nation of Lesotho. The other—we’ll call her Julie—lived in Chicago. This year, they switched. Nick lives in New York City. Julie lives in Mumbai.
On the home screen of Nick’s iPhone (at right), there aren’t many apps. There’s Google Maps, Gmail, a camera. There are three social networks—Twitter, Facebook, Instagram—of which Facebook owns two.
And there’s WhatsApp. WhatsApp lets Nick and Julie text and send pictures across international borders, skirting international SMS fees and only paying for the cost of data. They both use it daily.
They aren’t the only ones. In December, WhatsApp announced it had reached 400 million active monthly users, with 100 million of them having joined since just September. It’s now up to 450 million monthly active users. According to Facebook’s Wednesday filing with the U.S. Securities and Exchange Commission, 70 percent of those people are active on a single day, and 1 million people download WhatsApp every day.
That’s 315 million people using WhatsApp every day. In the same filing, Facebook claims that the amount of data that passes through WhatsApp rivals “the entire global telecom SMS volume.”
(For reference, by the way, Facebook said it had 945 million monthly active users for its own, non-WhatsApp mobile* services in January.)
depending on how you count whatsapp is the fastest growing messaging/social app ever pic.twitter.com/a9sGvgzF6p— Matthew Zeitlin (@MattZeitlin) February 19, 2014
But is it worth $19 billion? No one’s really sure. But as John Herrman writes at Buzzfeed, WhatsApp was “one of the only services that could plausibly claim to be cannibalizing Facebook on a large scale, and one of a small few that pose it an existential threat.”
What’s more, buying WhatsApp fits into a pattern that’s emerged from Facebook. For me, there are three clear reasons why Facebook spent crazy money on the new messaging giant.
1. Facebook wants to dominate among mobile apps. Facebook has a history of simply up and buying mobile apps when they start to dominate. It bought Instagram in April 2012 for $1 billion. It tried to buy Snapchat for $3 billion. And—as Herrman has reported—it spent $100 million last fall to buy the best mobile app analytics usage firm. If an app has tons of mobile users, Facebook knows, perhaps before almost anyone else.
It’s this same, mobile app-focused strategy that led it to release Paper early this month. Paper is a newsreading app, but it’s also simply a better mobile version of Facebook. It’s Facebook content through a new, designified lens—and it heralds a new “multi-app strategy,” wherein Facebook lets many different kinds of apps spring from its walled garden.
Facebook has a history of buying successful mobile apps, especially those with a social component. WhatsApp is a bananas successful mobile app. Ergo…
2. Facebook wants to dominate in messaging apps. It’s not yet a sure thing that Facebook users will keep wanting to, er, Facebook: to engage in the daily exchange of pictures, status updates, and wall posts that keep the social network feeling fertile. (That might be part of the reason why the service has started to display more links to news stories on its News Feed: Web publishers are already making a product, on a daily basis, that’s meant to engage users.)