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AH Primetime: Facebook Bought WhatsApp for its Growth and To Keep it Away From Competitors

February 21, 2014 - Written By Jeremiah Nelson

Facebook is buying WhatsApp for $16 billion, with the potential for an additional $3 billion added to that amount. For $19 billion, Facebook is getting WhatsApp’s 450 million users, all of their data, and the 1 million new users that WhatsApp claims to be adding every day. Buy why? Why purchase a chat app like WhatsApp? Mark Zuckerberg has gone on record stating that his company will not immediately introduce ads into the WhatsApp ecosystem, so this isn’t a grab for quick ad revenue. Make no mistake; ads will be coming to WhatsApp at some point. It didn’t take long for ads to begin showing up in users Instagram feeds after Facebook made that purchase in 2012. Facebook’s statement is that once they add more users, say, over a billion, they will have “many clear ways” to make money off their new chat app. Let’s take a look at a few reasons that Zuckerberg and company made this deal.

User Data

Facebook growth is slowing, especially among younger users. While some of WhatsApp’s 450 million overlap with Facebook’s current user base, Facebook now gets access to all of the data that WhatsApp sends over that network, too. Younger users are leaving Facebook in droves or they just aren’t signing up in the first place. At this stage in the game, Facebook is 10 years old and their parents and grandparents on using that particular social network. People under the age of 25 are the most likely to be early adopters for new chat apps like WhatsApp and Snapchat, so this purchase is Facebook’s foot in the door to that user segment. It’s also a massive amount of data that they are getting. WhatsApp currently has almost twice the users of Instagram and they send more messages than the number of daily tweets sent on Twitter.

WhatsApp is not just a messaging app; it’s also the largest of the next generation of social apps. Users these days are savvy and hyper aware of privacy issues. Facebook is not a private network. They are quite invasive with their ad serving and with the selling of their users information. When you pile that on top of the fact that younger users want a social network where their parents can’t see everything they are doing. Facebook is out; newer networks like Tumblr and WhatsApp are in. Now that Facebook owns WhatsApp, they get access to the data from this younger segment.

Competition

Facebook needed to keep WhatsApp out of the hands of competitors like Google and Yahoo. When Facebook was courting Snapchat last year, Google and Yahoo were also very interested. Snapchat turned down the $3 billion that Facebook offered them, but Facebook couldn’t risk that the larger user base that WhatsApp has built to fall into someone else’s hands. It’s been rumored that Google offered to buy them for $10 billion, but Facebook’s offer was better. Facebook needs to bolster its foothold in the mobile arena, and this was a chance they didn’t want to pass up.

Growth

Facebook growth is slowing. WhatsApp is exploding, claiming to be adding over 1 million new users every day. Facebook’s shareholders want to see growth, and since it is not happening organically, growth is coming through purchases. 2012’s purchase of Instagram added new users and new data for Facebook to mine. Facebook’s users are uploading over 350 million photos every day, not counting what Instagram users are uploading. WhatsApp’s current user base is sending and receiving over 500 million pictures every day. Facebook wants to be the biggest, the fastest growing, and they are willing to buy their way to that position if that’s what it takes.

Mobile

Facebook knows that the future is in mobile. Everyone, of all age groups, is accessing their social networks via their mobile devices. People are not taking the time to sit down at a desktop or laptop. Facebook understands that; that’s why they created Facebook Home and the recent Paper news app. It’s why they bought an almost completely mobile social network like Instagram. WhatsApp and chat apps like it are more than simple messaging tools. The next generation of social networks is already forming on the backbone of these more private applications. Facebook, Google+, even Instagram and Tumblr are becoming the old guard. WhatsApp, Snapchat, Whisper, and Secret are where the new growth is happening, and they are all mobile apps.

Facebook has a long road ahead of it, and stockholders to answer to. WhatsApp users should pay close attention to the moves that their new parent company makes. Instagram is still mostly whole, but Facebook isn’t known for treating its users and their data like they may want to be treated.