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Analysis of the Facebook-WhatsApp Deal and Google’s Response. Anupama Prakash PGP Student IIM Kozhikode. Another Wall Street Shocker: The Facebook-WhatsApp Deal.
It was a deal that surprised some, shocked many, and left some gaping at the wall in sheer amazement. This is what Mark Zuckerberg did to the analysts of the financial world and to the general public when he announced that Facebook had decided to buy 5-year old WhatsApp for a whopping 19 billion USD!
But WHY?? Take a look!
WhatsApp has a strong global reach
A Powerhouse in the Making
“I expect WhatsApp to quickly touch 1 billion users”
Another concern area of Facebook was its User Attrition
Users frustrated with privacy settings and moving onto other connecting platforms
Facebook’s Twin Goals
Concerns and Present Needs
With the desktop market saturating and smartphone clientele exponentially growing, Facebook has been looking to establish a stronger presence in the mobile market
Increasing mobile presence
Gaining a loyal customer base
FB App and Messenger reach limited to FB Users. Only Moderate Successes.
Facebook was desperately looking for a turn-around in the mobile segment
The 450 million “content” mobile users of WhatsApp perfectly filled the void
However, WhatsApp is not effectively collecting the fee as it keeps giving an extension whenever a user nears his/her second year
Facebook earns majority of its revenues from just US and Canada. WhatsApp will now give it a good complementary geographic presence.
How can FB Overhaul the Model???
Integrate Facebook and WhatsApp, data mine, and advertise!
By buying WhatsApp, Zuckerberg has also kept Google out, a rival which had also been courting WhatsApp for possibly an even higher price!
Tap the phone numbers and customer insights gained by analysing the data sharing activity of users on WhatsApp and use that for customized advertising on Facebook
Deal Value – User Angle
Deal Value – Revenue Angle
From the users point of view, $19 billion for 450 million users translates to ~$42 per user, which is much lesser than the value of a Facebook ($128), Twitter ($80) or a LinkedIn user ($60).
But What About the Numbers?!
If these assumptions hold true, WhatsApp can make fairly good profits because of its low cost business model
So if the users of WhatsApp can be fairly relied on, the acquisition value can be counted rational to an extent
Deal Value – Payment Mode Angle
$15 billion of the deal amount was met using Facebook stocks which themselves were over-valued. So the usage of over-valued stocks for the exorbitant deal value neutralized the overpayment effect!
Future Road and Challenges for FB
Google’s Strategic Response
Google has also used its leadership in the search engine arena to publish relevant ads to users based on the subject matter being searched for through “AdWords”
In the long term, Facebook should optimize its growth strategy in term of acquisitions and innovations. Being on the defensive and just absorbing Wall Street Rivals will not help sustenance.
If Google can continue with its current innovation plans and sync its existing platforms further, it can definitely tackle Facebook – with or without WhatsApp!
Ideal Success Model