Do you think that Facebook's purchase of WhatsApp for $22
Billion is either:
a. The most outrageous waste of shareholder funds or
b. The deal of the century?
Explain your reasons.
Facebook acquired WhatsApp in 2014 for $22 billion. Many felt it was an overpay
for an organization with less than 100 employees and was generating revenue that
wasn't even 10% of the final price for which it was sold. A similar sentiment was
expressed when Facebook paid $1 billion for Instagram, now the largest contributor
to Meta's revenue.
So why would Facebook spend such a significant chunk on WhatsApp?
Facebook acquired Onavo, a VPN and data analytics firm, in October 2013. Using
Onavo, Facebook has been closely monitoring WhatsApp. The company's data
indicated that the messaging service was a growing rival and a potential Facebook
competitor.
While Facebook (and then-recently acquired Instagram by Facebook) led Onavo's
US mobile app charts for iPhone, WhatsApp was slowly expanding its market
share. While encroaching on Pinterest, it surpassed other well-known mobile apps
like Tumblr, Foursquare, Vine, and Google+.
Moreover, Onavo statistics from April 2013 revealed that WhatsApp frequently
outperformed Facebook Messenger on mobile in several regions. According to a
recently made public confidential figure, WhatsApp sent 8.2 billion messages daily
instead of Facebook Messenger's (on mobile) 3.5 billion. Similar to how WhatsApp
outperformed Facebook Messenger regarding engagement time, Onavo usage
engagement charts from Facebook demonstrated this.
WhatsApp's ascent occurred at a critical juncture, as Facebook was beginning to
realize its goals of becoming a mobile-first business and turning messaging into a
vital service. WhatsApp proved that it could compete with Facebook on its most
crucial front in the shortest amount of time.
In 2018, WhatsApp released WhatsApp Business API, its first commercial solution
that generates revenue. Currently, a significant portion of sales is generated by
"click to message" and "click to WhatsApp" advertisements. It allows companies to
prompt customers to send a message directly from an advertisement they see on
social media sites like Facebook or Instagram or to interact with them via
WhatsApp.
According to Zuckerberg, Click-to-WhatsApp advertising has surpassed a $1.5
billion run rate and has increased by more than 80% year over year as of October
20, 2022.
In addition, WhatsApp's parent company, Meta, intends to invest more in its API
platform and customer support software to develop a more reliable revenue stream
than online advertising. Also, it aids in minimizing possible issues for the business,
such as the one brought on by Apple's privacy measures.
The free business app is geared toward small business owners who want to have an
official presence on the app and directly manage dialogues with their customers.
On the other hand, the API platform is designed for medium to big businesses and
enterprises to assist them in engaging with their consumers at scale.
The purchase of WhatsApp by Facebook not only eliminated a potential competitor
but also gave them access to the data of millions of new customers. In addition,
WhatsApp is also on track to generate billions of dollars for Facebook. Hence we
believe that Facebook's purchase of WhatsApp is one of the smartest moves of the
century.
If it was up to you, how would you monetize WhatsApp?
Note: Present one specific option (in brief) which is different from what
Facebook/Meta is currently (as of 2023) doing.
Three ways through which WhatsApp can generate additional revenue for Meta
(formerly Facebook):
a. WhatsApp could potentially monetize its platform by offering premium
features to users. For example, the company could charge a subscription fee
for advanced features like converting voice messages to text, scheduling
messages, or customizing the app's appearance. This could be a good way
for WhatsApp to generate revenue while still keeping the app free for most
users.
b. It could bundle and sell theme-based stickers for users. In addition, users
would be able to create their stickers within the app (Line, a messaging app
based out of Japan, generates almost 22% of its revenue through stickers).
c. WhatsApp could allow users to make in-app purchases for additional
features or virtual goods within the app. It could charge a commission to the
business selling the goods on the app.
d. Another option could be to integrate ads into the platform. However, given
WhatsApp's strong focus on user privacy, this approach could be challenging
as it may compromise the user experience.
References:
1. https://www.buzzfeednews.com/article/charliewarzel/why-facebookbought-whatsapp
2. https://www.moneycontrol.com/news/business/whatsapp-business-indiarevenue-set-to-cross-1-billion-by-next-year-experts-see-wechat-moment9426421.html
3. https://financesonline.com/whatsapp-statistics/