On 19th Feb, 2014, Facebook announced the acquisition of Whatsapp, a mobile messaging service with over 450mn users for an eye-popping US$ 19 bn of cash and Facebook shares in total. This figure seems insane for a company which charges some of its users US$ 0.99 every year for its services and reportedly had revenues of just US$ 20 mn last year.
Considering that Facebook is now a listed entity, it cannot just plonk down US$ 19 bn on the table without being able to show its investors & shareholders the ability to generate returns on it. So, how is Facebook going to generate returns on this large investment? Surely, any increase in Whatsapp’s revenue is going to be too low to generate any significant return. Also, as per the stated intention of the founders of Whatsapp, they are likely to keep the service ad free.
On the other hand more than 90% of Facebook’s revenues come from advertising on the network. To improve its capabilities to be one of the best digital advertising platforms and to beat Google is key for Facebook’s future growth and monetization of its user base.
For those who have used Facebook Ads, you would have noticed the fantastic targeting capabilities that it provides given the vast information that it has collected. It also provides an even better option called Custom Audiences. To explain Custom Audiences in short, if a marketer has collected details like phone numbers and emails of its prospective or existing customers it can upload the same to Facebook, which will match them with its users and show your ads to only those specific people. This is one of the most highly targeted advertising options that are provided today in the digital medium.
So the question to ask is apart from a large user base and fast growth (Whatsapp is adding 1mn users a day), what monetizable asset does Whatsapp have that Facebook doesn’t or couldn’t get its hands on organically?
Read the complete article here: Here's why Facebook bought Whatsapp
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