The cost of ‘cool’2/26/2014
If you’ve been waiting for a sign you need to take up coding, consider the story of the messaging application WhatsApp. In its five-year history, WhatsApp was only able to raise a paltry $8 million from a single investor, yet spring forward to last week, with its purchase by Facebook for $19 billion, the company has skyrocketed to the status of largest tech acquisition ever.
The last two years, Silicon Valley has seen a bit of an arms race among its super powers. Google acquiring Motorola, Nest and Waves. Apple purchased PrimeSense and Topsy. Yahoo procured Tumblr, Summly and DailyMotion. And Facebook bought Instagram and now Whatsapp. Now you may not know what many of the acquired companies offer, but the important thing to know is, altogether these transactions total close to $50 billion in cash and stock exchanging hands.
Facebook’s two purchases alone account for two-fifths of the grand total, and its motivations behind those purchases explain a lot. WhatsApp and Instagram have diminutive revenue sources but are immensely popular with 600 million combined users. After one year of free use, WhatsApp charges users 99 cents per year to use the app, and Instagram pushes advertisements through “sponsored” posts, but Facebook didn’t acquire them for the revenue but for the eyeballs. Throughout the last year, Facebook has been hemorrhaging young users, with its acquisitions benefiting from the bleeding.
Whereas Google will always have search users, and Apple looks unshakeable as the premium hardware vendor, Facebook only stays relevant if its users are engaged and don’t leave for more exciting alternatives. Instagram and WhatsApp are the hottest names in tech. If Facebook can somehow connect the trendiness of its acquisitions to the ubiquity of its own service, it will continue to grow and rake in advertising dollars.
What does WhatsApp do? It provides a Web-based text, picture and video messaging service that bypasses carrier messaging fees, plus it doesn’t store records of user communications, protecting user privacy. Is that additional 450 million pairs of eyeballs worth it? With so many alternatives available, I don’t think so, but it appears Facebook will pay any price to buy “cool.” CV
Patrick Boberg is a central Iowa creative media specialist. For more tech insights, follow him on Twitter @PatBoBomb.