Facebook to buy messaging app WhatsApp for $19bn
Facebook has bought messaging app WhatsApp in a deal worth a total of $19bn (£11.4bn) in cash and shares. It is the social networking giant's biggest acquisition to date. In a statement announcing the deal, Facebook founder Mark Zuckerberg described WhatsApp's services as "incredibly valuable". Founded five years ago by Jan Koum and Brian Acton, WhatsApp today claims a subscriber base of more than 450 million users — mostly in Europe, Latin America and India — 70% of whom use the app every day.
WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. The company claims it is currently registering one million new users a day. This wildly popular app, which is free in the first year, is among many messaging services that enable smartphone users to go around their cellular texting plans that come with costs and caps. It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.
Facebook's previous biggest acquisition was Instagram, which it bought for $1bn in 2012.
The world's biggest social networking company said Wednesday that it is paying $12 billion in Facebook stock and $4 billion in cash for WhatsApp. In addition, the app's founders and employees — 55 in all — will be granted restricted stock worth $3 billion that will vest over four years after the deal closes. Mr Zuckerberg said the prospect of a deal was first floated just 11 days ago. Zuckerberg and Koum, who is eight years older at 37, have known each other for a while. But, they first talked about the deal nine days ago, on an offer from Zuckerberg.
WhatsApp does give Mark Zuckerberg inroads into international markets and, as importantly, to a younger demographic. But what is less clear is whether the finances will add up in the long-term. WhatsApp has reiterated its commitment to an ad-free service, opting to charge users a mere $1 per year. Under this scenario, it will need to continue its growth trajectory to ensure any financial return to Facebook. But Adverts are pivotal to Facebook's own business model - and the pressure for it to monetize its new WhatsApp user base in the same way may prove too tempting to resist. The Facebook founder said he believed WhatsApp was on track to have a billion users, but insisted he had no plans to place advertising on WhatsApp's interface, saying he did not think ads were the best way to make money from messaging systems. He believes that WhatsApp actually has greater penetration in a lot of international markets than Facebook.
Once the deal is finalised, Mr Koum and co-founder Brian Acton are set to become Silicon Valley's newest billionaires.
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