Face.. What?
This was a purchase that sparked major controversy. Many said Zuckerberg's acquisition of WhatsApp with USD 19 bn was a brilliant move, while others thought he was drunk. I personally think it wasn't a very smart buy. Here's why...
On the surface it may seem as if Facebook is adopting the business model of Google, Amazon or Yahoo! by growing through acquisition. But the truth is too far from it, simply because every other company out there buy companies to expand their ecosystem.
It may seem that Facebook bought WhatsApp for its user base. But when a company spends money on something, they would want to eventually monetise this investment. Here is how companies usually monetise: either through advertisements, pay-per-use or in-app purchases, or all of them. Before we move on with predicting how Facebook will use WhatsApp, let us first examine the principle of both services.
Business Models
The people at WhatsApp don't believe in collecting user information. So much so they attach an account to a phone number instead of a username. They have absolutely no information of their users. They don't believe in advertisements, which is why they charge annual fees for continuous usage. WhatsApp is also a mobile-phone-only service.
Facebook is all about advertisements. It tries to sneak advertisements from all corners possible and in all ways possible. It also tries its best to collect most information from its users and sell them to anyone interested to buy. Finally, it tries its best to keep its service on the web, because it can better sell advertisements there.
Just by getting a perspective on these two companies we can already see the stark contrast between their business models. This means Facebook will most probably not expect WhatsApp to just let Facebook change things around that easily.
Barrier to Exit
WhatsApp was a revolutionary app, so revolutionary that they caused all telco companies worldwide to lose money and scamper to repackage their mobile plans to stay afloat. But they have never evolved ever since. And in the recent years many other more advanced chatting services began sprouting out like mushrooms from all over the world and snatching emerging market share from WhatsApp. Some of the big ones are WeChat, Kakao Talk, LINE, Hangouts and BBM.
Looking at the market today, it seems the only reason why people are still using WhatsApp is probably because they've been using it for a while and they don't yet have a reason to switch. When they do, they will. And they will not turn back.
Other Predictions
Some say Facebook bought WhatsApp for the same reason they bought Instagram; to avoid the Innovators' Dilemma. Zuckerberg bought these two companies to inject some creativity and fresh perspectives into the company in order to try and avoid the already declining user base of Facebook, especially with younger crowds. But hold on just a bit. Instagram has been with Facebook for a while now, and nothing different has happened to any of the two services.
Let's not confuse the growth of Instagram with Facebook's contribution. Instagram just introduced itself to Android ecosystem a little while before they were acquired by Facebook. Seeing that Android has a larger user base than iOS, and it takes a few months for a new product to get itself adopted by the majority of users, one can safely deduce that Facebook had nothing to do with Instagram's recent growth spurt. If Facebook had anything to do with Instagram, it could be that they made the video posting 15-seconds long because an advertisement is also typically 15-seconds long.
Another prediction said that Facebook bought WhatsApp as a hedge move against competitors, kind of like what Google did with Waze. I don't buy it. Waze is a one-of-a-kind awesome crowd-supported app that was everything Google Maps could not be, and vice-versa. And spending $ 19 bn to protect itself from competitors is akin to robbing oneself of its own money. A smarter move would be to buy a dozen smaller companies that can actually help Facebook grow.
In The End
Facebook has to face the reality that they are a dying breed. People use it not because they like to, but because, at the moment, it hasn't been completely consumed by an up and coming social media site. And buying completely unrelated apps for tonnes of money and then not doing anything to integrate them into an ecosystem doesn't help justify anything.
Unless Zuckerbarg has an amazing and completely out-of-the-box plan to take Facebook to another level, and not just actively buying companies in search of a replacement for himself, nothing is going to come out of both Instagram and WhatsApp. Remember: they haven't earned a single cent from Instagram yet.
