BY: Sorin A. Ovreiu
Whatsapp is an instant messaging
application for smartphones. The software is available for iOS, Android,
BlackBerry OS. On February 19, 2014, Facebook announced that it will be buying
whatsapp for an estimated $19 billion dollars. This is part of a recent trend
for software companies to receive multi-billion dollar valuations. While not as
widely used in the United States, whatsapp has over half a billion users
worldwide with over 120 million monthly active users. Part of the reason
whatsapp is popular is due to its functionality, user experience, and low cost
compared to other alternatives.
Whatsapp’s functionality and user
experience has allowed it to become extremely popular in Europe, Asia, and
Africa. The app automatically compares the phone numbers in the phone address
book to those in its database and adds the contacts to a list. Its free trial
approach lets people try the app then have the option to purchase a membership
after one year. This is how whatsapp generates its revenue. Furthermore, users
are drawn to whatsapp for messaging rather than paying mobile service providers
text messaging fees. In developing countries, especially, this helps thrifty
users better spend their money.
The dominant driver for whatsapp’s
19 billion dollar valuation was its large user base. The market values
increases in user base, which is reflected in the company’s acquisition price.
Another factor that helped whatsapp reach its valuation is the user engagement
rate. The number of active users is
important because those users could be monetized in the future, which is why
Facebook is willing to pay such a high price.
The recent trend of tech companies
being acquired for billions of dollars is a significant development. Less than
2 years ago, the photo sharing app Instagram was acquired by Facebook for one
billion dollars. It is important to understand that tech companies monetize
their users and have complex models to predict their future revenue per user. This
can help us to become more aware of our social media usage and the types of
services we sign up for.
ARTICLES
More people are having problems with Whatsapp.
ReplyDeleteIt isn't 100% compatible with Android regarding 'push notification'.
Sometimes 12 hours late. I get messages that were sent LATE arriving FIRST
That is a big problem may be part of the reason it is not as big in the U.S. compared to other countries. Customers in the U.S. demand functionality and will not stand for anything sub-par.
DeleteThere are several alternatives to Whatsapp. Personally, I haven't used Whatsapp, but I have used apps similar to it. It's crazy that Facebook is willing to pay $19 billion for the app, but it goes to show you that little differences can have a big impact on a consumer's perception of your product. I have used Skype, Kik, and Viber, which all seem to resemble Whatsapp is some shape or form. Slowly, we will all gravitate towards the idea that combines multiple ideas just because it is more efficient. Kudos to the developer. He's about to get paid!
ReplyDeleteTOO D*** HIGH. I'm afraid a tech bubble is forming and will burst. This can get wild.
ReplyDeleteI agree with Scooter on this one. A tech bubble is definitely in our immediate future as these prices are being extremely inflated solely based on the market it is in and not based on a true valuation of the company in my opinion. It will be interesting to see within the next five years, where the tech market is at and if prices have started to drop.
ReplyDeleteYes, this app has been way overvalued. I don't consider myself a technological luddite and I have never heard of this app. I am familiar with Kik, Vonage, and Vyber, but I feel as if all of these apps are pointless. Why not send a text message? I guess these are all the new age Blackberry Messengers (BBM). BBM was cool for the time period Blackberry's were, but then the iPhone came out and it was like "why keep my Blackberry just because it has BBM?" Facebook will regret this one.
ReplyDeleteWhats app acquisition by Facebook seemed like and unlikely pairing yet, if you understand how many users it already has especially with the fun, and simple user experience, you understand Facebook would rather just acquire them than deal with the apps potential competition income from advertising on this platform seems very likely to.
ReplyDeleteYes, it is strange how much Facebook spent for What'sApp but I would guess they will receive a lot of value from it. What'sApp may not be so common in our lives, but communication apps like this are very popular among the young people not in college.
ReplyDeleteGlancing at Nassar and Scooter's conversation, I do believe there is a slight chance of a tech bubble. Buy side firms, and companies such as facebook are faced with large amounts of excess cash on their balance sheets, and given the necessity of reinvesting, these firms are spending unheard of amounts to buy "the next big thing". It will be interesting to see WhatsApp's true value in the future.
ReplyDeleteI do believe Facebook overpaid for Whatsapp. Though I understand that Whatsapp is very popular, I'm not exactly sure how the revenue model for the company lends itself to that high of a valuation.
ReplyDeleteI think facebook is very smart purchasing this app because eventually i think the internet will be ultimately free one day and wifi will be all around us. So with the purchase of whatsapp facebook has an app that gives you all the things you need that a cell phone company provides ultimately making this a huge power move.
ReplyDelete