How much money did facebook pay for whatsapp

Why Mark Zuckerberg is talking so much about Whatsapp for business

Facebook's new rebrand logo Meta is seen on smartpone in front of displayed logo of Facebook, Messenger, Intagram, Whatsapp and Oculus in this illustration picture taken October 28, 2021.

Dado Ruvic | Reuters

WhatsApp is already widely popular with U.S. consumers. Now Meta Platforms is turning more attention to building its small business base.

The Facebook parent company launched WhatsApp Business in 2018 with free, simple tools to help small businesses keep in touch with customers, offering a way for them to directly interact, search for products and indicate purchasing interest.

Soon the company will roll out a premium service to small businesses, and it's doubling down on a newer advertising format called "click-to-message," which allows consumers to click on a company's ad within Facebook or Instagram and directly start a conversation with that business on Messenger, Instagram or WhatsApp.

These initiatives offer Meta the ability to boost advertising revenue, stay relevant with small businesses and gain incremental revenue from the premium services offered, analysts said.

Keeping more inside the Meta universe

Meta (then Facebook) bought WhatsApp in October 2014 for around $22 billion. Since then, industry watchers have been watching closely for signs the company plans to monetize the platform more. That time could now be coming.

"If I stay on any of the Meta properties and I'm communicating using Meta, asking questions, and buying — all within the platform — there is no signal loss, and it's easier for Meta to tell the brand its return-on-advertising spend," said Mark Kelley, managing director and senior equity research analyst at Stifel. "Signal loss is really what's been impacting social media companies this year."

WhatsApp will be the "next chapter" in the company's history, Meta CEO Mark Zuckerberg recently told CNBC's Jim Cramer. He noted that the company's "playbook over time" has been to build services to serve a wide audience and "scale the monetization" after reaching that goal. "And we've done that with Facebook and Instagram. WhatsApp is really going to be the next chapter, with business messaging and commerce being a big thing there," he said.

This messaging from Meta comes at a time of transition for the company and uncertainty among investors. The company recently reported an earnings and revenue miss and forecast a second straight quarter of declining sales. Meta Platforms shares have lost roughly half their value this year. Mark Zuckerberg is betting large sums of money, currently at a loss, on a future in which the metaverse will be a growth driver for the company. But with his bet on the metaverse as far as a decade out before coming to fruition, the Meta CEO has stressed that in the short-term it is WhatsApp that is among the initiatives to focus on for growth.

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WhatsApp Business has two components. There's the WhatsApp Business app for small businesses. There's also the WhatsApp Business platform, an API, for larger businesses like banks, airlines or e-commerce companies. The first 1,000 conversations on the platform each month are free. After that, businesses are charged per conversation, which includes all messages delivered in a 24-hour session, based on regional rates.

With the free app, small businesses can communicate directly with customers. They can set up automated messages to respond to customers, after business hours, for instance, with information about the business, such as a menu or their company's location. Businesses can use it to send product pictures and descriptions to customers as well as other information they might be interested in. At present, there's no ability to pay through WhatsApp, but it's a feature Meta is considering, a company spokesman said.

Premium features for small businesses — to be rolled out in the coming months — will include the ability to manage chats across up to 10 devices as well as new customizable WhatsApp click-to-chat links to help businesses attract customers across their online presence, the company said in its blog.

"We think messaging in general is the future of how people are going to want to communicate with businesses and vice versa. It's the fastest and easiest way to get things done," the spokesman said.

Why Main Street business is a focus for the WhatsApp push

Analysts see the broad potential. "Messaging is an international forum that everybody uses on an ongoing basis. It's massive and it's growing," said Brian Fitzgerald, managing director and senior equity research analyst at Wells Fargo Securities.

There's considerable room for growth in the U.S., where WhatsApp is still a "a largely untapped resource by small businesses," said Rob Retzlaff, executive director of The Connected Commerce Council, a non-profit organization that promotes small businesses' access to digital technologies and tools.

That's something Meta sees changing over time. "We are deep believers that that behavior will continue to grow all over the world," said Sheryl Sandberg, the company's chief operating officer, on its second-quarter earnings call on July 27. The company estimates that 1 billion users are messaging with a business each week across WhatsApp, Messenger and Instagram.

The need for free and low-cost digital tools for small businesses is underscored by a 2021 report from The Connected Commerce Council. The report noted that about 11 million small businesses would have closed all or part of their business if not for digital tools that allowed them to continue to operate.

One driver for Meta in promoting WhatsApp Business is advertising revenue. "Click- to-message is already a multi-billion dollar business for us and we continue to see strong double-digit year-over-year growth," Sandberg said on the second quarter earnings call. Click-to-message "is one of our fastest growing ad formats for us," she added. The company does not break out how much of the business comes from WhatsApp versus Messenger or Instagram.

Businesses like this format because it's "an inexpensive way to interact [with consumers] that feels a little more personal," said Stifel's Kelley. What's more, it also alleviates a problem caused by the privacy change Apple made to its iOS operating system last year.

Say, for instance, a customer views a Facebook ad for a sneaker retailer and connects directly with the business through WhatsApp. "In a world where we're trying to do more and more with less and less data, there's no leakage here. Everything's protected," Fitzgerald said. "Nobody [else] in the world knows I bought these sneakers and there's a direct business-to-consumer connection."

Moreover, by offering premium services, Meta could boost revenue, at least incrementally, Kelley said.

José Montoya Gamboa, owner of Malhaya in Mexico, who has been using the free business app for several years, said he plans to pay for the premium version when it becomes available because he likes the ability to use it on multiple devices.

But Geraldine Colocia, community manager at Someone Somewhere, a certified B Corporation that collaborates with hundreds of artisans around Mexico, isn't sure. She's been using the free version of the app for more than two years, and would consider paying for it, but the decision will turn on the actual features and the pricing, she said.

The Best Meta Purchase Ever?

With so much cash thrown around in Silicon Valley, it’s not easy for an acquisition to cause a stir. Facebook's (META) (now Meta) acquisition of WhatsApp in 2014 did just that—surpassing Google's $3.2 billion purchase of Nest Labs and Apple’s $3 billion Beats Electronics procurement—to become one of the largest tech buys of all time.

WhatsApp, a text messaging app used widely across the globe, stole headlines with its initial $16 billion bid from Facebook. In 2013, the app lost $138 million and brought in $10.2 million in revenue. So how did the company win over Facebook?

Key Takeaways

Facebook purchased WhatsApp in 2014.
Facebook's bid price was astronomical, even for Silicon Valley, with a bid at $16 billion.
WhatsApp does not use wireless networks.
WhatsApp has over 2 billion users worldwide.
WhatsApp helped Facebook grow in developing markets where internet connectivity is lacking and where WhatsApp is widely used to communicate.

WhatsApp Acquisition

WhatsApp is an ad-free mobile application that allows users to send unlimited messages to contacts without using the wireless network or sustaining data fees. The app is free to download and is an alternative to the cell provider's traditional text messaging platform. The app was founded by Jan Koum and Brian Acton, two former Yahoo! executives.

When Facebook announced its plans to acquire WhatsApp in February 2014, WhatsApp's founders attached a purchase price of $16 billion: $4 billion in cash and $12 billion remaining in Facebook shares. This price tag is dwarfed by the actual price Facebook paid: $21.8 billion.

Facebook agreed to pay $19.6 billion—adding $3.6 billion to the original price as compensation to WhatsApp employees for staying on board at Facebook. However, Facebook share prices soared to $77.56 from $68 when the regulatory approval process concluded in October. By then, the agreed-upon 184 million Facebook shares inflated the final sale price by an additional $1.7 billion.

WhatsApp's six-month revenue for the first half of 2014 totaled $15.9 million, and the company incurred a staggering net loss of $232.5 million. However, the majority of that loss was for share-based compensation.

Why WhatsApp?

WhatsApp is Zuckerberg's most significant acquisition and one of the most enormous Silicon Valley has ever seen. It is over 20 times larger than its Instagram acquisition, making quite the splash in 2012. That begs the $22 billion question: why did the social media giant break the bank to buy WhatsApp?

The answer is user growth. In 2014, over 450 million people used WhatsApp monthly, and the service added more than 1 million users per day. With 70% of WhatsApp users being active daily, the app was expected to quickly reach one billion users.

The app launched in 2009 and, as of 2020, had more than 2 billion users. As of 2020, Facebook had 2.8 billion monthly active users. With a shared mission of enhancing global connectivity via internet services, the merging of forces will likely accelerate growth for both companies.

For Zuckerberg's company, user growth comes first and monetization later.

Zuckerberg plans to merge the messaging platforms of Facebook, Instagram, and WhatsApp, so that users can communicate easily across all three.

WhatsApp and Mobile Users

WhatsApp helped fuel Facebook's growth in developing markets where internet connectivity is sparse, and WhatsApp is widely used. Facebook then gained access to these mobile user bases. Connecting to WhatsApp users in these areas will also aid the Facebook Connectivity initiative; Meta CEO Mark Zuckerberg's plan to implement internet access to parts of the world not yet online.

However, the company does believe it will profit from WhatsApp down the line as phone calls become obsolete and mobile messages reign. This is why Zuckerberg spent one-tenth of his company's (then) market value to buy the text messaging app, nearly doubling Google's (GOOG) bid. In doing so, he successfully kept the company out of the hands of other tech rivals.

The Bottom Line

WhatsApp plays a significant role in global areas crucial to Meta's future growth. By putting monetization efforts on hold, Meta is focusing on the future of international, cross-platform communications. Through the acquisition of WhatsApp, the company is poised to reach billions of people, and Meta is sure to find a way to eventually cash in.

Why Facebook is paying $19 billion for WhatsApp - RBC

The news that Facebook is buying the WhatsApp mobile messenger for $19 billion seemed so incredible at first that it made many doubt the veracity of this figure. When the lightning flash about the purchase of WhatsApp appeared on news feeds, some journalists and analysts on Twitter suggested that there was a mistake and that it was about $1. 9 billion.

Photo: Global Look Press

Purchase of WhatsApp for $19billion is equivalent, for example, to the purchase of 20 Instagram services or 20 Viber messengers. What is the secret of the messenger, created several years ago by a talented native of Ukraine, and why is Facebook paying such a huge amount of money for it?

No ads - just chat

WhatsApp has 450 million monthly active users, and Facebook CEO Mark Zuckerberg believes that the messenger can connect 1 billion users. Unlike many startups (and even more mature Internet companies like Twitter), WhatsApp is not at all a loss-making service that has yet to learn how to turn a profit. WhatsApp's financials are unknown, but the company is positioning itself as a profitable business, and most analysts agree. At the same time, WhatsApp manages to do without the usual monetization schemes for messengers, such as displaying ads to users or creating a platform for games or downloading content.

adv. rbc.ru

The founders of WhatsApp were initially lukewarm about mobile advertising as a way to monetize their user base. "No ads, no games, no tricks!" - written on a notepad on the desktop of WhatsApp founder Jan Kum, and the service is guided by this commandment. Back in December 2013. Koum said in an interview with The Wall Street Journal that for WhatsApp "monetization (ad-based) is a five to ten year perspective." Currently, the messenger is distributed free of charge and is available for download on iPhone, Blackberry, Nokia and Android devices. But after the first year of use, you need to pay $0.99 for renewing the license for another year.

adv.rbc.ru

At the same time, WhatsApp is extremely cost effective. As Jim Goetz from Sequoia Capital (the only venture partner of WhatsApp) explains, the service team does not spend time and money on the development of advertising products, games and analytical tools, the company does not need to worry about storing personal data (user authentication is carried out only by phone number). Goetz notes that a single WhatsApp technician has an average of 14 million active users.

Facebook wants to conquer the mobile app universe

WhatsApp is "the first mobile app on its way to hitting 1 billion users," says Jim Patterson, CEO of Cotap, the company behind the in-house messenger. WhatsApp is already a gem among mobile applications, in many countries this service has actually replaced communication via SMS. "In countries such as Brazil, Mexico, Spain, the service shows simply incredible numbers: 25% of the time people spend on smartphones is spent on WhatsApp," said Charles Golvin, an analyst at Forrester Research. In fact, WhatsApp is a prototype of the social network of the future, where you can easily exchange messages and photos, writes The Atlantic.

On the other hand, Facebook, as befits an Internet business shark, is simply eliminating a dangerous competitor by buying WhatsApp. Messenger remained "one of the few services that seriously encroached on the Facebook-dominated market and thus posed an existential threat to it," wrote Jon Herrman of Buzzfeed. Therefore, Facebook resorted to a proven tactic: in the past, the social network “took” Instagram in the same way and tried to buy another promising service, Snapchat, for $ 3 billion.

However, Facebook has yet to prove to its shareholders the validity of the mind-blowing deal. After the announcement of the purchase of the messenger, Facebook shares fell by 5%. Skeptics are reminded of the fleeting and fragile nature of the popularity of Internet services: many instant messaging services grew quickly and died just as quickly. One notable example is ICQ, acquired by AOL for $400 million in 1998. and sold to the Russian fund Digital Sky Technologies for $187 million in 2010. Now ICQ belongs to the Russian Internet holding Mail.ru, and over the past year, the audience of this messenger has fallen by 31%.

Enderle Group analyst Rob Enderle says the $19 billion for WhatsApp is "crazy money" and "a gesture of desperation by Facebook." “They are terribly worried that they are losing users, and therefore they are trying to increase the base by buying other companies. This reminds me of failed strategies from the dot-com era,” CNBC quotes an expert.

From a village near Kyiv to a club of billionaires

How Facebook is going to profit from WhatsApp is now Zuckerberg's problem. The founders of the service - Jan Koum and Brian Acton - can be incredibly pleased, because the deal with Facebook turns them into billionaires.

According to American media, Mark Zuckerberg made an offer to buy WhatsApp on the evening of February 9th. The negotiations proceeded swiftly and even prevented Zuckerberg from having a romantic dinner with his wife Priscilla Chan on Valentine's Day. Zuckerberg prepared an impressive plate of chocolate-covered strawberries for his beloved, but Priscilla was left without a holiday: Kum came to the house of the head of Facebook, and the men ate all the strawberries during the negotiations.

Jan Koum, 38, was born in Soviet Ukraine, in a village near Kyiv. At 1992, when Yan was 16 years old, he moved to California with his mother: according to Forbes magazine, fleeing from everyday difficulties after the collapse of the USSR and anti-Semitic sentiments. In America, the family at first made ends meet: Jan swept the floors at a local store and ate on food stamps.

In 1997 the future founder of WhatsApp studied at the University of San Jose and simultaneously worked as an IT employee at Ernst & Young. Then he met Brian Acton, who worked at that time in the Internet company Yahoo. They quickly hit it off and became friends and colleagues at Yahoo. In 2007 Koum and Acton left the company. They even tried to get a job at Facebook, but for some reason they were not hired.

The idea of creating a mobile application came to Koum after he bought his first iPhone in January 2009. February 2009 WhatsApp Inc. was registered. Initially, the service was intended only for exchanging statuses like "I overslept" or "I'm in the gym", but soon, to the surprise of the creators themselves, their friends began to use the application as an instant messaging service. By the beginning of 2011 WhatsApp has already settled in the top 20 most popular apps in the US App Store by the end of 2013. gained 400 million active users and added another 50 million since the beginning of 2014.

According to Forbes, Kum owns about 45% of WhatsApp shares, while Acton owns more than 20%. This means that as a result of the deal, Kum will receive $6.8 billion in Facebook money and shares, and Acton will receive at least $3 billion.

Ivan Tkachev, RBC

Facebook buys WhatsApp for $16 billion years to retain WhatsApp's few employees, including 32 programmers and

0 PR and marketing specialists . The allocated package is approximately 7.9% of all Facebook shares and 35% of the available money.

In the official blog, Facebook explained the reason for the purchase. The company hopes to accelerate the growth and "user engagement" of both Facebook and WhatsApp. The deal will cost a record amount in the history of mobile applications. Moreover, this is an absolute record in the history of venture startups.

The previous record was Continental Cablevision (1996, $11.8 billion), in second place was Skype (2011, $8.5 billion).

The world's largest IM messaging service will continue to operate independently under its own brand, and will continue to release its own Facebook Messenger app. The success of this strategy while maintaining the independence of the company after the purchase was shown by the example of Instagram. In addition, Facebook has ensured that the service will not have any ads, as before.

The monthly active audience of WhatsApp exceeds 450 million people, i.e. 14 million active users per developer. Surely soon the audience will grow to a billion. Of these, 72% are active daily (for comparison, the standard for the industry is the ratio of daily to monthly audience of 0.1-0.2).

The number of messages sent over WhatsApp is comparable to the global volume of SMS traffic: up to 54 billion per day (including received and sent messages) between seven supported platforms. With such a load, the backend in the Erlang programming language demonstrates an uptime of 99.92456% (in 2013).

WhatsApp continues its strong growth with more than 1 million daily installs. However, at its current audience size, Facebook pays $35.6 per user, a hefty sum, to say the least, for a program that costs $1 a year. Last year, the company earned only $20 million. On the other hand, Google paid about the same amount per user when buying YouTube.

By the way, WhatsApp co-founder Jan Koum and his mother emigrated to the United States from Ukraine at the age of 16, carrying 20 textbooks in their suitcases. At first, he ate food brands that have been produced in the United States since the 60s to support the poor and the hungry. Koum, 31, now owns about a 45% stake in WhatsApp ($6.8 billion).

P.P.S. WhatsApp co-founder Brian Acton was not hired by Twitter and Facebook in 2009 after being fired from Yahoo, so he joined a friend's venture. Now he owns about 20% of the shares ($3.