This is like déjà vu, circa 2000 when I was watching the {{decent}}.corp ticker hitting $60/share after 3 splits.
If anything I don't feel that Justin Frankel and "Mr. Wonderful" made out like bandits as much now.
ProTip to new startup people: now is not the time for your magic mobile IM app. Most potential acquirers' demand is likely sated, making the value of the remaining players in the space effectively zilch, apart from lower cost acquihires and fodder for opening pitch jokes.
I want to underline that last point. Doing something that is fashionable is a bad idea. Doing something that was fashionable and whose big players are now getting snapped up is a terrible idea.
To be fair, WhatsApp came wayyy before Snapchat came. WhatsApp is well-established and is charging users (at such a low price). SnapChat is hot. But that being said, 16B for WA is still a ridiculous number to me.
I'm no Facebook fan, but this isn't entirely true is it? I mean Instagram has pretty much stayed the same. It gained a video feature. Otherwise the same?
I wouldn't think of this from a ROI perspective. Facebook might be trying to go for the monopoly on mobile messaging. And once Facebook controls that, they can do anything.
Buying WhatsApp isn't going to help too much there. SnapChat is still gaining steam and it won't be long until there's another serious competitor on top of that.
The market has shown time and time again that in the messaging world it's extremely hard for one force to stay dominant for too long. Unless this pattern suddenly breaks today, Facebook will continue having to shell out many billions to keep buying these companies. I'm not convinced Facebook's profit is enough to keep that up.
Not saying this is the absolute case, but sometimes these things are defensive plays (e.g. instagram was starting to control more % of photographs - something that is pivotal to Facebook's continued success).
Sometimes the ROI is in retaining your value and not dying, as opposed to getting $$ out of the investment.
I'm guessing if you want to be the #1 social network for a long time, you don't want people being social outside your platform. I'd put this purchase in the defensive bucket.
I agree. It seems like just a waste of money. Maybe Facebook shoud just give money to users? I might even
use Mark's site the right way; with my real name and honest
profile. Or, just give more to the right charities?
That being said, I use WhatsApp every day to chat with my friends around the world and it's really excellent. I know it's used a lot in other parts of the world even more, so I doubt this purchase is focused on US markets. It seems that every one of my Arab friends uses WhatsApp to talk to their families back home (and they use it at home, too). I don't know about other regions.
WhassApp is the standard in Mexico. It replaced Windows Live (MSN) Messenger after they killed it by trying to make everybody switching to Skype and the interest of the people shifted to mobile.
AFAICT it's become the standard in italy too. People use it way more than facebook now, judging by my contacts (and I don't even use it, I just see a bunch of people doing it).
MSN had 350 million active users a few years ago. And they just pissed it into oblivion. MSN had Skype feature set before Skype, but did nothing to publicize it.
And also, think - MSN had everyone's friends info, as well as frequency of contact and so on. It would have been a perfect way to launch a real social network. MSN fumbled that too.
Assuming Sequoia took that for 20% of the company (fairly standard), they just made $3.2bn. For every $1 they invested in WhatsApp, they made $400 back. </napkinmath>
However people feel about the VC game, 400x IRR are why so many people play.
Minor quibble: IRR is usually an annualized measure. I come up with a number just over 7x (assuming 3 years, cube root of 400-1). Not that it makes it any less insane.
This seems insane. I love WhatsApp, but I recently switched to Google Hangouts because it also supports SMS and I don't really miss it. I don't understand how it can be worth this much when Google has already released a direct competitor to its product that is (and likely always will be) free.
Network effects. When everyone has to switch to a platform, it's hard. And Whatsapp is free for the first year, which is enough to get people stuck on it.
Even distributed protocols aren't a silver bullet. Embrace and extend can make short work of that. As can joining standards boards and playing political games. As can simply turning off federation.
Sometimes I think HTTP and SMTP are only limping along because there's a large enough enterprise base that doesn't want to see any changes at all.
Maybe that presents a defense (get your competing protocol entrenched in corporate IT), but not many technologies get birthed out to the consumer space from the enterprise space the way http and smtp did.
I'm not sure I'd call IP addresses centralised, if perhaps you were thinking of ICANN's running of IANA?
If you consider the internet inherently "centralised" then surely you'd still find CB radio or similar to be decentralised. Or do you also consider the allocation of wavebands to be "centralised"?
Depends on how far you want to push the definition of decentralized. The routing infrastructure of the Internet is still fairly centralized as is the allocation of IP addresses.
Making a messaging service successful requires huge amounts of time and effort. If it's so decentralized that it cannot even be acquired, how could it get built?
To be clear, I don't doubt that the technical side is very feasible. It's the user acquisition side that seems improbable except as a commercial venture.
I think the problem is that historically, we only ever collectively solved the email server. It's unfortunate that we didn't solve the more general case of communication through a server hub. We shouldn't have email addresses, we should have connection addresses, that provide access to mail, chat, audio, video, whatever.
Thanks for the tip about Telegram. It's really slick! And it has desktop clients too! Unofficial ones, but still… definitely an improvement from WhatsApp or Hangouts.
per-message billing by telcos, high costs for international messages, no identity management (only tied to phone #), not cross-platform, character limits (MMS, the workaround, is historically janky), no delivery confirmation, lack of end-to-end encryption. Shall I go on?
the only thing it has going for it (and it's a big one) is ubiquity.
I see. No one I text pays per message or is in a different country. I'm not sure what you mean by "cross-platform", since every phone you can buy supports it as far as I know. The character limit is a small issue. The delivery confirmation is a bigger issue to me. I don't care about end-to-end encryption when one of those ends is a major company that has ties to state-sponsored surveillance.
I know Whatsapp is a big deal -- when I was in HKG a few weeks back every advertisement was Phone Number and Whatsapp number (We're talking on-bench advertising) and on TV as well.
Still, crazy.
It seems very country-specific... In east asia generally, China (ex HK), Taiwan, Japan, Korea, etc, whatsapp doesn't seem to have much presence compared to LINE / kakaotalk / wechat...
Acquired company says it's business as usual, nothing will change, and then 6 months later things slowly begin to change and then after the vesting period of the acquisition finishes, and the newly minted sail off into the sunset, it all goes to hell.
Just remember, next time you read something similar from a startup, it just means they won't do ads unless they get a multi-billion dollar offer. And frankly, I can't blame them.
I get charged a fee per SMS, but I just need an internet connection with WhatsApp. Even when I'm abroad and I switch my SIM card to a different provider contacts can still reach me.
I can have group chats in WhatsApp and send video, images and sound. Plus I like how it lets me know if messages have been delivered. It's also fast and doesn't drain my battery mercilessly. The times I've tried Skype on my mobile device I can see my battery meter go down as I type.
But mostly I use it because all of the people I generally interact with in real life are on it. All of my family, friends and acquaintances use it.
My wife uses Kakao and she got me on it too. The app works well and it is cute. I thought it was hilarious how they monetize with stickers. Then, I realized ... holy sh*t ... this is worth a billion!
KakaoTalk has more profit than WhatsApp per user I think. Had KakaoTalk been an American company, it would make more and might have been snapped up by someone bigger already...
Yep. Most of the new plans the carriers in the US have rolled out recently have unlimited minutes + texting as standard, and then charge extra based on data limits. Not exactly cheap mind you, but that's how its structured. Even my cheapo $30/mo T-mobile prepaid includes unlimited texting.
@kayoone No it's NOT free. US is just slow picking up new tech. It wasn't too long ago when Verizon was charging $10/month for 100 or 500 texts a month, with MASSIVE over the limit usage fee. The smart/young ones alternative but generally most don't care. And while most complain about paying $ for service that may not get used, they continue to pay, because they have the $.
Either regular text messaging or Apple's iMessage (iPhones are most popular in the US). My sense is that they don't really do group chats (a heavily used feature of WhatsApp).
We (my friends and I) use group messaging heavily and none of us use WhatsApp. MMS supports group messaging just fine and lots of my friends have iPhones so iMessage works just fine there.
We do pay more than $1 per year for unlimited text messages but I don't know anyone that doesn't get unlimited text messaging these days.
As far as I understand the purpose of WhatsApp, Americans use SMS instead. The ones I talk with anyway.
Everyone either has unlimited texting (the price of which isn't considered since they get it with a cell plan that they want for other reasons (probably data)), or keep it under the monthly free limit.
They are the de-facto messaging service in the rest of the world (except for China).
FWIW, I'm in the UK, and I'm not aware of anyone who uses it here, either. I too have heard the name mentioned once or twice in the past, usually for undesirable reasons related to things like security or privacy. Even looking them up today, I don't quite see the attraction: what is the USP here?
Seriously, I went to sit in with a few University freshmen recently here in Germany and they all used it. (They didn't know the Back to the Future movies, though!)
But I was talking to a former colleague who is EVEN OLDER THAN ME - over forty, in fact! - and he was saying he has used WhatsApp. Has been using it for a while, in fact. So, it looks like my age isn't to blame here - I am just hopelessly behind the times.
(He said he was going to stop though, now that Facebook have bought it. I pointed out that due to his age, Facebook probably won't care.)
Codswallop! I'm in the UK and I use WhatsApp a lot. Though I do know many (mainly iPhone users with their iMessages) people that haven't heard of it, for us Android people it is an excellent tool for group chat & image sharing.
I'd heard the name, but I've never used the app and don't know anybody that does. Though according to this article (http://techcrunch.com/2014/01/20/whatsapp-dld/) they have hundreds of millions of active users, so clearly some people are.
I'm the same as you - heard the name, never used the app. In the recent 4-5 months though all of my friends migrated to WhatsApp. I'm from Eastern Europe and when I cruised around other countries from the region there were many people who used that too. Maybe has to do with the fact that some telecoms still charge insane prices for a piece of SMS when you deplete your free quota.
It's one of less great messaging apps. Needs your phone number to work (i.e. you change sim cards, your account changes). Works only on phones, not tablets (no iPad Version). Doesn't have a web or desktop version (such as Line or iMessage).
In Latin America its the standard because all the big telco companies don't offer unlimited text, so If you got a smartphone and some mb of data each month you have unlimited text, image etc. That was the killer feature, that Whatsapp manage to take advantage of that opportunity.
I did it this way: 100x return is 800M, 200x return is 1.6B, so 16B is 2000X return, which is 200,000% return in initial investment.
I think it's less than that though, since obviously Sequoia didn't get 100% of the company for their 8M, I think they walked away with 2.4B after this deal?
16B? That's a B, people. While there are a lot of whatsapp users (and people have to pay to use it), wow, that's still a lot of money! How can they justify revenue that way? How can any company ever consider such acquisition? I don't even think Google can even make 16B like this.
$20M net revenue, at most, right? With future expansion and side commercial services, I make $1B per year, fine. But that's after tax. So WhatsApp must make A LOT more than $1B. I really don't see anything else. But that's only when WhatsApp can continue to grow and actually gain that much of commercial income. Someone who have dealt with acquisition tells me how 16B is the right number. I would pay $5B just because WhatsApp is well-established.
Facebook is trying to own mobile, period. That's all that matters to them and they are doing whatever they can to do it now, when it is still relatively early.
AFAIK that's only the plan. right now they have very little if any revenue. People use Whatsapp because they are too poor to afford text messaging. My guess is that lots will leave even at 1 USD per year
There are 450M not 450MM. What is the double MM doing there?
Sure but then minus the operation cost, tax, etc. You get down to very little. I don't dispute FB can turn it into a revenue machine by "inventing" a new way of looking at mobile and mobile messaging, but at this stage I am afraid the revenue that I read from Quora doesn't justify a 19B total acquisition. The price is too high; Twitter is about 40B ~ 50B (http://blogs.wsj.com/moneybeat/2014/01/03/twitter-near-70-va...). So WhatsApp is at least 1/3 to 1/2 of Twitter, depending on how you look at it. And we probably can agree Twitter, FB are all about # of users; unlike Google which makes 60B revenue in 2013, Google has a real revenue model + user base. If you sell Google for $100B I won't even complain and I probably think that's a big bargain. (http://qz.com/137191/googles-record-valuation-is-still-130-b...)
I wanted to put the number into perspective to wrap my head around it and it seems that $19B (I've added the $3B RSUs) was the public healthcare budget for 2013 in my country of almost 40 milion citizens.
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[ 2.9 ms ] story [ 366 ms ] threadThis is like déjà vu, circa 2000 when I was watching the {{decent}}.corp ticker hitting $60/share after 3 splits.
If anything I don't feel that Justin Frankel and "Mr. Wonderful" made out like bandits as much now.
ProTip to new startup people: now is not the time for your magic mobile IM app. Most potential acquirers' demand is likely sated, making the value of the remaining players in the space effectively zilch, apart from lower cost acquihires and fodder for opening pitch jokes.
It solved a certain popular problem very nicely, and now there is no longer an equal offering.
I personally don't mind having no privacy if everything becomes super convenient, but at least people are cognizant of the tradeoff now.
The market has shown time and time again that in the messaging world it's extremely hard for one force to stay dominant for too long. Unless this pattern suddenly breaks today, Facebook will continue having to shell out many billions to keep buying these companies. I'm not convinced Facebook's profit is enough to keep that up.
Sometimes the ROI is in retaining your value and not dying, as opposed to getting $$ out of the investment.
I'm guessing if you want to be the #1 social network for a long time, you don't want people being social outside your platform. I'd put this purchase in the defensive bucket.
http://techcrunch.com/2011/04/08/sequoia-whatsapp-funding/
Now on to uninstalling it :-(
That being said, I use WhatsApp every day to chat with my friends around the world and it's really excellent. I know it's used a lot in other parts of the world even more, so I doubt this purchase is focused on US markets. It seems that every one of my Arab friends uses WhatsApp to talk to their families back home (and they use it at home, too). I don't know about other regions.
And also, think - MSN had everyone's friends info, as well as frequency of contact and so on. It would have been a perfect way to launch a real social network. MSN fumbled that too.
A comedy of errors.
WhatsApp raised only $8 million (from Sequoia in 2011 http://www.crunchbase.com/company/whatsapp).
19B sale price is about 10% of Facebook's 173B valuation.
At 400 million, WhatsApp has more users than, the world's third most populous country, the United States has residents.
However people feel about the VC game, 400x IRR are why so many people play.
If we just move to another decentralized messaging service, that service will eventually get gobbled up as well, and we'll have to rinse and repeat.
Sometimes I think HTTP and SMTP are only limping along because there's a large enough enterprise base that doesn't want to see any changes at all.
Maybe that presents a defense (get your competing protocol entrenched in corporate IT), but not many technologies get birthed out to the consumer space from the enterprise space the way http and smtp did.
I'm not sure I'd call IP addresses centralised, if perhaps you were thinking of ICANN's running of IANA?
If you consider the internet inherently "centralised" then surely you'd still find CB radio or similar to be decentralised. Or do you also consider the allocation of wavebands to be "centralised"?
To be clear, I don't doubt that the technical side is very feasible. It's the user acquisition side that seems improbable except as a commercial venture.
the only thing it has going for it (and it's a big one) is ubiquity.
I know Whatsapp is a big deal -- when I was in HKG a few weeks back every advertisement was Phone Number and Whatsapp number (We're talking on-bench advertising) and on TV as well. Still, crazy.
http://blog.whatsapp.com/index.php/2014/02/facebook/
I really hope to be able to pay for WhatsApp next year as well, I really loved it for what it was.
Acquired company says it's business as usual, nothing will change, and then 6 months later things slowly begin to change and then after the vesting period of the acquisition finishes, and the newly minted sail off into the sunset, it all goes to hell.
Edit, also: http://blog.whatsapp.com/index.php/2014/02/facebook/
It looks like this was a defensive acquisition, Facebook cared more about whatsapp not killing them then they care about making money with whatsapp.
Same thing as Google tries to do with Youtube users. It just doesn't make sense to have two types of users in your system.
I can have group chats in WhatsApp and send video, images and sound. Plus I like how it lets me know if messages have been delivered. It's also fast and doesn't drain my battery mercilessly. The times I've tried Skype on my mobile device I can see my battery meter go down as I type.
But mostly I use it because all of the people I generally interact with in real life are on it. All of my family, friends and acquaintances use it.
I like how you nailed the reason for Facebook buying WhatsApp.
It just works perfectly without ads, slowness, UI changes.
It's simple to use, my mom & dad uses it easily (>60).
They are the de-facto messaging service in the rest of the world (except for China).
We do pay more than $1 per year for unlimited text messages but I don't know anyone that doesn't get unlimited text messaging these days.
Everyone either has unlimited texting (the price of which isn't considered since they get it with a cell plan that they want for other reasons (probably data)), or keep it under the monthly free limit.
FWIW, I'm in the UK, and I'm not aware of anyone who uses it here, either. I too have heard the name mentioned once or twice in the past, usually for undesirable reasons related to things like security or privacy. Even looking them up today, I don't quite see the attraction: what is the USP here?
Seriously, I went to sit in with a few University freshmen recently here in Germany and they all used it. (They didn't know the Back to the Future movies, though!)
But I was talking to a former colleague who is EVEN OLDER THAN ME - over forty, in fact! - and he was saying he has used WhatsApp. Has been using it for a while, in fact. So, it looks like my age isn't to blame here - I am just hopelessly behind the times.
(He said he was going to stop though, now that Facebook have bought it. I pointed out that due to his age, Facebook probably won't care.)
I'm the same as you - heard the name, never used the app. In the recent 4-5 months though all of my friends migrated to WhatsApp. I'm from Eastern Europe and when I cruised around other countries from the region there were many people who used that too. Maybe has to do with the fact that some telecoms still charge insane prices for a piece of SMS when you deplete your free quota.
7% penetration in the US, 16% in Canada, 84% in Germany, 97% in Spain.
I think it's less than that though, since obviously Sequoia didn't get 100% of the company for their 8M, I think they walked away with 2.4B after this deal?
See this discussion: http://www.quora.com/WhatsApp-Messenger/How-much-revenue-is-...
$20M net revenue, at most, right? With future expansion and side commercial services, I make $1B per year, fine. But that's after tax. So WhatsApp must make A LOT more than $1B. I really don't see anything else. But that's only when WhatsApp can continue to grow and actually gain that much of commercial income. Someone who have dealt with acquisition tells me how 16B is the right number. I would pay $5B just because WhatsApp is well-established.
Sure but then minus the operation cost, tax, etc. You get down to very little. I don't dispute FB can turn it into a revenue machine by "inventing" a new way of looking at mobile and mobile messaging, but at this stage I am afraid the revenue that I read from Quora doesn't justify a 19B total acquisition. The price is too high; Twitter is about 40B ~ 50B (http://blogs.wsj.com/moneybeat/2014/01/03/twitter-near-70-va...). So WhatsApp is at least 1/3 to 1/2 of Twitter, depending on how you look at it. And we probably can agree Twitter, FB are all about # of users; unlike Google which makes 60B revenue in 2013, Google has a real revenue model + user base. If you sell Google for $100B I won't even complain and I probably think that's a big bargain. (http://qz.com/137191/googles-record-valuation-is-still-130-b...)
I wanted to put the number into perspective to wrap my head around it and it seems that $19B (I've added the $3B RSUs) was the public healthcare budget for 2013 in my country of almost 40 milion citizens.