Now that Facebook paid $19 billion for Whatsapp, is Snapchat considered genius for turning down Facebook’s $3 billion offer in November of 2013, or did they miss the boat?
The particulars of the Whatsapp deal were negotiated over several days in February after Facebook CEO; Mark Zuckerberg invited Whatsapp creator and co-founder, Jan Koum, to his home in Silicon Valley where Zuckerberg proposed the initial offer. It has been reported that the acquisition was negotiated in only five days, leading to a purchasing price from Facebook that totals $19 billion, structured through $12 billion in Facebook stock, $4 billion in cash, and $3 billion in employee retention programs.
For Facebook, a company that has seemed to have the mantra of “we’ll gather users and worry about monetizing them later”, this acquisition seems to fit. However, it seems that investors are somewhat skittish about Facebook valuing Whatsapp at $42 per user. After the deal was announced Facebook’s stock price dipped 5% during day trading, but recovered somewhat during afterhours trading. The drop in market price suggests that investors worry about how Facebook will monetize Whatsapp.
Zuckerberg has been able to explain that Facebook’s investment was based on Whatsapp’s growing number of users. The company boasts 450 million users, many of whom are in countries where Facebook is trying to grow, and 70% of users are active every day (industry standard is 20%). Additionally, Whatsapp has been growing by astonishing 1 million users each day, which should allow them to reach 1 billion users in 2015.
Although the jury is still out as to whether or not Facebook has made a good deal, some speculators believe this purchase will allow Facebook to corner the mobile messaging market, and reach out to younger users, a demographic that Facebook has been losing.
Facebook’s previous attempt to capture the youth market was rejected by Snapchat, a mobile messaging service that allows users to take and send picture and videos to friends that can only be seen for up to 10 seconds. Snapchat co-founder, Evan Spiegel, turned down Facebook’s $3 billion offer citing “There are very few people in the world who get to build a business like this [Snapchat] I think trading that for some short term gain isn’t very interesting.” It is clear that the Whatsapp co-founders feel very different than their counterparts at Snapchat.
Whatsapp co-founder, Jan Koum has been quoted criticizing Snapchat for their image of a being a teen based app that is used “to get laid”, and their business model in general. Koum says:
Cleary Evan Spiegel only has his pulse on one part of the world. We have a whole wall of sorties about people who got to know each other long distance and eventually got married. You’re not going to do this over Snapchat. And people want chat histories. They’re a permanent testimony of a relationship.
Koum’s criticism may not be totally without merit, but it might be Snapchat who has the last laugh.
In the days following Christmas, which are heavily examined by marketers, because they give valuable insights as to which apps teens are downloading onto their new phones, Snapchat rose to number 2 while Whatsapp faded to number 63 in the U.S. charts. These figures suggest that Snapchat is outpacing Whatsapp in American downloads by a staggering 40-to-1 margin.
Whatsapp had previously been number 1 in the U.S. as recently as June, but today it is struggling to stay in the top 40 on Apple’s top downloaded apps list, and currently holds the 41st position, while Facebook and Snapchat currently rank in at numbers 7 and 10 respectively.
In the war between Facebook, Whatsapp, and Snapchat, it is definitely too early to tell who will win, but it can be said that Facebook is strengthening its hold on digital media, and cutting edge technology. Their vast cash reserves and brand recognition enable them to compete in many different arenas and purchase competitors. But Snapchat remains strong and holds many of the users Facebook covets.
Written by Matthew Warren, Digital Media Director