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WhatsApp: 2nd Biggest Tech Acquisition of All Time
Nerval's Lobster writes "Facebook CEO Mark Zuckerberg decided to drop a cool $16 billion on WhatsApp, a messaging service with 450 million users. It was a mind-boggling sum, even if you buy into Facebook's argument that WhatsApp (which will continue to operate as an independent subsidiary, at least for the moment) will soon connect a billion people around the world. But it wasn't the biggest tech acquisition of all time: that honor belongs to Hewlett-Packard, which bought Compaq for (an inflation-adjusted) $33.4 billion in 2001. Facebook's purchase of WhatsApp comes in second on the list, followed by Hewlett-Packard's purchase of Electronic Data Systems for $15.4 billion; Google's acquisition of Motorola Mobility for $13 billion, and Oracle snatching up Peoplesoft for $12.7 billion. In sixth comes Hewlett-Packard again, with its Autonomy buy in 2011 (for $11.7 billion), followed by Oracle's BEA Systems acquisition ($9.4 billion) and Microsoft seizing Skype ($9.0 billion). What do many of these highest-cost purchases have in common? Many of them didn't pan out. Hewlett-Packard's Compaq, Autonomy, and EDS acquisitions, for example, made all the sense in the world on paper, the tech giant eventually took significant write-downs on all three (Autonomy in particular was an outright disaster, resulting in a $8.8 billion write-off and widespread allegations of financial and management impropriety)."
Update: 02/20 19:32 GMT by T : Of interest: Mother Jones has an interesting take on the seeming mismatch between Facebook's business model and the way the WhatsApp founders think about advertising. Hint: they hate it.
Did they mean "2nd biggest"?
Why not just write "Second biggest"?
No sig today...
http://money.cnn.com/2014/02/2...
But I will not tech history in the last 20 years is littered with companies that were bought because of instant messaging in one form or another, stuff like Skype, that later on did not really bring it's parent company anything (eBay sold skype to Microsoft at a loss iirc).
The problem seems to be how to integrate and monetize these services without people jumping ship. Until then, they are hosting a free service that's quite a bit to fund with no obvious revenue stream in sight other than ads.
Of course, Facebook is an expert on that, so it may turn out well for them. Still, amazing returns on a 4 year old company.
Are you sure it's really a honest acquisition and not a lame attempt to use a portion of your huge pile of money just to monopolize a market you're afraid of slowly losing?
(*) boni = plural of bonus
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
...was when someone commented that Sun Microsystems was worth about one third of a chat service.
Not saying it was a good purchase, but it seems like a lot of these things are purchases of tech talent as well as the products and intellectual rights.
Do they really expect $20million in annual revenue from WhatsApp to grow to cover that $16billion?
The question is, how does Facebook ever hope to recover the cost?
"First they came for the slanderers and i said nothing."
Who needs advertising when you can sell the company for $16B? They'll just punt the founders and add in-stream/in-text ads related to the content of the text streams the user recently engaged in. Done.
WhatsApp was a great company and it has been bought about by an evil one that clearly intends to subvert it.
But I can hope that the founders of WhatsApp can use Facebook's money more effectively to create a new anti-advertisement business. Hopefully their use will outway the evil that facebook is about to do to WhatsApp
excitingthingstodo.blogspot.com
Facebook is buying users, just like people bought eyeballs back in the day. When you push advertising, you need an audience - and if you can't grow it organically, you buy it.
AOL/TW was, by far, much larger than HP/CPQ.
WhatsApp issues DMCA takedown notices against alternative clients shortly before the acquisition.
Who needs advertising when you can sell the company for $16B? They'll just punt the founders and add in-stream/in-text ads related to the content of the text streams the user recently engaged in. Done.
The service apparently costs $1 per year with a free one-year trial. Assuming they can get those 450 million (and counting) to go through the trouble of entering a payment method they're going to be making hundreds of millions of dollars without having to hire lots of people to device clever snooping and ad-targeting schemes. Sounds like a surprisingly sound business to me, if they can get the enter payment method flow to work smoothly.
At the other end of the spectrum, the biggest bargain ever was NeXT acquiring Apple for negative $429 million.
Dear Slashdot: next time you want to mess with the site, add a rich-text editor for comments.
Any one know the overlap in numbers of FB and WhatsApp users? My guess it's nearly 100%, I don't know for sure.
In a time of universal deceit, telling the truth is a revolutionary act. George Orwell
Is that the whole reason a service like this exists, when essentially all those users already have FB accounts, is because it *ISN'T LIKE* Facebook. It's uncluttered, and straightforward. It's the un-facebook. And they'll just break it by trying to monetize it.
I thought whatsapp was lame until I installed and was able to chat and share photos with friends in a few seconds... But still some Erlang code over XMPP isn't worth 16 billions to somebody who already has the user base and developer talent to do the same thing overnight...
Yeah, but even at $500million a year, that's still 32 years till break-even.
I don't really think WhatsApp is going to last 32 years.
I think it's time to call the near top of the social media bubble. Maybe this one will be called the Web 2.0 Bubble.
It's funny, because I remember the last tech bubble in the 90s ending a few months after similar insane acquisitions. Remember when AOL was bought by Time Warner because they were panicked that they would be left behind in the Web 1.0 future? How about all the IPOs of completely unprofitable companies based only on the fact that they sold stuff online or were funded by advertising?
I think whether this turns out to be a bubble or the "new normal" depends on how well these social media companies and device manufacturers can present themselves to the average joe as "the internet." Remember that AOL used to be "the internet" for anyone non-technical. People keep predicting the death of PCs simply because anyone under 25 uses tablets and phones as their primary computers, considers email old fashioned, and lives on Facebook. The question is whether this is universally true or just some hipster marketing buzz. I know people who live on Facebook, people like me who use it to post family pictures, and people who actively hate it. I think it could go either way, but the market for this stuff is way too frothy now. Even my boring corner of IT is being bombarded by cloud this and cloud that, and it's touted as the solution for everything.
The strange thing is this -- during the 90s, I was a new grad riding out the dotcom boom in one of those "boring" corners of traditional IT (sysadmin for an insurance company). This time around, I'm in a different "boring" corner of IT (systems architect in air transport). The plus side of this is that I never got laid off during the bust cycle. Marketing flash may sell IPOs, but people who actually know their stuff get to keep working when most of the fluff gets thrown out. Oh well... At least the 90s tech boom sparked a huge Internet build-out, oh, and left a lot of Aeron chairs on eBay. :-)
User overlap probably doesn't matter as much as we think, because WA is a totally different channel than, say, Facebook. You have a TV and a computer, so why does Facebook want you on your phone? Because FB wants to be everywhere you - and your friends - are.
Even if WhatsApp never sells ads, it'll allow Facebook to target their ads better. WA knows where you are, when, and where you go, or it can. That can be used for lots of things.
The only better source of data on where mobile phones are and when would be phone company records, which apparently only the NSA can get.
When my cousin visiting USA texted to his brother in Singapore, the Singapore brother was like, "what? you got money growing in trees? Why send regular text when you have Whats App?"
But dumb phones market share is shrinking, Smart phones don't ever pay for international texting rates, they have more options... So I don't see Whats App growing any bigger than what it is. I am not sure people would be willing to pay more than a dollar or two per year for Whats App in smart phones. But I could be, and frequently have been, wrong.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
I don't expect that $16.5B worth of facebook stock will be worth much in another couple years.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
We've had the dot.com bubble. It's only a matter of time until the social media bubble bursts. Currently this seems to be defined as "we'll value your company on how many people use it" or "we're buying your user base", not tangible assets and value... crazy.
What is privacy these days? The USPS tracks every letter, or at least takes a picture of it (who knows what they do with that). The phone company always knew who you called, but they didn't care. Your mailman sort of knows what mail you got. Your friends, etc know what you like.
The question isn't about privacy, because that was always an illusion. The question is who do you want to know what?
Do I want google, and by extension advertisers (or entities in the advertising programs), to know anything about me? Amazon? Apple? My phone company? The government?
At least in the US, everyone sort of has an advertising profile. Who gets access to it and why? You have no real control over that.
Sometimes, advertising can be convenient. When you're looking for a car, it'd be nice to get a whole bunch of, say, test drive for dollars coupons.
Sometimes, it can be bad - like when you get medical condition related ads at home when you didn't want anyone else to know.
At some point the public needs to have the ability to take control of this information somehow. It's unclear how that's going to happen. Are online footprints considered property rights?
How does WhatsApp make money? I am not seeing that anywhere? How does this add value to FB? I guess the VC's will at least get their money back out that they invested. That's good, right?
Dear Mark Zuckerberg
Why spend 19 billion on a company that is unlikely to add value to FB and what's more the users are unlikely to want to pay money to use the service?
Facebook itself earns money from ads because that's the only way it can work.
Whats App Makes money the "real" way, by totally abandoning ads.
But in the middle is the network of connections between people. Facebook is much better off begin able to acquire this network information from both people who don't care about ads and those that do.
Even if all the information did was improve ads served to the people that didn't care about them, it would probably be worthwhile.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
I would put AOL Time Warner as the biggest tech industry acquisition...
Yeah. $160 Billion. In 2000 dollars.
"Of all time" seems to mean "that we can think of off the top of our heads," because there are quite a tech few mergers in the list bigger than $16 Billion.
I am not a crackpot.
The only reason I can think that they would value it that high would be the value + eliminating competition. Could it be that Facebook is just hoping that it gains something along with losing a competitor and in theory increasing its own revenue? I can't believe that is a solid business plan.
Sent from my TARDIS
From what I understand WhatsApp requires you to use a real phone number (your cellphone number in fact) in order to receive text messages via your data plan rather than the SMS plans that cost extra with many carriers.
Sure, Facebook has a messaging app but they don't have your phone number. You can give it to them but I suspect that most people either leave it blank or put in a fake number. I suspect that a large part of this deal is getting a hold of that huge phone book that WhatsApp has now. Once FB has your cellphone number they can serve up ads to you via text messages even if you are not logged on to FB. Or maybe they will just sell your number to someone else.
Just watch - they will bury this 10 layers deep in the service agreement where nobody reads it. Next thing you know you'll be bombarded with junk...all in exchange for "free" text messaging. It's one more reason not to trust Zuck and company.
I'm not a WhatsApp user but if I were I'd be closing my account and looking for an alternative - pronto.
Clearly you don't think like facebook exces. You just charge $32. Tada, 1 year break even.
Can anyone explain why this acquisition is a good idea, and why WhatsApp is worth $16bn? I feel like I must be missing something. My impression of WhatsApp is that the technology behind it would be fairly trivial to recreate. I understand they have a large user base, though I'm not sure why, and I'm unsure how and why Facebook would expect to take on that userbase.
Is there a good hidden reason, or is it just another one of those moments when a tech company doesn't know how to grow beyond their one profitable product, so they just go around buying companies without a real plan?
for (var i = 0; i < 450000000; i++) {
whatsApp.Post ("Time to find another app.");
}
Requiem for the American Dream
Do they indeed? How absolutely fascinating.
Now I can't say I'm keen on slashdot beta, but if someone lobbed an obscene amount of money in my general direction I might be able to overcome my objections.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Jan Koum picked a meaningful spot to sign the $19 billion deal to sell his company WhatsApp to Facebook earlier today. Koum, cofounder Brian Acton and venture capitalist Jim Goetz of Sequoia drove a few blocks from WhatsApp’s discreet headquarters in Mountain View to a disused white building across the railroad tracks, the former North County Social Services office where Koum, 37, once stood in line to collect food stamps.
http://www.forbes.com/sites/pa...
I think it's obvious. They want the app so they can scan all of the messages to use to feed facebook's knowledge base about you / it's users. Like Google uses your gmail's, FB will use this to further monetize you as a product.
It doesn't need ads. They want the juicy data. Who you talk to, what do you talk about. Then they can use that data to make money.
This sig intentionally left blank.
So, Compaq had buildings, computers in warehouses, parts all over the world, and contracts for future purchases. And people, they had a lot of workers. We used to say how big a company was based on how many employees it had.
WhatsApp has a huge list of users and maybe 30-60 people (I've heard number of engineers, not number of employees). For some reason what's been stuck in my head with the acquisitions and attempots (Snapchat) is that now employees seem to be liability not an asset. Fewer people to fire, fewer separation letters, fewer stockholders. Before we had terms like Human Resources. Now we don't even pretend that employees are an asset.
I'm not communist/socialist/back_in_my_day_get_off_my_lawn guy. I'm a systems guy. Like supercapitalist Henry Ford, I think the economy does best when people get paid and they can they then have money to buy things. I think a lot of people have lost the connection between Consumer Purchasing power and paying people a wage.
Just because they "paid" more doesn't make it "worth" more.
Geekwire has an article about how nobody other than marketroids cares about this supposed "groundbreaking" app that "young people use" - or at least in nearby high schools, colleges, and universities.
Sometimes you have to realize you're being hyped by marketroids and pound the research pavement yourself.
Verify.
then trust.
(ducks as paid flacks say mean things about me personally since I'm right)
-- Tigger warning: This post may contain tiggers! --
You are missing the fact that the telcos are not smart enough to make txt messaging free. They see it as a money maker, rather than a loss-leader.
You mean they are not stupid enough.
Given that the global SMS market in 2010 earned telephone companies US$114.6B, they'd have to be really stupid to give up that revenue by making texting free.
WhatsApp is an incredibly disruptive thing, since those 450M users they have, ~10% of cell phone subscribers, mostly outside the U.S., are going to be costing telephone carriers 10% or more of their SMS revenue. Even if it's not capable of being monetized directly, you're talking $20B the phone companies *won't* be getting in the next two years, which more than makes it worth the price.
The question you should be asking is why disrupting the phone companies business models is worth Facebook paying for that disruption on a dollar-per-dollar basis, for a 2 year amortization, or a 10 cents on the dollar basis for a 20 year amortization, assuming they get 0 more WhatsApp users (unlikely).
I just do not get this at all. 200 million users for $16 billion is $80 per user. For much less than that you could offer all sorts of free things and sign up users. It is also surprising that after all this time messaging is still totally proprietary, and nobody cares. I suppose that it is a historical accident that a *nux box can send an email to an Outlook, GMail and even Apple account. Maybe that will soon change.
Someone above said it works out to $42 per user. The question is this: can they generate Y amount of revenue per user, where Y is more than you'd get by sticking that $42 in T-bills or whatever.
Maybe they're going to make it up in volume, or something like that.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
To give you an idea of how ridiculously overpriced WhatsApp is (and Facebook as well), here's a selection of major American companies with a market cap less than what Facebook paid for WhatsApp.
Retail:
Macy’s
Gap
Bed Bath & Beyond
Tiffany & Co.
Ralph Lauren
Staples
Avon
Tech:
LinkedIn
Netflix
Xerox
Nvidia
Travel:
Marriott International
MGM Resorts
Hertz
Delta Air Lines
United Airlines
American Airlines
Southwest Airlines
Food:
Chipotle
Hershey’s
J. M. Smucker
Campbell Soup
Tyson Foods
Dr Pepper Snapple Group
Monster Beverage
Molson Coors Brewing
Other:
Harley-Davidson
Mattel
Whirlpool
Western Union
H&R Block
McGraw-Hill
News Corp
The Carlyle Group
You don't need to be so pessimistic. Facebook "only" paid $4bn in cash, the rest of the price was paid in hyperinflated Facebook stock.
Oolite: Elite-like game. For Mac, Linux and Windows
They already bought whatsapp for $19 Billion
http://askaralikhan.blogspot.com/