WhatsApp: 2nd Biggest Tech Acquisition of All Time

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WhatsApp: 2nd Biggest Tech Acquisition of All Time

Posted by timothy on Thursday February 20, 2014 @07:27AM from the of-all-time! dept.

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.

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2d biggest? by Joce640k · 2014-02-20 07:30 · Score: 4, Informative

Did they mean "2nd biggest"?
Why not just write "Second biggest"?

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1. Re:2d biggest? by EvilSS · 2014-02-20 07:41 · Score: 5, Funny
  
  This is slashdot, obviously it's in hex! So that would make this the 45th biggest in decimal.
  
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2. Re:2d biggest? by Sponge+Bath · 2014-02-20 07:52 · Score: 3, Funny
  
  This acquisition might involve Mooninites and their obsession with dimensions.
3. Re:2d biggest? by ackthpt · 2014-02-20 07:58 · Score: 3, Funny
  
  Did they mean "2nd biggest"?
  Why not just write "Second biggest"?
  There's a patent on that.
  
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  A feeling of having made the same mistake before: Deja Foobar
4. Re:2d biggest? by bug1 · 2014-02-20 10:33 · Score: 2
  
  They could have tried "2th biggest" as a workaround.
CNN argues it's worth the money by rolfwind · 2014-02-20 07:33 · Score: 5, Interesting

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.
1. Re:CNN argues it's worth the money by cheesybagel · 2014-02-20 07:41 · Score: 4, Insightful
  
  Skype? Hah. Remember ICQ?
  The funny thing is Facebook bought for billions a company which makes software running over XMPP. THAT was pathetic.
2. Re:CNN argues it's worth the money by ceoyoyo · 2014-02-20 07:59 · Score: 4, Insightful
  
  I suspect many WhatsApp users have it free. I do. Anyone who used it before they "monetized" doesn't pay. If they change that, or if Facebook starts mucking with it, I'll use something else.
  There are a LOT of free texting programs, and it takes about a weekend to write another one. Extracting sixteen billion dollars from WhatsApp is going to be an exercise in futility. Hopefully the WhatsApp people are laughing their way to the bank (and selling their FB stock as fast as they can).
3. Re:CNN argues it's worth the money by bluefoxlucid · 2014-02-20 08:06 · Score: 2
  
  They sell ads on YouTube videos.
  
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4. Re:CNN argues it's worth the money by jeffmeden · 2014-02-20 08:14 · Score: 2
  
  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.
  Free service? It's $.99/year/user so they are currently drawing in about $450M/year and importantly, they are enrolling at a rate of 1M users/day which is adding another $1M to the net revenue, every day. By this time next year, they will have 1B users. Finally, a company charging what SMS is worth (too bad you have to bring your own data plan but I digress).
5. Re:CNN argues it's worth the money by Pascal+Sartoretti · 2014-02-20 08:15 · Score: 2
  
  The funny thing is Facebook bought for billions a company which makes software running over XMPP.
  Now that they have plenty of cash, what refrains the WhatsApp founders from starting over a concurrent application ? Especially if Facebook begins to do the evil things that WhatsApp didn't want to do (store messages, sell ads, etc...) ?
6. Re:CNN argues it's worth the money by khr · 2014-02-20 08:19 · Score: 2
  
  There are a LOT of free texting programs, and it takes about a weekend to write another one
  But this one comes with several hundred million users plus all their phones' address books...
7. Re:CNN argues it's worth the money by i+kan+reed · 2014-02-20 08:19 · Score: 2
  
  Not only that, they go so far as to pay people for posting videos.
  Not that they get any money from adblock leeches like me.
8. Re:CNN argues it's worth the money by gstoddart · 2014-02-20 08:22 · Score: 5, Informative
  
  Now that they have plenty of cash, what refrains the WhatsApp founders from starting over a concurrent application ?
  Non-compete clauses in the contract which says they have to give all the money back is my guess.
  If you're buying a company, you pretty much try to lock up the top people to ensure they can't say "piss on you, I'll just make it again".
  When you sell the company, you also sell the IP -- and then they can pummel you for stealing 'their' idea.
  
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9. Re:CNN argues it's worth the money by ceoyoyo · 2014-02-20 08:25 · Score: 4, Interesting
  
  Several hundred million users, some of whom have already pledged to quit since Facebook bought it, and many of whom will quit when the first annual renewal comes around and/or Facebook decides to introduce ads.
  Besides, FB already has most of their address books. It's begged for mine often enough I'm surprised I haven't accidentally hit yes yet.
10. Re:CNN argues it's worth the money by Solandri · 2014-02-20 08:51 · Score: 4, Insightful
  
  The funny thing is Facebook bought for billions a company which makes software running over XMPP. THAT was pathetic.
  They didn't pay $19 billion for the app. They paid for the userbase. From what I read it's about 450 million, which would make the purchase price about $42 per user. A little steep, but not outlandish in advertising terms. Now they have to figure out how to hang on to those users and grow the user base.
11. Re:CNN argues it's worth the money by greenfruitsalad · 2014-02-20 08:52 · Score: 3, Insightful
  
  no, it isn't pathetic. what facebook bought was a large userbase. same goes for microsoft with skype, rakuten with viber, etc.
12. Re:CNN argues it's worth the money by Pascal+Sartoretti · 2014-02-20 08:53 · Score: 2
  
  When you sell the company, you also sell the IP -- and then they can pummel you for stealing 'their' idea.
  Remember mysql and MariaDB ?
  Same (potential) situation here : there is no IP in WhatsApp. Just an excellent execution of well-known idea.
13. Re:CNN argues it's worth the money by Jack9 · 2014-02-20 09:09 · Score: 4, Informative
  
  > Did YouTube ever positively contribute to Google's bottom line?
  Google bought youtube for about 1.6 Billion
  Youtube annual revenue has been over that pricepoint for a few years. CPM on video has always been in dollars, not cents. CPAs frequently pass $10. With up to 3 ads per video, you can understand how google justified the first payments to content providers.
  Ballpark numbers:
  http://www.forbes.com/sites/ti...
  You seem ridiculously pessimistic for someone who hasn't done any research.
  
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14. Re:CNN argues it's worth the money by Cereal+Box · 2014-02-20 09:37 · Score: 2
  
  While I agree this is actually a service that makes money, it doesn't make quite as much as you assume. First, there's probably a good amount of dead accounts. And I believe there are longtime users that are grandfathered in for free. Second, the first year is free, so the revenue from an additional 1M users per day isn't realized for a whole year, and again that's assuming that all users decide they want to pay after a year is up.
15. Re:CNN argues it's worth the money by Cid+Highwind · 2014-02-20 11:52 · Score: 2
  
  Ok, how about Draw Something?
  Zynga paid $180 million for Draw Something's 10 million users, tried to monetize the userbase by adding the sort of pay-to-win "features" that ruined Words With Friends, and they all left.
  
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16. Re:CNN argues it's worth the money by stanjo74 · 2014-02-20 12:55 · Score: 2
  
  The whole business model of WhatsApp is based on the premise to be purchased by a rich Internet/Social Media company. They already sold to Facebook. If they start another one against their parent company, who's going to buy them again? Running something like WhatsApp is not a sustainable profitable business - you need the LBO end-game.
Sure sounds like something different by trifish · 2014-02-20 07:33 · Score: 4, Interesting

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?
(Over valued)^2 by 140Mandak262Jamuna · 2014-02-20 07:33 · Score: 4, Interesting

Bulk of that 16 billion dollars comes in the form of Facebook stock, which is already heavily overvalued. And some of the retention boni (*) are restricted stock. So over all this valuation of 16 billion is overvalued whole squared.
(*) boni = plural of bonus

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1. Re:(Over valued)^2 by Algae_94 · 2014-02-20 08:14 · Score: 2
  
  It didn't. When the GP had to put a footnote describing what the word "boni" meant, they should have rethought writing it.
2. Re:(Over valued)^2 by 140Mandak262Jamuna · 2014-02-20 08:22 · Score: 4, Insightful
  
  Well, I was shooting for +1 funny, so did not rewrite it. But God being kind gave me +1 informative, and I now look silly.
  
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  sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
My favorite observation... by DdJ · 2014-02-20 07:34 · Score: 5, Interesting

...was when someone commented that Sun Microsystems was worth about one third of a chat service.
1. Re:My favorite observation... by mwvdlee · 2014-02-20 08:43 · Score: 2
  
  social networks [God, how I hate that term]
  How about "self-maintaining CRM"?
  
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2. Re:My favorite observation... by Zalbik · 2014-02-20 10:47 · Score: 2
  
  2 Nimitz-class aircraft carriers, fully loaded with 100 F/A-18's each, and money left over for pilots/crew and munitions.
Talent? by lonechicken · 2014-02-20 07:36 · Score: 2

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.
1. Re:Talent? by phantomfive · 2014-02-20 15:17 · Score: 2
  
  One thing for sure, they got someone who has amazing negotiation talent.
  
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  "First they came for the slanderers and i said nothing."
How do they not take a writedown? by phantomfive · 2014-02-20 07:39 · Score: 2

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?

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"First they came for the slanderers and i said nothing."
Who needs advertising when you can sell the comp.. by xxxJonBoyxxx · 2014-02-20 07:45 · Score: 4, Insightful

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.
Facebook bought WhatsApp to kill it by gurps_npc · 2014-02-20 07:46 · Score: 4, Interesting

It seems obvious. WhatsApp, a product designed to kill abusive telephone policy rules (i.e. charge practically nothing per byte for internet access but a huge amount for the text messaging - when internet costs the corp money while the text messaging is free). WhatsApp is specifically anti-advertisement and Facebook is almost entirely about advertisement.
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

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1. Re:Facebook bought WhatsApp to kill it by gurps_npc · 2014-02-20 08:10 · Score: 4, Insightful
  
  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.
  Their entire philosophy is screwed up - charging people for things that should be free (leaving a contract) and giving away stuff that should cost money (smart phones).
  They hope to confuse people and make money off of their stupidity, rather than to offer a simple, clear, fair deal and make money from intelligent choices.
  
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2. Re:Facebook bought WhatsApp to kill it by Aryden · 2014-02-20 08:15 · Score: 2
  
  It's about mining data from 450 million users. No one cares that it's nothing new. The customers are what Facebook is buying.
3. Re:Facebook bought WhatsApp to kill it by Carewolf · 2014-02-20 08:30 · Score: 3, Insightful
  
  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.
  Their entire philosophy is screwed up - charging people for things that should be free (leaving a contract) and giving away stuff that should cost money (smart phones).
  Their policies DO make sense if you don't think about it.
Buying users and eyeballs by mveloso · 2014-02-20 07:48 · Score: 2

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 doesn't count? by sirwired · 2014-02-20 07:50 · Score: 3, Insightful

AOL/TW was, by far, much larger than HP/CPQ.
May be related by gmuslera · 2014-02-20 07:57 · Score: 4, Insightful

WhatsApp issues DMCA takedown notices against alternative clients shortly before the acquisition.
Sometimes I just can't think of a subject by sootman · 2014-02-20 08:00 · Score: 5, Interesting

At the other end of the spectrum, the biggest bargain ever was NeXT acquiring Apple for negative $429 million.

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Yay Social Media Advertising Bubble!! by ErichTheRed · 2014-02-20 08:26 · Score: 4, Interesting

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. :-)
1. Re:Yay Social Media Advertising Bubble!! by Alomex · 2014-02-20 09:28 · Score: 2
  
  Remember when AOL was bought by Time Warner because they were panicked that they would be left behind in the Web 1.0 future?
  Erh, seemingly you don't. It was AOL who bought Time Warner, not the other way around:
  In 2000, AOL purchased Time Warner for US$164 billion.[49] The deal, announced on January 10, 2000[50] and officially filed on February 11, 2000 [wikipedia]
Why Whats App was/is big in Asia/India by 140Mandak262Jamuna · 2014-02-20 08:37 · Score: 3, Interesting

This is what my Indian cousins tell me. India has huge number of plain dumb cell phone users. It also has a decent chunk of smartphone users. Whats App bridges the gap. It allows dumb phones and smart phones to interoperate. It allows sending SMS from smart phones/internet to dumb phones. In India and most Asian countries all incoming calls/texts are free. So a smart phone user can mix dumb phone numbers and smart phone numbers in the broadcast list and send out messages. Dumb phones have varying degrees of multimedia support and they get to see as much as their phones would support. It allows users to send out one text message to Whats App portal and it relays the messages to all other recipients. Thus you pay for one out going text but manage to send it to multiple people. Most importantly it allows text messages to travel across the internet to multiple countries helping you avoid international texting charges.
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.

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I hope the payment was cash and not stock by damn_registrars · 2014-02-20 08:47 · Score: 3, Insightful

I don't expect that $16.5B worth of facebook stock will be worth much in another couple years.

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Privacy? Is your activity a property right? by mveloso · 2014-02-20 08:57 · Score: 3, Insightful

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?
Re:What FB fails to see... by Carewolf · 2014-02-20 09:15 · Score: 2

Err. without advertisement.
The real reason this happened... by erp_consultant · 2014-02-20 09:31 · Score: 3, Insightful

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.
Re:Who needs advertising when you can sell the com by 0100010001010011 · 2014-02-20 09:42 · Score: 2

Clearly you don't think like facebook exces. You just charge $32. Tada, 1 year break even.
They want to scan the data. Duh. by thedarb · 2014-02-20 10:09 · Score: 2

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.

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Major companies worth less by Bueller_007 · 2014-02-20 20:35 · Score: 3, Insightful

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