Who is *the stupid* in the biggest deal of its kind in social networking?
Just when people thought that the days of sky high valuations and companies with little or no revenue streams being bought for astronomical sums are long over, the indigestible figure of NINETEEN BILLION DOLLARS comes out of nowhere and stares them in the face in bold, upper case letters.
Apart from the heartburn the figure may have caused among the other new age startups not yet bought for lavish amounts, Facebook's acquisition of smartphone messaging provider WhatsApp is seeing industry insiders, pundits, analysts and their cats see red, throw tantrums, blow whistles and begin the next step: an elaborate dissection of the deal and what it means for different stakeholders.
First, let's get some big picture perspective. According a report on Reuters.com, “Facebook is paying more than double its annual revenue for a chat program that has little revenue. The purchase price is slightly more than the market value of Sony Corp.”
There are several conjectures about WhatsApp's existing revenues. In one, Henry Blodget (one of the chief “conjecturists” of the dot-com bubble era; Google him for more info) writes on BusinessInsider.com: “Even for Facebook, that's a staggering amount to pay for a company with estimated 2013 revenue of only $20 million. It represents almost 10% of Facebook's overall value.” Nevertheless, he goes on to assert that the move isn't stupid, but very, very bold.
In stupendous deals like this, however, there are many “stupids”—there have to be (as we have seen in many cycles of boom and bust, offline and on).
Facebook founder Mark Zuckerberg has already proved with his chutzpah and billions in banks, stock and possibly hidden in the social network's billion users' monetizable worth that he ain't no stupid. Neither are WhatsApp's two co-founders, Ukrainian Jan Koum and American Brian Acton. (A slight stupidity charge may be deposited on their former employer, Yahoo, perhaps for letting them go and make their billions elsewhere!)
And most certainly, stupid isn't a term you would use with the VC firm that backed WhatsApp with $60 million for a stake that is now said to be worth $3 billion in the deal, according to a report on the website of The Wall Street Journal. (The firm is the famed Sequoia Capital, which over the years has invested in such companies as Apple, Google, Oracle, Cisco, Yahoo, YouTube, Instagram and LinkedIn, among others.)
That makes two categories of people who may turn out to be playing the role of stupid here: one, the downstream investors who will keep on investing in these and other social startups in the hope that stock prices/valuations will keep getting jacked up further and further—and that they will be able to reap huge benefits by exiting their investments just in time. (Except that “just in time” comes with an expiry date that is never given).
The second category may be that of the users of these combined services. I have a feeling that the reported 1.2 billion of FB users and 450 million of WhatsApp, when combined, will turn out to be much lower than what most people expect. There is likely to be a lot of overlap, in addition to bogus accounts, at least on Facebook.
The users may also feel a bit insecure, manipulated or both in the medium to short term—though, for the moment, Koum has assured us otherwise. (It may be mentioned that WhatsApp seems to have a better reputation than Facebook in giving its users a simple, fast, clutter-free experience.)
In his blog post announcing the deal, Koum has written in this context: “Here’s what will change for you, our users: nothing.”
As of now, WhatsApp usage is free for the first year, after which an annual fee of less than one dollar is charged (the fee itself is disputed as to how many users actually pay up).
But given that WhatsApp is growing by 1 million users a day and Facebook has shelled out top dollar in the hope of monetizing the app's soon-to-be 1 billion users, things for the users might change for worse. Higher price, lots of ads and sponsored messages or all of 'em.
The Journal report mentions that Zuckerberg said in a conference call that “he doesn't think ads are the right way to monetize messaging systems.”
But monetize he will, we understand. And he might change his mind on what constitutes the right way. Why shouldn't he, or why wouldn't anyone who has made such a huge investment?
It remains to be seen how the coming together of two of the most powerful social platforms in the world ever, unfolds in the next few months. But this joining of forces itself raises the highly relevant question of monopoly—and raises the specter of restrictive trade practices that go invariably with any monopoly (even if the stated mission is not to be evil.)
Now, how many of the users will jump onto the next big platform in social to spread their choices, and whether we will have any such platform in the foreseeable future, is another thing that remains to be seen.
For all we know, users may just feel plain bored with all this social media thingy. Or with the big daddies of social at least. Already, there are reports of people, especially the younger generation, fleeing the likes of Facebook in droves in search for other, cooler platforms.
Unfortunately for them, FB ends up buying many of them!
Okay, let's tweet this for the moment...