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...
