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WhatsApp with Mark Zuckerberg?

Rajiv Makhni explains why Facebook paid $19 billion to buy a company with negligible revenue, a strict no-advertising policy and almost no hope of making any serious money.

brunch Updated: Mar 02, 2014 12:41 IST
Rajiv Makhni
Rajiv Makhni
Hindustan Times
Facebook,WhatsApp,Mark Zuckerberg

You apply for a job at a big company. You are rejected. With optimism in your heart and a never-say-die attitude, you apply at another iconic company. You are rejected again. A few years later one of those companies pays $19 billion to buy you out. A small lesson in perseverance and revenge!

This is the story of how Brian Acton was rejected by both Twitter and Facebook and went on to create WhatsApp along with Jan Koum, and has now been bought out by Facebook for an unheard sum for a start-up.

Man of the moment: Brian Acton was turned down by Facebook in 2009. The $19 billion seems like sweet revenge..

Facebook will put approximately $3-5 billion right into Brian’s personal account for that rejection slip. And this fable has a nice little ending too. A new phrase has been born: ‘Actoned’! The act of being ‘Actoned’ will be felt heavily by a company that rejects a person and then goes on to pay a king’s ransom to the same rejectee. Isn’t the world of technology just awesome?

HT Column: Facebook, WhatsApp and game theory

What makes this space even more awesome is that a new head-scratching puzzle seems to be born every day. The current one doing the rounds is the big question: Why Facebook would pay $19 billion to buy a company with negligible revenue, a strict no-advertising policy and almost no hope of making any serious money. For $19 billion, Facebook could have bought an airline, a car manufacturer and a coffee chain and still have had some change left over.

WhatsApp with Facebook?
There are many theories to why Facebook would have gone ahead with a deal like this. The most plausible ones are:
It bought WhatsApp so Google or any other company couldn’t get their grubby paws on it: This makes sense as Google had tried to buy WA for $10 billion. Rumours also suggest that Google had even offered to top FB’s $19 billion offer but wasn’t offering a seat on the board. Google having WA could have been a serious threat to FB in the future.

WhatsApp has more momentum and traction than Facebook: Again, seems very likely as WA is growing at about one million users a day and already has 450 million users. About 70 per cent of them are active on it daily. In about a year it could hit one billion users or so. The purchase would negate the threat that WA could pose to even FB in time.

Read: Facebook-WhatsApp most expensive deal, other big buys

A pure data mining acquisition as FB gets crucial mobile user data that it cannot get otherwise: Once again seems like something that makes sense. WA actually gets access to your entire phonebook and uploads that onto its servers (one of its more notorious ‘features’ and the reason why it’s been so successful). FB’s entire business model is based on data mining, slicing, dicing, profiling and selling it to advertisers. This is another major gold mine of data.

What Happens now? The WA-FB FAQ
Will Facebook integrate WhatsApp into Facebook? No way. That would make little business sense and would effectively kill WA. This will remain an independent service but there could be some integration to know you as a user, with a FB or WA dual sign-in option.

Will WhatsApp start advertisements? Zuckerberg and Koum have gone red in the face and have been emphatically shouting from the rooftops, ‘no advertising ever’. I would take that with a very big pinch of salt. This is Zuckerberg and he just paid 19 big ones. They will first target about a billion users and then bring in some sneaky ways of adverting by saying users do not have to pay the $1 annual fee anymore. Koum may have gone all saintly saying that will never happen, but if you’ve just been bought out for $19 billion, what else would you say?

Read: Zuckerberg says $19 billion for WhatsApp deal was cheap; talks about

What are the threats to this WA-FB deal? Lots actually. WA and other instant chat machines have effectively killed the biggest cash cow for all mobile phone operators: SMS! In fact, the WA model is based on the SMS model. Everyone on your contacts is integrated into the same message system, unlike FB and BBM where there is an invite-based communication. If mobile operators were to make MMS a free (chat like) service integrated into a voice, data ‘all you can eat package’, it could kill WA fast and hard. I’m surprised none of them have done that yet and are just watching this huge chunk of revenue being taken away by the WAs of this world.

Any other? Yes, if FB was to fiddle with the WA service and put in too many high-fangled features and make it complicated like FB (something they are really good at), simpler services like Link and WeChat could take over. Also, if WA does stick to the one-dollar-a-year fee model, another service could come in free and destroy that thought right away.

Time will tell
If all goes well, two years from now this deal and the money paid for it will seem like a master stroke. WA will have two billion users and Facebook will have made smart moves and started monetising all two billion users all at once. If that doesn’t happen then Mark Zuckerberg will shrug it off as a Monopoly game-like acquisition that didn’t pay off and the term ‘Actoned’ will have changed to mean a company that rejects a person as an employee, pays billions of dollars later for that mistake, and then realises that they were right in the first place.

Read more:WhatsApp Facebook? Twitter is laughing at your $19bn deal

Does Facebook,WhatsApp deal mean death of SMS?

Rajiv Makhni is managing editor, Technology, NDTV, and the anchor of Gadget Guru, Cell Guru and Newsnet 3

From HT Brunch, March 2

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First Published: Feb 28, 2014 20:00 IST