{"id":443,"date":"2014-02-20T15:10:00","date_gmt":"2014-02-20T15:10:00","guid":{"rendered":"http:\/\/www.goodmanjones.com\/blog\/2014\/02\/whatsapp-and-facebook\/"},"modified":"2014-02-26T20:25:43","modified_gmt":"2018-09-26T10:59:16","slug":"whatsapp-and-facebook","status":"publish","type":"post","link":"https:\/\/www.goodmanjones.com\/blog\/whatsapp-and-facebook\/","title":{"rendered":"Whatsapp and Facebook"},"content":{"rendered":"

The deal size is extraordinary<\/a>.\u00a0 At today\u2019s exchange rate, Facebook\u2019s $19Bn could have bought out Land Securities in its entirety and still be sitting on almost \u00a33Bn of change \u2013 or the whole of M&S and retained another \u00a3370M.<\/p>\n

What\u2019s Facebook really acquiring?\u00a0 By all accounts, Whatsapp\u2019s offer isn\u2019t unique.\u00a0 I\u2019ve seen mention of WeChat, Viber, Wassup and Tango, all of which \u2013 so I read \u2013 provide something very similar to Whatsapp, and all of which have a user-base.\u00a0 Not only do they all offer something similar, they\u2019re all free to the end user.\u00a0 So it\u2019s not Whatsapp\u2019s unique offering that values it at $380M per employee.<\/p>\n

Is it the fact Whatsapp appears to have 450 million users?\u00a0 Or is it the age profile of the user base?<\/p>\n

Some years back, we undertook due diligence for the US acquirer of a UK web-based business.\u00a0 In Facebook terms, it was a miniscule deal \u2013 but the price being offered still struck me as staggeringly large for the target business.\u00a0 I raised this with the guy heading up the acquisition.\u00a0 His response \u00a0\u2013 \u201cTrue, they\u2019ve not got the best technology, but they\u2019ve got traffic.\u00a0 We can buy better technology, or write it ourselves, but what we can\u2019t do is grab their traffic.\u00a0 And whilst their traffic isn\u2019t worth what we\u2019re paying, this isn\u2019t our only acquisition.\u00a0 We\u2019re buying up everyone in the space.\u00a0 We\u2019ll control it all.\u201d\u00a0 And he went on to point out the purity of the business model \u2013 a technology platform capable of limitless expansion with almost no human interference, where the customers did all the work and paid a small annual fee \u00a0for the privilege \u2013 \u201cA cash cow. Our only problem is how to spend it.\u201d<\/p>\n

I can see two fundamental differences between that scenario and the Facebook \/ Whatsapp deal.\u00a0 In the deal we worked on, the target had (still has) a proven revenue stream, and the acquirer did indeed end up controlling the space.\u00a0 Facebook needs to find a way to generate revenues from an app that doesn\u2019t, and it cannot hope to control the space.<\/p>\n

So what\u2019s the underlying logic behind the deal?\u00a0 I think there are several forces at play:<\/p>\n