The Messaging Service: Who is WhatsApp?

Jacob Harper |

WhatsApp_1.jpgA social media company as large as Facebook Inc. (FB)  will, as it grows and ages, invariably struggle to stay relevant with advertising-coveted young people. But when that event happens, the fix is clear-cut. Find the Next Big Thing, acquire it, and graft it onto the mothership.

That’s what they did with Instagram, the photo-sharing app they got for the bargain-basement price of $1 billion. And now, that’s what they’ve gotten with their largest acquisition yet: the $19 billion acquisition of mobile messaging service WhatsApp.

Facebook has long coveted the service, with rumors of a WhatsApp acquisition first taking place over a year ago. At the time, WhatsApp transmitted a relatively meager 1 billion messages per day. Fourteen months later, daily usage has jumped to 19 billion sent.

While Facebook has its own messaging app, it limits conversations to those already in the same network, and is dwarfed in popularity by WhatsApp. Of particular interest is WhatsApp’s very clear revenue model. Unlike social media companies, WhastsApp charges users a dollar for the first year.  With 450 million users acquired in just four years of existence, and 300 million in the last year alone, WhatsApp’s revenue, and revenue growth potential, is fairly obvious. 

People knew Facebook was in the market for a major acquisition. They have the cash, they’re looking to sustain a year that saw them double in value, and they’re losing relevance with young users. But the acquisition of a mobile messaging service like WhatsApp – as opposed to a younger, hipper social media company– indicates that generalized, bulletin board-style social media companies have much to lose to their messaging app counterparts.



This is perhaps most relevant when discussing Facebook’s recently spurned acquisition attempt of Snapchat. Snapchat has often been classified as a social media service. But the app is more of a messaging company, a colorful take on the text message. Of course, the “snaps” sent on Snapchat have the unique feature of disappearing within ten seconds of receipt.  But the core appeal of Snapchat – a fast messaging service with a playful interface and no public “permanent record” – certainly makes it less Facebook and more like direct messenger WhatsApp.

It’s also indicative of how the emerging market is adopting tech in the 2010’s. WhatsApp is incredibly popular in Asia, where it has seen the bulk of its user growth. And these adopters are using services like WhatsApp to communicate. One, the service allows users to skirt messaging fees and data plans. And two, it’s frankly a simpler why of transmitting information. In a way, it harkens back to the earliest days of tech, when messaging services like AIM ruled the landscape.

Facebook and Twitter (TWTR) , on the other hand, more closely resemble the message boards that began with the Prodigy network and its ilk in the early '90s. While Facebook and Twitter have performed admirably, WhatsApp and Snapchat are taking hold of young and emerging market users in numbers social media companies would kill for.    

Snapchat turned down its $3 billion offer from Facebook. Now that Facebook has WhatsApp, it’s doubtful they’ll pursue them any longer. Like any smart tech company, Facebook saw the writing on the wall: messaging services are evolving, innovating, and picking up users at a far higher rate than social media. 

With WhatsApp in their pocket, Facebook has a powerful new inroad to emerging markets and young consumers. What’s their plan with WhatsApp? For the time being, that’s private.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 129.37 0.44 0.34 15,136,124
TWTR Twitter Inc. 16.52 -0.09 -0.54 12,716,144
LXEEY Luxempart S.A. Unsp/Adr n/a n/a n/a 0

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