Facebook announced the purchase of the mobile messaging service WhatsApp on Wednesday, in a $19bn deal that represents the social media company’s biggest acquisition yet.
Mark Zuckerberg, the founder of Facebook, described five-year-old WhatsApp as an “incredibly valuable” service that was well on its way to connecting 1 billion people around the world.
The deal is a big bet for Facebook, which has until recently struggled to convince investors of its strategy for mobile.
WhatsApp has more than 400m users around the world and claims it is adding more than 1 million new registered users a day. It allows unlimited free text-messaging and picture sending between users and is among the world’s most downloaded mobile apps. Facebook’s successful bid comes after Google reportedly made a $1bn offer for the company last year.
“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” said Mark Zuckerberg, Facebook founder and CEO. “I’ve known Jan [Koum founder and CEO] for a long time and I’m excited to partner with him and his team to make the world more open and connected.”
Koum said: “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide. We’re excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world.”
Facebook is making the purchase in a mix of cash and stock. WhatsApp will receive $12bn in Facebook shares $4bn in cash and an additional $3bn in restricted shares that will be paid out to executives at a later date. The company will operate as an autonomous unit.
The company’s ownership structure has not been disclosed but one Silicon Valley source said he believed WhatsApp employed fewer than 100 people. “Probably five people are going to be rich beyond belief, the rest are going to be rich and there’s an admin assistant who right now is picking out the colour of her Lamborghini,” he said.
The massive acquisition – Facebook’s largest ever – comes as tech firms are fighting to build their mobile businesses. WhatsApp is particularly big in Europe and Latin America where its market penetration is thought to top 80% in countries including Brazil, Germany, Portugal and Spain.
Last year Facebook made an unsuccessful $3bn bid for SnapChat, a service that sends messages that erase themselves after a short period. The social media firm is making the move as WeChat, owned by China’s Tencent, is rapidly building its service in the west.
“This is the new generation of messaging services,” said Marcos Sanchez, vice president of App Annie, an analyst specialising in mobile technology. “Facebook understands there is a generational shift in the way people connect.”
Facebook faltered after its share sale in May 2012 as analysts worried the company was losing out as its users moved to mobile. It has since recovered and has concentrating on building up its mobile business. But the company has also warned that teenagers are cooling on its service.
Sanchez said that the “social messaging” services like WhatsApp, WeChat and Snapchat were attracting a younger audience. In China the services have even been linked to bank accounts and can be used to make purchases at stores and restaurants including McDonalds.
“Younger users seem to prefer something more ephemeral, something that changes moment by moment,” he said. “WhatsApp gives Facebook a major player in that space.”
The WhatsApp purchase price marks a new height in an increasingly frenzied technology scene. On Tuesday King, maker of the phenomenally popular Candy Crush Saga mobile game, announced a stock market floatation that would value the firm at more than $5.5bn. Last month Google paid $3.2bn for Nest, maker of “smart” home appliances like thermostats and burglar alarms.
Koum and his co-founder Brian Acton met while at Yahoo in 1997 and launched the service in 2009. By 2011 users were sending more than a billion essages a day on the service.
“Doctors in India are using WhatsApp to instantly send electrocardiogram pictures of patients who’ve suffered heart attacks, saving valuable time and potentially lives,” Koum wrote on the company blog last year. “In the mountains of Madrid, rescuers used WhatsApp to locate and save lost hikers. And today, as I follow the unfolding political crisis in Ukraine, the place where I was born and lived until the age of sixteen, I can’t help but hope that the next great WhatsApp story will be about people using the service to speak their mind and stand up for their basic rights.”
10 key numbers
$19bn – Price being paid by Facebook
55 – number of WhatsApp founders and employees
450m – number of people using the service each month
70% – proportion of those users active on a given day
1m – new registered users per day
1bn – WhatsApp’s target for number of users
19bn – messages sent via WhatsApp each day
34bn – messages received via WhatsApp each day
$1.82 – the amount by whicvh Facebook shares fell after the deal
$2bn – the ‘break fee’ Facebook will pay to WhatsApp if the deal fails to go through
2009 – year WhatsApp was founded
$1bn – value of Facebook’s previous biggest deal, Instagram
Source: The Guardian