WhatsApp is an ad-free mobile application that allows users to send unlimited messages to contacts without using the wireless network or sustaining data fees. The app is free to download and is an alternative to the cell provider’s traditional text messaging platform. The app was founded by Jan Koum and Brian Acton, two former Yahoo! executives.
When Facebook announced its plans to acquire WhatsApp in February 2014, WhatsApp's founders attached a purchase price of $16 billion: $4 billion in cash and $12 billion remaining in Facebook shares. This price tag is dwarfed by the actual price Facebook paid: $21.8 billion, or $55 per user.
Facebook agreed to pay $19.6 billion adding $3.6 billion to the original price as compensation to WhatsApp employees for staying on board at Facebook. However, Facebook share prices soared to $77.56 from $68 by the time the regulatory approval process concluded in October. By then, the agreed upon 184 million Facebook shares inflated the final sale price by an additional $1.7 billion.
WhatsApp is by far Facebook's largest acquisition and one of the biggest Silicon Valley has ever seen. It is over 20 times larger than Facebook’s Instagram acquisition, which made quite the splash in 2012. That begs the $22 billion question: why did Facebook break the bank to buy WhatsApp?
The answer is user growth. In 2014, over 500 million people used WhatsApp monthly and the service added more than 1 million users per day. 70% of WhatsApp users were active daily, compared to Facebook’s 62%. Additionally, WhatsApp users sent 500 million pictures back and forth per day, about 150 million more than Facebook users.
WhatsApp has helped fuel Facebook growth in developing markets where internet connectivity is sparse but where WhatsApp is widely used. Facebook then gains access to these mobile user bases. Connecting to WhatsApp users in these areas will also aid Facebook’s Internet.org initiative, Facebook CEO Mark Zuckerberg’s plan to implement internet access to parts of the world not yet online.
However, Facebook does believe it will profit from WhatsApp down the line as phone calls become obsolete and mobile messages reign. This is why Zuckerberg spent one-tenth of his company’s market value to buy the text messaging app, nearly doubling Google’s (GOOG) bid. In doing so, he successfully kept the company out of the hands of other tech rivals. Zuckerberg also intends to merge the messaging platforms of Facebook, Instagram, and WhatsApp, so that users can communicate easily across all three.
WhatsApp plays a significant role in global areas crucial to Facebook's growth. By putting monetization efforts on hold, Facebook is focusing on the future of international, cross-platform communications. Through the acquisition of WhatsApp, the tentacles of Facebook are closer to reaching billions of people, and with a market of that size, Facebook is sure to find a way to eventually cash in.
WhatsApp has continued to run its operation completely independently since then, but the closing of the deal marks the start of a gradual integration as Facebook gives the world's biggest mobile
messaging service legal and administrative support and eventually, we can presume finds new ways to monetize the company it spent more than Iceland's GDP on.
In 2016, WhatsApp's terms of service were updated. WhatsApp will share its users' phone numbers with Facebook, as well as analytics such as the devices and operating systems they use, according to the user agreement. Previously, no data was exchanged between the two, which was more in line with WhatsApp's original concept of being a private messaging service. While the phone numbers will not be sold to advertisers, the data will be linked to allow Facebook to better identify WhatsApp users and serve them more precisely targeted advertisements. Facebook claims that the move will improve user accounting across its platforms by identifying overlap and providing a better understanding of the number of people it serves. Those who only have a WhatsApp account and do not have a Facebook account will be unaffected by the change.
The most significant recent changes are how user data will be processed in the future, how businesses can use Facebook services to manage WhatsApp chats, and how WhatsApp partners with Facebook to "offer integrations" with Facebook Inc. products. WhatsApp shares a great deal of information with Facebook, including your phone number, account details, files of how long and how often you use WhatsApp, information about how you engage with other users, device identifiers, and other device details like IP address, operating system, app version, mobile network, and so on. Transaction and payment data, cookies, and location information are all totally acceptable to share with Facebook. This means WhatsApp may now share more user data with Facebook than it did previously.
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Advocate, Madras High Court
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