For a company that promises “No ads. No games. No gimmicks,” what will happen to WhatsApp after Facebook’s acquisition?
The surprising news this week is the biggest tech acquisitions this year — Facebook’s acquisition of mobile messaging app WhatsApp for $19 billion. That’s $4 billion in cold cash, $12 billion in shares, plus $3 billion of Facebook preferred stock that will vest to WhatsApp founders and early employees, making them instant billionaires or millionaires.
Facebook says this move is meant to complement Facebook’s existing messaging and communication services. It does have Messenger already, and the social network is about connection and communicating. Even with 450 million users, however, WhatsApp does not show ads. It only earns from a $0.99 annual subscription from iOS and Android users (the first year is free!). Thus, it’s not exactly a revenue-generating machine. What does WhatsApp have to add to the table, then?
Interestingly enough, even Google was in negotiations with WhatsApp, offering $10 billion to acquire the messaging service. Google was even reportedly willing to surpass Facebook’s own acquisition offer.
Growth and advertising
Arguably, it’s the user base and potential growth that make WhatsApp attractive. The messaging platform already has 450 million users globally, giving the messaging network the potential to leverage each one of these users in gaining revenue. A dollar a year for each of these users means $450 million annually. Assuming only 20 to 30 percent pay the premium annual fee, that’s still $90 to $135 million annually for a service that offers no-frills chat.
Mark Zuckerberg says WhatsApp will continue to operate independently, and will even stay in its current Mt. View, California headquarters instead of moving in with Facebook at Menlo Park. Now as to whether WhatsApp will start displaying advertisers, this is not likely. What then, could be WhatsApp’s value-added to Facebook?
Most likely, it’s WhatsApp’s mobile-first approach to messaging and its presence among those 450 million plus users that Facebook finds attractive. While Facebook primarily earns from advertising, its edge is its ability to target these ads toward specific demographics, locations and contexts. And what best way to gather this data than through user information, conversations, context, location and the like.
This means that Facebook is likely to benefit from the user data that WhatsApp can bring to the picture. Even if Facebook were not to display ads for the 450 million plus WhatsApp users, the data from this user set can be valuable enough if it can be used to better target advertisements on Facebook’s own mobile app and website. For all we know, the $19 billion acquisition cost already includes data that WhatsApp may have gathered since its launch in 2009.
Facebook already has access to user data through its own service and mobile app. As of the 4th quarter of 2013, mobile advertising already makes up 52 percent of its revenue — $129 billion in those three months alone. If Facebook can improve its targeting, it can potentially earn more. In fact, the company is already introducing its improved Core Audiences targeting feature, meant to improve the precision of its advertising efforts.
Will I be tracked?
In all likelihood, Facebook will be using WhatsApp to gather data to improve its ad targeting. In fact, it may not only be Facebook that benefits from WhatsApp data. A security researcher has recently disclosed potential flaws in WhatsApp’s encryption, which means messaging traffic is susceptible to being intercepted. WhatsApp is not the only potential target, however, as other messaging services can also pose a threat to privacy and security.
Perhaps it’s a fact that mobile users will need to accept. Any online and mobile service we use has the potential for being used as a tracking tool for our personal data and activities. If you’re the kind who values privacy that much to want out of being tracked, then WhatsApp has started to be an unviable option. Better switch to Telegram, BBM, Silent Circle or other alternatives, that are focused on privacy and encrypted communication.