I had previously written about several fallacies in the model of Facebook in my earlier post , however the acquisition of Whatsapp for nearly USD 19 billion has definitely turned the tide in its favor. In terms of value, 19 billion USD appears to be very significant for a plain vanilla messaging mobile app. However, Mark Zuckerberg believes that he has still underpaid for a service that adds 1 million users every day. The bigger question is why does he feel so?
The other significant acquisition that Facebook had made was that of Instagram for 1 billion USD. It had also unsuccessfully offered to buy Snapchat for about 3 billion USD. Is Whatsapp really worth 19 times the value of Instagram in current scenario? Let us explore the deal more closely, there is a cash transaction of exactly 3 billion USD, the rest of the 16 billion dollar is in the form of Facebook equity- so in someways Zuckerberg has just sweetened the deal that Snapchat had rejected. Furthermore Mark enjoys more than 61% of the voting rights (read Super Voting rights), so there is no dilution of his authority even with the issue of fresh equity stock. Smart move, isn’t it?
But how does he justify this deal to his shareholders- does he indicate that in his foresight he had seen Whatsapp emerging and possibly even eclipsing Facebook one day? Considering that Whatsapp has about 450 million users, the deal values each user at 42 USD approximately.Moreover a large majority of the users pay 1 USD annually to continue to use the services. Will it now become Ad-supported? Was it a preemptive strike in some ways on behalf of Facebook?
Not very long ago, technology blogs were rife with the news that Google was planning to acquire Whatsapp- which would have been a far better synergy as Whatsapp would have emerged as the de-facto messaging application for android platform even in markets where it does not enjoy a strong user base.
In reality though Mark is trying to play the role of a visionary and not just a shaper in the technological landscape in strategic terms. If we are to analyze the strategy adopted by any player in any sector it depends on two factors:
–Predictability: How predictable the industry is in terms of players, nature, pricing, etc. In other words can the players in this sector look into the future and determine their future course of action?
–Malleability: It is the measure of the extent to which a player can possibly influence the industry
By nature, the technology sector is a highly unpredictable category with new changes emerging every single day. By virtue of a series of acquisitions in the social media sector, Facebook is precisely trying to increase its malleability whereby it is able to dictate terms to every other player in the sector and possibly, Google in future. This again brings us to the epic battle that has long been predicted- Microsoft vs. Google, except that Microsoft has now perhaps been replaced by Facebook. The fact that Facebook’s equity is overpriced and its business model is dicey to say the least, is forcing it to try out its very best to develop an ecosystem of its own.
For instance, its idea to venture into mobile phone by launching FacebookHome app clearly indicates its ambitions to enter the hardware space at some point of time in future. Imagine, using a Facebook phone- a phone that will ensure all your data gets stored and peeked into by Mark & his team – very much the same way that Google does at this point of time! Would you feel more safe?
Facebook has also announced its plans to enter the e-wallet industry with its own solution. In short, in future we might be entering a stage where Facebook itself becomes a collection of companies which have far higher value individually than the original Facebook stock. So is Facebook actually creating shareholder value or trying to simply protect its value by these series of acquisitions? The only significant development that perhaps does breathe value into this business model is Facebook’s tendency to emerge as a developer platform. Is it part of Facebook’s – Target Google strategy?
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