Facebook coughs up $19bn to buy WhatsApp, draw younger users

Purchase of messaging app company also seen as boosting Facebook's mobile presence

Facebook may be shelling out $19 billion in cash and stock for the messaging company WhatsApp to stanch the departure of younger users from the social network.

Facebook, the world's largest social network with 1.2 billion users, announced this week that it is acquiring WhatsApp, one of the world's leading mobile messaging companies. WhatsApp has 450 million monthly users, 70% of whom use the service daily.

Much like Facebook's acquisition of Instagram, the social networking company plans to have WhatsApp operate independently within Facebook.

That's not the only thing the WhatsApp purchase has in common with the Instagram deal.

Instagram, a mobile photo and video sharing service, has a large following of younger users. Facebook, which has been struggling to pull in younger users, bought it in 2012.

Facebook seems to be applying the same strategy with its purchase of WhatsApp.

"There have been plenty of reports that Facebook is losing its mojo with the younger generation," said Zeus Kerravala, an analyst with ZK Research. "And WhatsApp appeals to that audience, so the acquisition should allow Facebook to expand its presence to a group it really needs to have onboard."

If WhatsApp can do that for Facebook, then it's a deal well made, he added. "I think if an acquisition moves you into a new market, then it's worth it, even if you overpay initially," Kerravala said. "Facebook doesn't have much presence in messaging, and it could use some help with younger users. This was a smart move."

Facebook, which recently reached its 10th anniversary, may easily be the largest social network, but it's still dealing with what could be a dangerous issue. Facebook doesn't want to become the next MySpace, and it will spend a lot of money to make sure that doesn't happen.

MySpace was a social pioneer. It's the network people went to before there was a Facebook. MySpace, which focused on linking people with their favorite musicians and movies, was quickly eclipsed by Facebook, which focused on linking people with their friends and family.

Today, MySpace is little more than a social networking afterthought. That is what Facebook wants to avoid.

One worrying point, is that the social net has experienced a decline in teenage users.

During a quarterly earnings call last November, David Ebersman, Facebook's chief financial officer, reported that the social network is struggling to keep teenagers' attention. "We did see a decrease in [teenage] daily users, especially younger teens," Ebersman said at the time, though he also called the teen user base "stable."

It's not a new problem. As far back as 2009, a study released by iStrategyLabs showed that Facebook's U.S. high school and college-age users were on the decline even as its popularity among the 55-and-older crowd was booming.

The social networking site that cut its teeth on college-age users is now trying to figure out how to keep the attention of that same age group.

Facebook CEO Mark Zuckerberg, who became the world's youngest billionaire, is at the helm of a company that may no longer be seen as the fresh, cool site.

That's a problem because Facebook wants to hook young users who will stick with the site for the next 50 years. Facebook doesn't want only older users who have fewer years to invest in the company.

"The $16 billion is certainly a large amount of money to pay for a company, but I see it as an investment for the future," said Brian Blau, an analyst with Gartner. "It's a way that Facebook can reach a new and different user base, one that potentially has a different demographic, as well, and those could be very valuable users to Facebook over the long term."

The purchase also will boost Facebook's mobile efforts.

A few years ago, Facebook was struggling to build a mobile user base. In 2012, just before the company launched its initial public offering, executives listed mobile as one of its biggest risks. Eight months after its IPO, more users were accessing Facebook from mobile devices than from the Web, and more importantly, mobile accounted for 23% of Facebook's ad revenue, up from 14% the previous quarter before and zero from a year earlier.

Having WhatsApp's mobile messenger app could bolster the company's mobile presence even more.

"WhatsApp enables Facebook to own peer-to-peer communication across all mobile devices," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "This is in contrast to just using Messenger inside of Facebook. A lot more people use WhatsApp than Facebook's Messenger and that means Facebook was missing out on those interactions."

He added that by buying WhatsApp, Facebook is adding on all of those users but it's also setting up a buffer against sites like Snapchat, that are gaining popularity with younger users.

"Facebook has obviously estimated that Whatsapp's 450 million monthly users, with the addition of 1 million new registered users per day, equated to a net future cash flow of far greater than $16 billion," said Moorhead. "Mobile is everything for Facebook because it's about all about growth."

This article, Facebook coughs up $19B to buy younger users, was originally published at Computerworld.com.

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, on Google+ or subscribe to Sharon's RSS feed. Her email address is sgaudin@computerworld.com.

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