If you consider yourself baffled as to how WhatsApp sold for that ridiculous sum of $19 billion, join the club. What’s this thing that’s worth 19 Instagrams? Is this the beginning of the bubble popping? Are we due for a little market value correction soon?
Not so fast. When you scratch the surface, the deal might actually be better than it appears. Why? The answer has to do with mobile carriers and big data.
I asked my friend, an avid user of WhatsApp, how it’s better than texting:
"Well it does groupchats."
So does my iPhone.
"Yeah, well, we just started using it when we studied abroad. Roaming charges and everything. Since then we’ve just stuck with it."
Right. But here in America, we have free unlimited minutes and messaging. So, why am I going to pay a dollar for what amounts merely to a newer version of BBM?
"Those unlimited minutes and messaging aren't free."
Right now, we’re stuck in what Wired's Robert McMillan calls "legacy clutter." It’s apparent when you visit the websites of American cell phone providers that we’re being duped. Just peruse through the major US providers, and you'll find that nearly the sole determinant of price is the data plan. Unlimited communication is given. On Verizon they assure us that with Unlimited Talk & Text, we’ll have “no more worries about overage charges.” T-mobile’s main header likewise brags about throwing in unlimited talk + text + web. And on AT&T’s site they write, “We’ll help you select the perfect plan. We’ll even throw in Unlimited Talk & Text.” Even Talk and Text. How gracious.
Of course, these given services are not given. They’re built into the price of our plans. We merely lack the freedom to cut away from them. And whereas we’ve grown attached to our mobile carriers giving us text and call services, in the emerging mobile markets like India and Brazil (where WhatsApp most reigns supreme) they have a clean slate to develop new messaging platforms. In countries where "a first smartphone is a first computer," there’s no precedents. So people go with whatever software works smoothest or cheapest or (far more importantly) whatever they’re friends are using.
What’sApp charges $1 a year for their texting service. Now they’re throwing in voice messaging. That’s a fully-functioning phone. For $1. (Don't I sound like a late-night informercial?) I'm not sure what the unseen overhead is for a Verizon unlimited Text & Talk plan, but I'm willing to bet it's more than $1 a year.
So what's Facebook banking on here? A mobile app that goes above the heads of major cell phone service providers? In part, yes. The other half of the story is about user data.
Why is user data so important? Your contact list, your location, who you talk to, how you talk to them, what you talk to them about—valuable information can be gleaned from this. (Just ask the NSA.) Not only that, but, as the mobile app ecosystem gets more intertwined (As Benedict Evans outlines in a recent blog post) people will be drawn to seemless interfaces. This means that the more diverse your mobile app portfolio, the more time users will spend in your company's canvas. Google has long been working on this integration: you can search for a business on google, read the google review, send said reveiw via gchat to a google+ contact. Then your friend can find it on google maps, input it into their self-driving google car, and meet you there.
If human attention is indeed the most valuable new commodity in this competition, then smartphones are the pipeline to this resource. As Benedict Evans noted in a more recent blog post, “There are now roughly the same number of smartphones and PCs on earth—those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal.” As of now, the beauty of the mobile app market is the democratic nature of the whole platform. It’s extremely cheap to build your own app, and, as Evans points out, any useful mobile app is primed for virality in a way that non-mobile internet is not. In theory, this means that if people like your product, you will succeed. More users means more data. And as WhatsApp CEO Jan Koum said in a recent speech, "The world is moving to data very quickly. Data is the next generation in what is driving the mobile industry."
As these latest acquisitions show, the mobile app market will not remain as disorganized and democratic as it is today. The app user acquisition price, a vital metric in the app industry, is showing signs of leveling off. Some point to this as a sign of maturation in the mobile app market, saying that app marketers are putting more focus on long-term strategies rather than short term downloads. Perhaps this portends to more app consolidation on the part of Big Tech. More eating of the little fish in an effort to create a long-term infrastructure of loyal users.
Facebook buying WhatsApp for what amounts to 10% of it's own valuation—that's a bold move. But don't expect it to stop here.