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Four key benefits from Facebook’s acquisition of WhatsApp

Four key benefits from Facebook’s acquisition of WhatsApp

By Nick Cooper, managing director at Millward Brown Optimor

When you pay $19bn for something you expect to attract criticism. After all it’s a lot of money for a service that’s only five years old and employs just 55 people.

But like Instagram before it, WhatsApp is a strategic acquisition that builds Facebook’s position in mobile and creates a platform that brings with it powerful advantages.

Correctly managed, this acquisition could deliver in four clear areas:

The first of these is scale. WhatsApp is already big – and has more than 450m users (320m of whom are active daily) and is growing incredibly fast with around 1m new joiners every day. While there is clearly a lot of crossover between the WhatsApp audience and the Facebook user base, it will give additional reach and frequency, in the same way that ITV 2, ITV 3 and ITV 4 boost ITV’s total audience share.

Given its scale, WhatsApp also has the potential to be highly profitable. It’s freemium business model – free for a year and then just $1annually – is clearly pitched to keep users on side, whatever their income.

The second area is cost. The arrival of closed communications networks such as WhatsApp created a challenge for social networks, which were by their very nature more open. As more users – and particularly younger ones – opted for networks and tools that enabled them to communicate privately, Facebook was faced with a challenge. Did it build its own system or buy one? Not only would that have been extremely expensive but we know from experience that it can be extremely hard to displace a dominant digital service. WhatsApp is already the dominant provider in many markets, particularly in Europe and India.

The third benefit is brand value. Buying a popular service should – if correctly managed – ultimately enhance Facebook’s relevance and appeal. The announcement at Mobile World Congress in Barcelona that WhatsApp will add voice communications services to its portfolio is just the start of the potential. With Facebook’s resources, the ability to build additional utility into the service will only be enhanced and that will only benefit consumers.

Finally purchasing WhatsApp will deliver clear business benefits for Facebook. Although WhatsApp has foresworn paid advertising – and it needs to keep this pledge to stop consumers seeking alternatives such as Telegram, Line and Wickr – bringing more users into the Facebook fold and encouraging existing users to spend more time with Facebook brands can only boost the use of other Facebook services via smart integration.

The $19bn question is whether these four areas of business benefit are enough to justify the purchase price.

Facebook is now worth more than $175bn and can clearly afford to pay but what if it had let WhatsApp continue to develop as an independent company, a brand rooted in mobile and garnering millions more regular users every day?

Potentially it would be restricting its own growth prospects and allowing no-go areas of communications to develop.

If you view the purchase as eliminating a potentially serious long-term rival, then the price tag of $19bn suddenly seems much more sensible.

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