Let Wall Street doubt all they want. The critics will say that no company would pay for an acquisition with 2/3 stock if they thought their stock was undervalued. They’ll also say that Facebook spent 1/3 of its available cash on hand to pay for this deal. None of that matters, at least not to the strategy behind what Facebook made happen yesterday. Here’s how it shakes out:
International presence: While Facebook Messenger has been supremely popular here in the US, WhatsApp is the king on every other continent besides Asia. This move helps Facebook expand their footprint globally and gives them a much more significant presence worldwide, making them more attractive to not only multinational corporations, but companies who function primarily outside the US. User growth: WhatsApp reportedly has 450 million MAUs, compared to Facebook’s 1.2 billion. Let’s assume that there’s some overlap between the two numbers, but not a ton. This means that Facebook just paid 1/3 of their cash (or roughly 10% of their market cap) to increase the size of their user base by 30%. The only thing that makes Facebook such a titan in the internet world is its the massive breadth of its audience and that number just got a lot more substantial.
The Internet Trifecta: Last, but certainly most important: Everyone can agree that the future of the tech business is in mobile. There are four essential components (in my mind) that make up the internet:Social, Search, Chat, and Photo.Facebook now owns the leader in Social, Photo, and now Chat. That is an extremely potent combination and will make them extremely difficult to contend with in the future, even for Google who is the obvious leader in Search, fay beyond its closest competitor.
Two years ago, $FB was nearly irrelevant in mobile. FB + Instagram + Whatsapp = rule-all-phones. All that for $20B? Super cheap for $175B FB
— Hemang Gadhia (@hemang) February 20, 2014
It will be extremely interesting to see what Facebook does with WhatsApp in the future, but I wouldn’t expect the app that you know and love to change too much at this point. Since its acquisition nearly two years ago, Instagram has barely changed (in the branding/function, at least) and I would expect Facebook to leave WhatsApp alone for the most part as well. But just knowing that they have secured themselves a solid stronghold in another key area of the ongoing internet battle must feel pretty good.
Ezra Chasser is the founder of Sore Thumb Marketing, a New York-based consultancy focused on helping small business owners make the most of their online marketing presence. You can reach him via email or @sorethumbnyc.