The 15 Most Important Things You Need To Know About Facebook's $16 Billion Acquisition Of WhatsApp
As the business day was closing on the east coast and the west headed into an afternoon lull, Facebook shook up a storm as news broke that the social network had acquired the hugely popular WhatsApp.
With so many angles to the tech world's undisputed top story of 2014, outlets have been scrambling to fill the public in on the intricacies of the deal.
Elite Daily is doing its part, too. From chocolate-covered strawberries, to electricity-less villages in Ukraine, here are the 15 things you need to know about Facebook's acquisition of WhatsApp:
People Love WhatsApp Because...
It is the perfect messaging app for people around the world who want to communicate with friends and family without all the complexities that come with date rates. With WhatsApp, anyone can send a message, picture, video or voice note to another person anywhere in the world, regardless of what data plan the two people have. The total lack of annoying ads makes the app that much more user-friendly.
The Two Founders Have Been Around The Block
CEO Jan Koum and Cofounder Brian Acton are both experienced pros in the capital of the tech world, Silicon Valley. Like many entrepreneurs who have created successful tech companies, both are former employees of a tech giant. In this case, the two cofounders' training ground before founding WhatsApp was Yahoo! Inc., where they worked as engineers until 2007. Acton could be considered the veteran of the two, as he was Yahoo! Inc.'s fourty-fourth employee and also Koum's mentor, according to Forbes.
WhatsApp Generates Little To No Revenue
The messaging app is free for first-time users and only charges $.99 per year after the first 12 months of usage. Generally, companies that offer free apps tend to make up for revenue by featuring advertisements in the app, but WhatsApp has, notably, avoided doing so.
The reason for that decision, according to the company's official site, comes down to its desire to A) avoid the data-mining responsibilities that come with implementing ads, and B) focus on offering a great product to its customers.
"We wanted to spend our time building a service people wanted to use because it worked and saved them money and made their lives better in a small way," the company continued, "...we are simply not interested in any of it."
The Company Has No Plans Of Selling Out
WhatsApp has obviously been sold for a substantial fee, but in a figurative sense, the company will not be selling out. In a blog post published yesterday, WhatsApp stated:
"WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product."
It Is Growing At An Insanely Fast Rate
With 450 million active users, 70 percent of which are using the app every day, WhatsApp has attracted more users than both Twitter (launched in 2006) and Skype (launched in 2003). WhatsApp, in comparison, was launched in 2009 and now acquires one million new users every day.
The Acquisition Fee Is Subject To Change Over Time
Up front, WhatsApp has been given $4 billion in cash and 183,865,778 shares of Facebook Class A common stock, which are currently valued at $12 billion (based on the average price of the stock for the past week). Furthermore, WhatsApp's 53 employees have been given 45,966,444 shares of restricted stock that will be distributed over the next four years, which amounts to $3 billion, today.
The Deal Is The Biggest Of Its Kind
Facebook's big purchase is not only the social network's biggest deal in its history; it is the biggest Internet deal since Time Warner's merger with AOL in 2001 for over $120 billion.
That deal, however, featured a large fee by nature (two large companies coming together). In terms of one large tech company purchasing another that will continue to operate independently, and a messaging service at that, the WhatsApp deal is in a league of its own. It is the biggest acquisition of a ventured capital-backed startup, the New York Times wrote.
From Food Stamps To Billionaire
As Bloomberg's Adam Satariano points out, the WhatsApp deal makes the two cofounders instant billionaires. This signifies a rocket-like rise for WhatsApp CEO Jan Koum, whose family was using food stamps after emigrating to the United States from Ukraine.
Cofounder Brian Acton Is A Facebook Reject
There may be no other man on Earth who feels the need to say "everything happens for a reason" more than WhatsApp Cofounder Brian Acton. In 2009 he tweeted, “Facebook turned me down. It was a great opportunity to connect with some fantastic people. Looking forward to life's next adventure.”
Later that year, Acton joined Koum in creating WhatsApp. Instead of earning a salary with Facebook, Acton's work with WhatsApp ensures that he's getting a bigger check from the social network than he's likely to have ever imagined.
Jan Koum Is Now A Top Dog At Facebook
As part of the acquisition, Koum now has a seat on Facebook's board of directors. That's not bad for a man who grew up in a village home in Ukraine with no electricity or running water.
The Deal Is A Love Story
According to several credible reports, Mark Zuckerberg first offered a formal deal to WhatsApp over dinner with CEO Koum on February 9, at Zuckerberg's home in Palo Alto. Koum then "crashed" Zuckerberg's valentine dinner, before the two negotiated over chocolate-covered strawberries that were intended for Zuckerberg's wife.
If that doesn't make things sufficiently and hilariously lovey-dovey, the story goes further back. The two companies apparently started flirting with each other when Zuckerberg and Koum met for coffee in the Spring of 2012. A couple hour-long walks and a series of dinners later, Facebook is finally taking its date home.
WhatsApp's Lone Investor Will Make A Return For The Ages
For a company of its notoriety, WhatsApp surprisingly has just one investor. Sequoia Capital invested a total of $60 million for a stake in WhatsApp that is reportedly in "the high teens." This means that of the $16 billion fee paid by Facebook, Sequoia is set to make a huge profit, which may even hit up to 50 times its initial investment. Talk about ROI.
WhatsApp's Popularity Is Totally Owed To A Good Product
To further the name of their product, Koum and Acton spent a whopping zero dollars on marketing and personal relations. The app's popularity is largely owed to the person telling the next person who told the next person -- aka word of mouth. Many say that good news travels slowly, but an app that's gimmick-free and saves its users money is an exceptional piece of good news, and people around the world have apparently spread it like wildfire.
The Deal Is, By All Accounts, Bad For Google
Most acquisitions made by the big four in Silicon Valley (Yahoo!, Apple, Google and Facebook) are usually considered a win on two fronts: One company gets a good product and strikes a blow to a competitor. In WhatsApp's case, Google has been touted as the big loser of Facebook's acquisition. Fortune's Jessi Hempel broke the news this morning that two sources confirmed that Google once offered $10 billion to WhatsApp.
According to The Information, Google also offered WhatsApp millions of dollars to notify the search engine giant in the event that WhatsApp began entertaining an acquistion with another company. WhatsApp reportedly turned down that deal, as well.
There are no word on the intricacies of both offers, but the one big detail in this is all clear. Google has missed out on a clearly coveted entity and, with WhatsApp turning down its "notification" offer, the search engine was totally blindsided in the process.
Facebook Plans For WhatsApp
According to Fortune Senior Editor Dan Primack, 35 percent of what Facebook has in cash was used to acquire WhatsApp, despite the fact that $12 billion dollars of the offer was made in stock. It's a fee that Facebook CEO Mark Zuckerberg feels is worth it, too, for an app that has more engagement than Facebook itself.
"With 50 people at their company, their product and network has almost half a billion people using it. No one in the history of the world has done anything like that before," Zuckerberg said in a conference call last night.
So what's the next big target for the now-Facebook-owned WhatsApp? More. More efficiency, more speed and more simplicity, as it looks to soon hit the billion mark in users.
"They are on a path to get to a network of one billion or more in a relatively short period of time," said Facebook's chief financial officer David Ebersman. "We looked at other networks of that size and scale and what they are worth, and that gave us a framework for what might make sense here. The service is tremendously useful. Messaging is the No. 1 activity on smartphones. This is a valuable service people are prepared to pay for."
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