Tuesday, 11 March 2014

Facebook buying WhatsApp; a good deal?



There have been many naysayers on this deal. Here’s my quick take, analysed via the ‘rules’ or dna of the internet economy plus some history.

Did they not say that YouTube at USD1.6 billion in 2006 was a crazy buy of Google?  Now YouTube is the second most visited site after Google thus maintaining Google’s prime position in the digital world.  YouTube also generated USD5 billion plus revenue and gross profit at USD1.96 billion for 2013 (Forbes).  But there are less successful ones; Microsoft and Skype, Newscorp and Friendster.  But these are not compatible marriages.  Facebook and WhatsApp are culturally similar.

WhatsApp
1.     Is a leader in its sector
2.     Has a high number of users/active users and growing
3.     Is in a space that is transformational.  Messaging and internet voice (announced) is replacing sms and voice calls on mobile phones.  Datarisation is the cause (see http://internetbusinessmodelasia.blogspot.com/2013/06/reimagining-telco-impact-of-internet_12.html).
4.     Its business model is aligned with the rising internet economy which means the future’s sound.
5.     Is a next-gen factory mining data from messaging and no doubts would be processing them into informational products for sale directly or indirectly.  As a commodity, data has a lot of value in the information age. 
6.     Has a global market presence, not a local one.  While traditional voice/sms is mostly a local business, voice/sms datarised is a global one ie. volume of data is many many folds higher.  Perhaps one reason for the high valuation.
7.     Business model is also aligned with the internet economy drawing value from it.  WhatsApp relies on data as a commodity and on the value-of-free (see http://internetbusinessmodelasia.blogspot.com/2013/06/the-value-of-free-seeming-paradox-but.html).  Interestingly it also uses the peer-to-peer model, the basis of the currently hot sharing economy sector.
8.     Competitively it uses business methods more in tune with an internet economy.  For example it allows you to create/join a community which is sticky and uses social when it looks through your phone book and informs your contacts you have joined.  Contrast this to Skype which is modeled after the way traditional phones work.  Skype was also designed for PCs but voice and messaging is really a mobile phone app.  With a better model for the internet (and smart phones) it is starting to supplant Skype. In my opinion WeChat has an even better model, it uses more of the internet ‘tools’ and uses social in a more compelling way.  But there’s space for a few global messaging providers.

The only question is whether WhatsApp has cemented its place as one of the messaging platforms in the internet economy like Facebook has in social media.  It will be down to execution by management.  WhatsApp has strong competitors and this space will only get more crowded.  And alluding to Friendster, whether Facebook is going to leave WhatsApp enough alone.

But one thing for sure, telco executives will be alerted from their slumber perhaps realising that serious change is coming sooner, not after they retire!  I hope their response is not to block threatening content in line with an open internet.