Money Talks: Who's Afraid of Facebook's WhatsApp Deal?
It's all about the Benjamins.
Image: Flickr, David Beyer
By Chris Taylor 2014-02-20 09:24:23 UTC
$19 billion — $16 billion in stock and cash as well as additional $3 billion in restricted stock units Facebook will dish out for WhatsApp — is an absurd amount of money to present to 55 people. That's the subtext below most of the outraged, stunned, and/or cheerleading reactions to Wednesday's news that Facebook was buying WhatsApp in the largest and strangest tech world buyout since AOL snapped up TimeWarner in 2000.
You think this many people are fascinated by what this means for the future of messaging or Facebook corporate strategy? Nope. Deep down, either with doe-eyed dreams of what we'd spend it on or a creeping horror at the gaudy zeros on that number, we're all following the money.
See also: Facebook's $16 Billion Acquisition of WhatsApp Takes Over Twitter
And no wonder. $19 billion is more than the GDP of Iceland; of Jamaica; of Monaco and Bermuda and Fiji put together. Facebook could have bought Southwest Airlines, which has lower market cap; it could have grabbed the Gap. Instead, it snapped up an app for 19 times the cost of the last major app it snapped up.
No, Zuck has not lost his head. Yes, WhatsApp is phenomenally successful at growing its customer base, more so than Facebook and in all the right countries. You skate to where the puck is going to be, and WhatsApp is going to be at a billion users in a handful of years. From the perspective of Facebook, flush with cash, there is sound fiscal reasoning at work here, a legitimate bet.
For the rest of us, however, there's some serious mental readjustment to be done. This is the world we live in now, where a mobile app maker can sell itself for as much as NASA's entire budget. There is readjustment even among the people who study this for a living. Nobody got a scoop here: the whole of tech journalism was caught flat-footed. Some of us scrambled to recall articles written two years previously predicting this possibility, disregarding the fact that nobody did or could have predicted this price tag.
See also: What's WhatsApp and Why Did Facebook Pay $16 Billion for It?
There is nothing about this deal that's comfortable to comprehend — and that's not necessarily a bad thing. The U.S. just had its eyes opened a little further to the rest of the world. Silicon Valley was shown how to build a social media powerhouse without many homegrown customers.
WhatsApp's strategy may yet turn out to be a business model powerful enough to compete with the online advertising model: get people hooked on a free service with no ads, get as big as possible, then charge a dollar a year and watch $450 million roll in, providing nobody takes umbrage and leaves.
But you can't stay neutral about the purchase price. Either you have to become a cheerleader for unfettered capitalism — the $19 billion app as the American dream! — or you have to admit to some uneasiness at the kind of economy we've consciously created. Facebook stock plummeted 5% as soon as the deal was announced, and although it party recovered, that's an indication that even the global pool of money thinks this offer is out of all proportion.
See also: Facebook Has No Plans to Bring Ads to WhatsApp
It seems appropriate that the last time this happened was AOL buying Time Warner, because that was the last time the market sensed a deal that seemed to show an economy out of joint. I was there at the Time magazine offices the morning Steve Case and Jerry Levin walked in to announce that deal.
Tasked with reporting on our new corporate overlords, for months, I couldn't fight the nagging feeling: Something's badly wrong here. Everyone who wasn't in upper management sensed it. How could a company that relied on selling a training-wheels version of the Internet buy the world's then-mightiest media conglomerate?
With hindsight, of course, we all can see it didn't make any sense. Sure, AOL-Time Warner made fiscal sense to Case and Levin. For the market, it was the starting gun for what became the 2000 dotcom crash. Nobody who lived through that will ever forget it, the way the confidence suddenly drained out of the information economy.
I don't think WhatsApp is proof we're in a similar kind of bubble. The tech world is in a much stronger position now; we've got true online giants, not pretenders to the Internet throne. These giants have a ton of cash, and they're going to keep making deals like this with companies they deem worthy. It's what any rational economist would tell them to do.
See also: WhatsApp Founders Are Low Key — And Now Very Rich
But perception matters, and I do think the WhatsApp deal will deliver a permanent kick to the zeitgeist. Here we are in 2014, it says, and there are no more moonshots. Our big ideas all seem to be old ones on a smaller screen. The climate is changing permanently in very weird ways, we're surrounded by famine and flood and bloody revolution, but fear not. We'll have great apps.
Conglomeration and consolidation is, sadly, as much a fact of life in the new economy as in the old one. The giants can't stand to see anyone else flourish, and they buy up walls of purchases and acres of patents against each other. And what do we really get in return? San Francisco, already the most expensive city in the US, gained another 38 millionaires and 2 billionaires: great.
For WhatsApp users and Facebook users, they have been repeatedly assured, nothing will change. WhatsApp will run as an independent entity. So what happened here, exactly? One of the smartest companies in the world spent $19 billion and the future of innovation wasn't advanced one iota.
Who's afraid of the WhatsApp deal? Perhaps we all should be.
Topics: Business, Facebook