19 Billion reasons Facebook will be a media group.
Unless you've been under a rock today, you'd now know of Facebook’s USD 19 billion purchase of WhatsApp. At a price point of $42 per user for the 450 million users, pricing WhatsApp at a higher valuation than Sony or Kia Motors. It frustrates me that many of the world's media suggest this is Facebook's answer to correct slowing growth rates. WTF? Are they on drugs? Name one brand that has been able to sustain user growth after passing a billion users, Facebook is the ONLY. Not VISA, nor Coca-Cola had growth rates like Facebook beyond a billion users. Such comments by various sources are short sighted sensationalism. Yes, there are new platforms entering the market, but Facebook's net growth remains positive. The commentary distracts from what Facebook is clearly doing, building a 21st century media group.
At USD 42 per user, shareholders maybe questioning the value
The acquisition is an interesting one, as close to 100 per cent of WhatsApp users are also Facebook users. Hence, the brand of both Facebook and Whatsapp is unlikely to expand. That being said, Facebook has been keen to get deeper into the IM space for several years. WhatsApp’s 450 million active users are definitely attractive, but at USD 42 each (Facebook only paid USD 30 a user for Instagram) we are left questioning the value. What this does do however is extend Facebook’s media network into new ecosystems, deepening its consumer engagement.
The acquisition is unlikely to augment Facebook’s mobile strategy, which has been a ‘mobile first’ company for several years. What it does is bring new, untethered consumer knowledge into Facebook which is likely to boost Facebook’s strength in mobile. The key boost to both companies is the collective knowledge and media convergence.
Mobile will open the doors for Facebook growth
And as mobile internet becomes more ubiquitous in emerging markets like India, Indonesia & Russia, Facebook's growth is destined to continue, and surpass two billion within the coming years. India alone has 180 million digital natives under the age of 19. With only 7% Facebook users (We Are Social) some might doubt the potential, but that 7% is almost half those that even have access to the internet (17%). If you factor in falling mobile internet costs, falling smart phone pricing, India has the potential to have 500 million new internet users over the next three years. WhatsApp has been the top driver for smartphone penetration in India. Together, the two add up to a potent army driving up connected smartphone usage in India.
Still think Facebook is in trouble?
There is a cost to being so ubiquitous, of course. Facebook is still attracting users, but its growth rate has started to slow as it has reached saturation point in mature markets. Analysts are also increasingly concerned that it is losing its appeal to teenagers. How can a website be “cool” for adolescents, when their parents and grandparents are using it as well? But while users are using WhatsApp, SnapChat, Vine and Instagram, they aren't opting out of Facebook.
Here’s what I'm thinking: WhatsApp users aren’t going to automatically become Facebook users. But Facebook is going to gain a massive amount of business intelligence on how international users think, what features they need and use, what their bandwidth requirements are, what devices and platforms they use, and even exactly who and where they are. Consolidation in the digital domain was always going to happen. Remember the majority of the key players are still less than 10 years old. Consolidation does allow for the management of fragmentation, putting similar companies on aligned strategic journeys, which only acts to benefit the entire ecosystem. What this acquisition points towards is the reshaping of the media industry in the 21st century.
The creation of a new media group
Facebook CEO publicly commented that the acquisition was based on a goal of reaching 1 billion WhatsApp subscribers, Facebook is buying the mobile application for about 19 times estimated sales, according to data compiled by Bloomberg. Based on the time it would take WhatsApp to reach that target, Facebook is likely to be knocking on the door of two billion. With Instagram already in the Facebook stable, these numbers make it one of the worlds most powerful media groups on the planet. Shifting the power of consumer engagement deeply into Zuckerberg's hands.
While the price tag to Facebook shareholders may seem steep at first, Facebook is betting it will prove a lucrative long-term investment. The mobile-messaging service could help Facebook generate more growth from broader segments. The dollar amount being paid per WhatsApp user is about a third the value Facebook shareholders place on the social media company’s own user base, data compiled by Bloomberg show. Showing clear intent that Facebook sees its new asset as a key player in the groups future.
This is where the acquisition gets seriously interesting, the asset and networks Facebook is collecting puts it on a clear path to becoming and defining what a 21st Century media company looks like. Gone are the days of hierarchical media groups that control the narrative and distribution of media. With Facebook making key strategic acquisitions that essentially turn the media industry upside down, rewriting the rules in a similar manner to Amazon rewriting the rules on what a book is. Assuming Facebook continues on this path, its showing clear intend to be a media group, owning consumer and brand engagement (powered by the OpenGraph). Facebook already has direct media and advertising models, which could decrease the need for middlemen in the ad space.
The 21 Century demands new groups...
Facebook in the prime position
During my time building Moven, I was super fortunate to be collaborating with Sean Park, the central visionary for the Anthemis Group. His vision was simple, build a portfolio of financial services startups that together will be the Citi Group of the 21/22nd century. Just to have a vision like that requires some radical thinking, complete commitment and the capital to drive success. Today Anthemis holds positions in Moven, Simple, Fidor, PayPerks, Betterment, eToro, Peer Index and many more. Now I don't have access to Mark Zuckerberg, but recent activity suggests his vision for Facebook is not dissimilar to Sean's. Which means he is focused on building a new type of media group, powered purely by the modern era of thinking, technology and consumer behaviours. One that is uniquely positioned to surpass the incumbent media groups, owning the media space amongst the digital native.
What does Facebook future hold?
I'd expect more acquisition activity from Facebook in alignment with a media group vision. Likely in Video, Interactive Media, and Content Curration. An outside chance on them finding something that brings the group into the 'physical' space. Facebook's future is bright, and with Whatsapp in the family, it has strengthened its position in the market.