1. I honestly feel like a lot of smart people that I respect are starting to take leave of their senses. Either I’m just turning into a grumpy old man, or the social/tech bubble Kool Aid is getting awfully addictive.
    You noted, “it’s not that difficult to get consumers to spend between $20 and $40 in some way, shape or form on the platform.” Actually, it is VERY hard to get consumers to spend that kind of money on a platform. Last year, Facebook made income (not revenue) of just $1.50 per user. Twitter lost money for each user it had. And Yahoo, which has been around for almost 20 years now, didn’t earn income of more than a buck a user three out of the last four years.
    WhatsApp charges $1 per user per year (although a year ago it had 200 million users but only managed revenue of $20 million, so go figure.) And it serves no ads and clearly promised this to users. Without some rapid change in WhatsApp’s business model (or math), I don’t see the ease with which Facebook will recover the $42 per user they paid for WhatsApp.
    Assuming WhatsApp sticks to its present business model of $1 per year, and assuming it has a gross margin of 25% (which means 75 cents of every dollar of revenue goes to running servers and paying salaries), it will take Facebook 160 years to break even. If WhatsApp multiplies its fee structure, will users stay or flee, as they have so often before, to free or lower-cost alternatives? The question is the same if WhatsApp starts serving ads. So again, I’m left to puzzle at the ease at which some believe $40/user will materialize.
    If I sound “pissed off” (to borrow your term), it is not because I cannot grasp big numbers but because I can. We’ve seen this before–companies “buying users” who then leak away to the next platform (Bebo? Dodgeball? And now Tumblr’s looking suspiciously the same), the claim it all works out in the end because they’re media companies (AOL-TimeWarner? NewsCorp/MySpace?), and the suggestion that new economics are more important than traditional ones (Pets.com? Flooz? Webvan?)
    I feel like we have been in this same place before, and rather than learn from it, we’re happy to buy into the euphoria. I appreciate the thoughts and agree that strategically the idea of this acquisition makes sense at SOME price, but I also don’t think it’s unfair or old-fashioned to look at the cost, study WhatsApp’s business model, and question where Facebook intends to find that kind of value.

  2. I don’t think that the WhatsApp revenue you define is going to come from media dollars, as we have known them to date. I feel like the play towards that $40 is going to come through some kind of affiliate or business partnership deal. I believe that what you’re saying is 100% accurate in reference to what we’ve seen as monetization strategies through advertising. I’m hopeful that won’t be the play here. If WhatsApp can become the underlying way to conduct transactions – on both Facebook and WhatsApp… and Instagram… (people to people) there is something big here.
    Still, for my dollar, I believe this was a defensive move for Facebook to acquire more users, build a portfolio holdco for other engines of connectivity and, ultimately, to own as much digital communications by people as they possibly can.
    I still can’t believe how much they are willing to pay for it.

  3. Thanks for the patient reply to my grumpy comment. I still don’t see the logic in this acquisition and this price–if it were really that easy just to create $40 of value of per user, MySpace would be alive and kicking and Twitter would be wildly profitable.
    Far too many articles and blog posts (although not yours) have evaluated this acquisition as a strategy without consideration of cost, as if any strategy works for any price. Given the lack of ads, the business model, the privacy concerns, the way consumers flow from one app/service to another, etc., I still don’t see this making sense.
    I’m happy to proven wrong, but I’d really like to see some more sensible, practical and financial evaluations of this acquisition and much less if-Facebook-thinks-it-makes-sense-then-it-must-make-sense sorts of analysis.
    I’m concerned this is another sign of a bubble and pending crash. I’m glad I’m not an investor now, but we sometimes forget bubble bursts don’t just sting VCs and stockholders. When the dot-com bubble crashed, it took down the entire market and cost thousands of people jobs. I just don’t think now is a time for euphoria but for some sanity.

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