FACEBOOK’S WHATSAPP TAKEOVER

Facebook's recent deal to buy mobile messaging company WhatsApp Inc shocked many

people, mainly due to the huge price tag, which the social networking giant agreed to pay.

The $19 billion deal, which includes $3 billion in restricted stock, is in line with

Facebook's plan to become a mobile company, leading news agencies commented.

What does the acquisition mean to WhatsApp?

(Advantages of the deal)

In a blog post, WhatsApp co-founder and CEO Jan Koum stressed that the deal would

lead to no changes at all for his company's users. Moreover, the transaction will enable

the company to continue its mission of "building a cool product used globally by

everybody," while also growing and expanding, he said. WhatsApp will operate

independently and will preserve its product portfolio. It will also add new features in the

next one to two years, Koum said during a call with investors.

Facebook co-founder and CEO Mark

Zuckerberg explained that his company

would not monetise messaging systems

via ads. This means that no ads will

appear on WhatsApp.

Another positive aspect is that the use of

WhatsApp together with Facebook's

Internet.org plans will result in increased

connectivity, Digital Spy commented.

Correctly managed, this acquisition could deliver in four clear areas:

1. The first of these is scale. WhatsApp is already big – and has more than 450m users

(320m of whom are active daily) and is growing incredibly fast with around 1m new

joiners every day. While there is clearly a lot of crossover between the WhatsApp

audience and the Facebook user base, it will give additional reach and frequency.

Given its scale, WhatsApp also has the potential to be highly profitable. It’s freemium

business model – free for a year and then just $1annually – is clearly pitched to keep

users on side, whatever their income.

2. The second area is cost. The arrival of closed communications networks such as

WhatsApp created a challenge for social networks, which were by their very nature more

open. As more users – and particularly younger ones – opted for networks and tools that

enabled them to communicate privately, Facebook was faced with a challenge. Did it

build its own system or buy one? Not only would that have been extremely expensive but

we know from experience that it can be extremely hard to displace a dominant digital

service. WhatsApp is already the dominant provider in many markets, particularly in

Europe and India.

3. The third benefit is brand value. Buying a popular service should – if correctly

managed – ultimately enhance Facebook’s relevance and appeal. The announcement at

Mobile World Congress in Barcelona that WhatsApp will add voice communications

services to its portfolio is just the start of the potential. With Facebook’s resources, the

ability to build additional utility into the service will only be enhanced and that will only

benefit consumers.

4. Finally purchasing WhatsApp will deliver clear business benefits for Facebook.

Although WhatsApp has foresworn paid advertising – and it needs to keep this pledge to

stop consumers seeking alternatives such as Telegram, Line and Wickr – bringing more

users into the Facebook fold and encouraging existing users to spend more time with

Facebook brands can only boost the use of other Facebook services via smart integration.

The $19bn question is whether these four areas of business benefit are enough to justify

the purchase price.

Facebook is now worth more than $175bn and can clearly afford to pay but what if it had

let WhatsApp continue to develop as an independent company, a brand rooted in mobile

and garnering millions more regular users every day?

Potentially it would be restricting its own growth prospects and allowing no-go areas of

communications to develop

Disadvantages of this deal :

There are certain disadvantages stemming from the acquisition.

1. WhatsApp users may probably be required to have a Facebook login. This means that

WhatsApp will gain access to more personal information. After all, Facebook will at least

obtain users' mobile numbers, as the subscription for WhatsApp requires them.

2. Facebook had to drop $19 billion in cash and stocks in order to make the purchase

3.Facebook will be unlikely to purchase other companies that were hopeful, such as

Snapchat

4. Facebook stocks fell 5% hours after the WhatsApp purchase, but now only down by

2.64%

WhatsApp will gain access to more personal information. After all, Facebook will at least

obtain users' mobile numbers, as the subscription for WhatsApp requires them.

2. Facebook had to drop $19 billion in cash and stocks in order to make the purchase

3.Facebook will be unlikely to purchase other companies that were hopeful, such as

Snapchat

4. Facebook stocks fell 5% hours after the WhatsApp purchase, but now only down by

2.64%