Many agree that Facebook’s recent acquisition of WhatsApp is the perfect representation of just how disjointed the market is. Where a company that has a flimsy monetization strategy can finagle 19x more out of Facebook than any of their previous acquisitions combined. The last most notably being Instagram for $1 billion in April 2012. Mark Zuckerberg calls this a bargain while the rest of the world, particularly the financial sector, looks on with skepticism.
So how can a messaging app, who’s main function is to provide an amalgamation of features similar to existing apps, sell for $19 billion dollars? There is all kinds of speculation as to the answer but at least this much is true: WhatsApp users send 600 million pictures a day. 1 million more than Facebook. 70% of WhatsApp users engage on a daily basis. Facebook sees a 50-60% daily engagement rate. WhatsApp has a strong presence in emerging markets such as Latin America and India while Facebook does not. Lastly, WhatsApp has seen a user growth rate even greater than Facebook’s astronomical growth. Which of these reasons most heavily influenced Facebook’s decision is impossible to know unless you are on the inside, but it’s likely they all factored in to some degree.
What does this mean for the app ecosystem? There is speculation that this will ultimately crash and burn sending Facebook into a tailspin, evoking memories of the AOL / Time Warner deal that marked the end of the Dot-com boom. The major difference here is that WhatsApp, like many other high price tag apps, actually provides a utility, which is to say it adds value. That value may come in the form of saved time or money, better pictures, easier sharing, faster connectivity or more accurate geo-location, whatever the case may be, people find value and they continue to use these apps at a staggering rate.
Whether this acquisition ultimately helps or hurts Facebook is anyone’s guess but irregardless, the app ecosystem is only going to continue getting stronger. If this particular deal does fail it will mean that greater emphasis will be placed on due diligence upfront, in other words, more assurances the app has a working and sustainable monetization strategy. If the WhatsApp deal works out on the other hand, Facebook will undoubtedly try to make similar purchases, perhaps equal to or greater in value. Apps will work to replicate the WhatsApp model, even if that means a barrage of apps that all look and feel very similar to end users – though this isn’t necessarily a bad thing. Competition breeds quality and as long as app makers can continue to produce apps that provide quality utility to end users, then the app ecosystem will remain firmly in tact.