Facebook has agreed a $19 billion deal to acquire WhatsApp, removing one of its strongest competitors in the OTT messaging space.
WhatsApp has 450 million subscribers, more than 320 million of whom are considered monthly active users. And they are incredibly active too: WhatsApp messaging volumes are almost equivalent to global SMS traffic. On top of that, WhatsApp is registering 1 million new users per day.
In short, WhatsApp is a serious rival to Facebook as a messaging platform and also because a lot of people are spending a considerable amount of time using it instead of sitting in front of Facebook and its accompanying advertisements.
"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," said Facebook CEO Mark Zuckerberg, in a statement late on Wednesday.
So valuable in fact that Facebook is paying $4 billion in cash and $12 billion in shares, plus an additional $3 billion in restricted stock units to WhatsApp's founders and employees. The deal includes a breakup fee of $1 billion in cash and $1 billion in Facebook shares payable to WhatsApp.
"This is a huge deal by any measure, partly driven by future opportunity for Facebook and a defensive play," said Martin Garner, senior vice president of analyst firm CCS Insight. "Facebook is rightly conscious that it could be quickly displaced by the 'next big thing', but an even greater concern is that 'the next big thing' will be acquired by a competitor."
Even so, $19 billion for a young company without a fully developed business model is unprecedented, he said, noting that it is 21 times the price paid last week by Japanese e-commerce giant Rakuten for OTT voice and messaging firm Viber, which has around 300 million users.
$19 billion will also go a long way to resolving any 'cultural differences' between Facebook and WhatsApp when it comes to making money.
While the former has built a revenue model around selling its user base to advertisers, the latter is vehemently opposed to that, preferring instead to give subscribers a year of free usage and then charge them