Facebook pursues messaging market with WhatsApp deal

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Reuters

The number of "likes" on WhatsApp's Facebook page displayed on a laptop yesterday. Facebook will pay $19 billion for the mobile messaging service with 450 million users in a landmark deal that may help it attract users who shun social networking. Photo: Reuters

San Francisco - Facebook will buy fast-growing mobile-messaging start-up WhatsApp for $19 billion (R207bn) in cash and stock in a landmark deal that places the largest social network closer to the heart of mobile communications and may attract younger users.

The transaction involves $4bn in cash, $12bn in stock and $3bn in restricted stock that vests over several years. The WhatsApp deal is worth more than Facebook raised in its initial public offering (IPO) and underscores the social network’s determination to win the market for messaging.

Founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley start-up fairy tale, rocketing to 450 million users in five years and adding another million daily.

“No one in the history of the world has ever done something like this,” Facebook chief executive Mark Zuckerberg said on Wednesday.

Zuckerberg, who famously closed a $1bn deal to buy photo-sharing service Instagram over a weekend in mid-2012, revealed on Wednesday that he had proposed the tie-up over dinner with Koum just 10 days earlier, on the night of February 9.

WhatsApp is the leader among a wave of smartphone-based messaging apps that are sweeping across North America, Asia and Europe.

Although WhatsApp has adhered strictly to its core functionality of mimicking texting, other apps, such as Line in Japan or Tencent Holdings’s WeChat, offer games or e-commerce on top of their popular messaging features.

The deal provides Facebook entrée to new users, including teens who eschew the mainstream social networks, but prefer WhatsApp and rivals that have exploded in size as private messaging takes off.

“People are calling them ‘Facebook Nevers’,” Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat, said.

How the service will pay for itself is not yet clear. Zuckerberg and Koum did not say how the company would make money beyond a $1 annual fee, which is not charged for the first year. “The right strategy is to continue to focus on growth and product,” Zuckerberg said.

Zuckerberg and Koum said WhatsApp would continue to operate independently, and promised to continue its policy of no advertising.

Even so, many balked at the price tag. Facebook is paying $42 per user with the deal, dwarfing its own $33 per user cost of acquiring Instagram. By comparison, Japanese e-commerce giant Rakuten just bought messaging service Viber for $3 per user, in a $900 million deal. – Reuters


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