For WhatsApp, keeping it simple will be tricky
In a conference call on Wednesday, Zuckerberg and Jan Koum said they would focus on gaining users rather than monetisation.
In recent years, a bevy of messaging apps has fought for global domination, with many boasting a lucrative combination of communications features, online shopping and games. But this week, Facebook CEO Mark Zuckerberg spent a staggering $19 billion to buy WhatsApp. WhatsApp, which has 450 million users, has stuck to basic messaging, but also a simple business model of charging users an annual subscription fee of just $ 1. Zuckerberg’s bet may ultimately prove to be a strategic masterstroke: shutting rival Google Inc out of an upstart phenomenon with a unique “mobile graph” and gaining swathes of users — and their data — in emerging markets. Wall Street cheered the deal on Thursday, but for many Silicon Valley insiders the price tag proved difficult to swallow, especially if WhatsApp’s business model and product roadmap doesn’t evolve under Facebook’s stewardship. “It’s going take a while to build up the value from that acquisition, to say the least,” said Jonathan Teo, an investor in picturemessaging phenomenon Snapchat, a WhatsApp rival. Even assuming ideal conditions, it still outpaces Facebook’s own valuation by a hefty margin. WhatsApp makes just $20 million a year in revenue, according to Forbes. Supposing users hit 1 billion by 2016 as some industry experts have suggested, and every one of those pays the $1 annual fee — highly unlikely — it would still clock in at 34 times 2016 revenue, 21% costlier than Facebook’s roughly 28 times expected 2016 sales.
“You can justify all kinds of numbers if you wanted to, but to get there you ignore away plausible risks,” said Brian Wieser, an analyst at Pivotal Research. “You can’t just say, oh, it’s a great strategic addition, done!” WhatsApp’s moneymaking potential is clouded by the fact that CEO Jan Koum and Zuckerberg have both ruled out advertising as a revenue source, while Koum has prioritized refining basic messaging even as other rivals have branched out.
In a conference call on Wednesday, Zuckerberg and Koum said they would focus on gaining users rather than monetization. Koum said he wanted WhatsApp to improve “unattractive” aspects of the app, like message delivery, its reliability or its battery usage, rather than flashy new enhancements.