A couple of days have passed since the news of the monster acquisition of WhatsApp by Facebook broke. More people have written about it already than I can possibly link to so I won’t even try. My immediate reaction just based on financial metrics was that Facebook massively overpaid but I wasn’t sure about the strategic side. Having had some time to think about that I am now convinced that this deal makes no sense.
Why? Because phone number based messenger apps can bootstrap very rapidly off the graph that is contained in people’s address books. We are witnessing that now with the Telegram Messenger app which apparently signed up nearly 5 million users yesterday. The UIs of all of these apps are virtually identical and are also extremely similar to the basic SMS UI that everyone around the world knows and understands. The combination means there is virtually no enduser lock in at the messaging layer.
So instead of paying $19 Billion, Facebook should and could have created its own version and promoted it via its massive network. I am quite convinced that they would have been able to get to half a billion users for a fraction of the amount of money! They could have promoted their version via Facebook itself and then spend a “cool” billion or two on advertising this globally and/or incentivizing installs. Let me repeat the key point: the switching cost for users on a phone number based messaging services is at or near zero (this is different for identity based services and even more so if they are a platform that third parties can integrate with such as WeChat and Kik.
I have to agree with Albert’s post. In fact, using tools like Twilio Client, which lets you build web, iOS and Android based phone apps, you could build your own WhatsApp system in a few hours…