SAN FRANCISCO — Why would Mark Zuckerberg, the most successful U.S.
entrepreneur of his generation, give away 8 percent of his company and
$4 billion in cash to two former Yahoos who have little but disdain for
Facebook's business model?
Because among young people in the developed world, Facebook's growth is slowing while texting has become the primary mode of communication.
Acquiring WhatsApp, a startup based in Mountain View, Calif., gives Facebook ownership of the world's largest and fastest-growing mobile messaging platform, with 450 million monthly users and 320 million users every day.
And unlike social media sites such as Facebook and Twitter, which are free, WhatsApp has already convinced almost half a billion consumers spread across 200 countries to pay for its service.
While 99 cents a year (after a year's free trial) may not sound like much, the revenue has allowed WhatsApp co-founders Jan Koum and Brian Acton and their 50-person team of engineers to build a platform that hosted an eye-popping 54 billion messages last New Year's Eve alone.
The business model has been so successful that Koum – who like Acton is a former Yahoo engineer – has repeatedly disparaged any communications platform that relies instead on selling advertising that's based on user data.
Here's how Koum critiqued the business model used by Facebook, Google and every other ad-supported Internet service in a blog post dated June 18, 2012:
"No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they'll see tomorrow… Advertising isn't just the disruption of aesthetics, the insults (sic) to your intelligence and the interruption of your train of thought… When advertising is involved, you, the user, are the product."
Maybe
not since Karl Marx penned his communist manifesto "Das Kapital" nearly
150 years ago has there been a more stinging indictment of commerce
that's driven by consumer advertising.
Yet that kind of talk wasn't enough to scare off Zuckerberg, whose company's profitability depends precisely on selling ads based on its users' personal data and interests.
The wily CEO did it to boost Facebook's growth and expand its reach.
Facebook reported last month that its number of worldwide daily users rose to 757 million in December, a year-over-year rise of 22 percent.
Yet an outside report from market researcher iStrategyLabs found that use of the social media site by U.S. teens aged 13 to 17 fell by 25 percent since 2011, and Facebook executives have since acknowledged the company's struggle to hold onto younger users in its mature markets.
WhatsApp, meanwhile, saw its number of users jump by 50 million in just the last two months, according to its corporate blog, while the number of messages it processed last year tripled.
What's more, the application works with all of the world's leading smartphone operating systems, including Google's Android, Apple's iOS and those made by Microsoft, BlackBerry and Nokia.
Last August, WhatsApp also rolled out a voice messaging service for its users.
Close watchers of Facebook will remember that less than a year ago, Zuckerberg unveiled a new platform, called Home, that debuted on a handset made by HTC, a hardware maker with a niche share of the smartphone market.
The software, which worked only on Android phones when it was released, was designed to act like a home page for mobile Facebook users.
It came after several years of speculation that the company would build its own smartphone.
Yet Zuckerberg was savvy enough to realize that there's little profit in making hardware, while much can be gained from owning a fast-growing mobile service that works on virtually any handheld device.
That's why a CEO admired from Silicon Valley venture capital circles to business school faculty lounges for his ability to retain so much equity control of Facebook just gave away a huge chunk of its cash and stock to WhatsApp.
Because among young people in the developed world, Facebook's growth is slowing while texting has become the primary mode of communication.
Acquiring WhatsApp, a startup based in Mountain View, Calif., gives Facebook ownership of the world's largest and fastest-growing mobile messaging platform, with 450 million monthly users and 320 million users every day.
And unlike social media sites such as Facebook and Twitter, which are free, WhatsApp has already convinced almost half a billion consumers spread across 200 countries to pay for its service.
While 99 cents a year (after a year's free trial) may not sound like much, the revenue has allowed WhatsApp co-founders Jan Koum and Brian Acton and their 50-person team of engineers to build a platform that hosted an eye-popping 54 billion messages last New Year's Eve alone.
The business model has been so successful that Koum – who like Acton is a former Yahoo engineer – has repeatedly disparaged any communications platform that relies instead on selling advertising that's based on user data.
Here's how Koum critiqued the business model used by Facebook, Google and every other ad-supported Internet service in a blog post dated June 18, 2012:
"No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they'll see tomorrow… Advertising isn't just the disruption of aesthetics, the insults (sic) to your intelligence and the interruption of your train of thought… When advertising is involved, you, the user, are the product."
Yet that kind of talk wasn't enough to scare off Zuckerberg, whose company's profitability depends precisely on selling ads based on its users' personal data and interests.
The wily CEO did it to boost Facebook's growth and expand its reach.
Facebook reported last month that its number of worldwide daily users rose to 757 million in December, a year-over-year rise of 22 percent.
Yet an outside report from market researcher iStrategyLabs found that use of the social media site by U.S. teens aged 13 to 17 fell by 25 percent since 2011, and Facebook executives have since acknowledged the company's struggle to hold onto younger users in its mature markets.
WhatsApp, meanwhile, saw its number of users jump by 50 million in just the last two months, according to its corporate blog, while the number of messages it processed last year tripled.
What's more, the application works with all of the world's leading smartphone operating systems, including Google's Android, Apple's iOS and those made by Microsoft, BlackBerry and Nokia.
Last August, WhatsApp also rolled out a voice messaging service for its users.
Close watchers of Facebook will remember that less than a year ago, Zuckerberg unveiled a new platform, called Home, that debuted on a handset made by HTC, a hardware maker with a niche share of the smartphone market.
The software, which worked only on Android phones when it was released, was designed to act like a home page for mobile Facebook users.
It came after several years of speculation that the company would build its own smartphone.
Yet Zuckerberg was savvy enough to realize that there's little profit in making hardware, while much can be gained from owning a fast-growing mobile service that works on virtually any handheld device.
That's why a CEO admired from Silicon Valley venture capital circles to business school faculty lounges for his ability to retain so much equity control of Facebook just gave away a huge chunk of its cash and stock to WhatsApp.
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