Closed As it happened: Facebook’s $19bn WhatsApp deal

Facebook is paying up to $19bn in cash, stock and earnouts to acquire WhatsApp Messenger, the world’s most popular mobile chat app with more than 450m regular users. Here Tim Bradshaw and Hannah Kuchler bring live reaction and comment from Facebook’s conference call.

WhatsApp’s blogpost on the deal makes lots of promises that its simple, ad-free app will remain unchanged by the Facebook takeover:

Here’s what will change for you, our users: nothing.

WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you’re using. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product.

WhatsApp’s two founders Jan Koum, a Ukrainian, and American Brian Acton, are not your typical Silicon Valley attention-seekers. Rarely in the press, they gave their first newspaper interview to the FT back in 2011:

“The product is probably bigger than we are as a company,” co-founder Jan Koum told the FT in his first newspaper interview. “But our personalities are such that we don’t seek a lot of press and attention. We didn’t reply to press enquiries until two months ago.”

Me and Brian, having worked at Yahoo, have extremely good knowledge of building for millions of users,” Mr Koum said. “We want to build something that is awesome for users and great for them but also something we are proud about on the tech side – rather than just going out and spending lots of money on servers. Anyone can do that, it doesn’t take a lot of brain.”

The conference call is just getting started. Mark Zuckerberg opens it.

Facebook has been on a journey to become a mobile company and invested in mobile experiences. 945m people now use its mobile products every month, he says.

“Our goal for Facebook over the next few years is to deliver a selection of mobile products”, for different sized groups and different experiences, like Instagram and its own Facebook Messenger .”WhatsApp fits this vision perfectly.”

WhatsApp doesn’t get as much attention in the US as it deserves because it started to become popular in Europe and Asia, Zuck says.

“It’s the only widely used app we’ve ever seen that has more engagement and a higher percentage of people using it daily than Facebook itself.” More than 1m new people sign up everyday, and it’s on a path to reach 1bn people in the “next few years”.

He says the priority is “connecting more people and increasing engagement” and “over the long term” becoming a good business. Its subscription service is “a good start”, Zuck says.

WhatsApp’s product road map won’t change, says Zuck – that probably means no Line or WeChat style stickers.

Mark stresses that WhatsApp and Facebook Messenger can co-exist happily – and Facebook will be investing in both. He said WhatsApp is a replacement for sms used for snappy communication with people in your phone’s address book while Facebook Messenger is for slower communication with your Facebook friends.

Now over to Jan Koum, WhatsApp CEO. He starts by thanking his team.
When he and cofounder Brian Acton started WhatsApp, they wanted to create a “real-time mobile communication that was powerful, instantaneous and commonplace . . . that could be used by everyone across every platform and every phone,” Mr Koum says.

(He didn’t use the word snappy, that would be a bit awkward given their failed bid for Snapchat)

Facebook is a social network and offers many different important functionalities than WhatsApp and WhatsApp can learn from it. WhatsApp will continue to operate independently.

“It’s important that the team continues to work at the pace of a start-up,” Koum says. A $3bn earnout will help with that but $16bn between little more than 30 employees is going to prove somewhat distracting . . .

Now Facebook’s CFO is going over the financial details. The deal is subject to regulatory approval and is expected to close “later in 2014″.


Q: How long has the deal been in motion?
A: not long!

Zuck: “Jan and I have known each other for a couple of years . . . He’s been a valuable thought partner.” Last Sunday, Zuck suggested a takeover. “Then we discussed the price later in the week.”

WhatsApp took very little VC funding, only taking one round from Sequoia Capital . Here is Sequoia’s blog on the deal:

WhatsApp has tapped into our insatiable appetite for personal communication. It is part of a chain that over the past 150 years reaches from the Pony Express, Telegraph and airmail letter to the telephone and email. WhatsApp has become today’s flag-bearer for personal communications.

Jan and Brian’s product caters to those you care about most: the people in the address book on your phone. WhatsApp is simple, secure, and fast. It does not ask you to spend time building up a new graph of your relationships; instead, it taps the one that’s already there. Jan and Brian’s decisions are fueled by a desire to let people communicate with no interference.

Most of the analysts’ questions are about how this makes money – fair enough, given the $19bn price tag.

“I don’t personally think ads are the perfect way to monetise messaging services,” says Zuck.

“Monetisation is not going to be a prioritisation for us” says Koum. He likes Zuck’s long-term vision. “We are excited by where we are going to be 5-10 years from now. We are focused on growth . . . We have the potential to have 5bn users potentially giving us money through this subscription model.”

Zuck said he wants 2-3bn users. Koum says he wants 5bn. There might be a little healthy competition between these two . . .

Somewhere, Instagram CEO Kevin Systrom is feeling like last year’s favourite teddy bear on Christmas Day.

Zuck says he plans to leave WhatsApp to operate independently, just like he did with Instagram: “Jan and Brian are clearly amazingly talented. With 50 people at their company their product and network has almost half a billion people using it . . . No one in the history of the world has done anything like that before. It would be pretty stupid for us to interfere in a big way.”

Jan Koum doesn’t want to talk about the product road map. WhatsApp will continue to operate autonomously. Its goals include “making the product better, faster and more efficient. We care about details … It’s not very sexy – message speed delivery, battery life, bandwidth usage.. You will see the product evolve in the next 12 months with new features.”

Faced by somewhat sceptical analyst questioning, Zuck is again having to go over the the differences between Facebook Messenger and Whatsapp. Facebook is more like instant messaging, while WhatsApp is more like SMS or traditional text messaging.

Question about the TEENS. (kinda). Do WhatsApp users skew younger than Facebook? WhatsApp doesn’t ask for any demographic detail, Facebook says, so they don’t really know.

Also no detail on how many paying subscribers WhatsApp has right now. Last year, it moved from paying upfront on iOS to a free download with a 99-cent annual subscription after the first year.

So Mr Ebersmann, how exactly did you get to that $19bn valuation?

Facebook’s CFO replies: “The primary thing we focused on is how healthy the network is and how fast it’s growing. They are on a path to get to a network of 1bn or more in a relatively short period of time. We looked at other networks of that size and scale and what they are worth, and that gave us a framework for what might make sense here.”

Also: “The service is tremendously useful. Messaging is the number one activity on smartphones.” There are 1.5-2bn smartphones out there now. SMS messaging is a $100bn. “This is a valuable service people are prepared to pay for.”

Zuck talks up WhatsApp’s engineering expertise: “These guys obsessively focus on simplicity, speed and reliability. When they go into a country they don’t rest until their service is faster than SMS with the same reliability… It’s a company of really hardcore engineers… not adding a load of bloated features into a messaging app. People will be happy to pay for the best one.”

So I guess Facebook isn’t a messaging system then?

Seems funny now that only last week, Rakuten was making eyes pop by paying $900m for Viber and its 100m active users. The two deals seem to have very different motivations:

Hiroshi Mikitani, chief executive and chairman of Rakuten, said that Viber also “has tremendous potential as a gaming platform”.

Our story is here.

Not talking themselves up to the press? Unheard of for a Silicon Valley start-up!

So both Facebook and Twitter turned down this future multi-billionaire