Facebook to acquire Whatsapp for USD 19 billion, its sole investor Sequoia explains why

In an announcement earlier this morning, Facebook revealed that it has shaken hands with Whatsapp to acquire the latter for USD 16 billion, including USD 4 billion in cash and approximately USD 12 billion worth of Facebook shares. Whatsapp’s entire team of 50 members will be joining Facebook and an additional USD 3 billion in restricted stock units to be granted to them.

Following this acquisition, Whatsapp will continue to work independently, and its CEO Jan Koum will join Facebook Board of Directors.

Last year Facebook was eyeing another popular messaging app Snapchat but failed to acquired that. However in this whopping USD 16 billion deal, both the companies are happy as the announcement says ‘This acquisition supports the shared mission to bring more connectivity and utility to the world by delivering core internet services efficiently and affordably. The combination will help accelerate growth and user engagement across both companies.’

Shown in the picture above are WhatsApp co-founders Jan Koum (L) and Brian Acton(R), the duo behind the app that is used by over 450 million people each month. Speaking on the occasion of this acquistion Jan said, “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide. We’re excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.

Why did the social giant acquire the mobile messaging giant?

Sequoia Capital invested USD 8 million in the smartphone-messaging app in 2011, and has been the sole investor in the company. This clearly is a giant leap for the VC investor, and in a blogpost it has shared 4 numbers to explain what drove Facebook to acquire the company. It says that the story of Whatsapp can be told in just 4 numbers 450, 32, 1 and 0.

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450 million users worldwide

The company has over 450 million active users of its service, across almost all mobile platforms, namely Android, iOS, Windows phone, Symbian and so on. India alone makes up 10% of Whatsapp user base. According to the lone investor, the company has 1 million app installs everyday. On the other hand Facebook claims to have over 1.23 billion monthly active users. Although Facebook’s numbers are much more than Whatsapp’s, the latter is the leader in mobile messaging apps and is actively growing its base.

32 is the number of engineers Whatsapp has

Whatsapp’s team size is 50, out of which it has 32 engineers. And that is a big deal considering each engineer is there to support 14 million active users, a ratio of 1:1,400,000 is mind boggling. Almost 50 billion messages are processed every day across seven platforms using programming language Erlang.

1 USD per year only

Whatsapp founders have kept the service free of cost for one year, and after that its USD 1 per year. Besides attracting customers, according to them this model will help the users save truckloads of money spent on data plans. Shown in the picture above is a note that Jan got from Brian taped to his desk that reads “No Ads! No Games! No Gimmicks!”

Sequoia shares ‘Rather than target users with ads — an approach they had grown to dislike during their time at Yahoo — they chose the opposite tack and charged a dollar for a product that is based on knowing as little about you as possible.’ And as it is evident now, the tactic has turned out to work very well for Whatsapp.

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However at the same time, although Facebook has assured that it will keep the service ad free, it can’t be said how it plans to monetize from the same.

0 USD spent on marketing

One of the things that Whatsapp boasts about is how it has been able to build a brand without spending any money on marketing. It claims that the popularity of the company has been via word-of-mouth of its happy customers.

While Sequoia bids adieu to Whatsapp with its history with the company, Mark Zuckerberg is excited to include it with its other successful acquisitions such as Instagram. It will be interesting to see how will the two now expand their user base across the globe.

 To contact the author, write to sugandh@iamwire.com

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