Discuss about acquisitions of Facebook and Whatsapp?
Mergers and acquisitions are the best ways by which the management can ensure that they get an opportunity to have their presence in different areas of business. It is merely impossible for any business to develop products or services in all the different areas and this is when merger and acquisition comes into picture. Merger and acquisition allows the business to spread its wings and this is one of the simplest ways by which the business can enter diversified market, diversified technology and also diversified industry. Mergers and acquisitions may seem simple externally but the management of both the organization will have to undertake plenty of activities so that the functioning of business can be smooth. Corporate strategies, corporate finance and management of both the organization would have been completely different than that of each other. They will have to reach mutual terms so that the new organization can operate efficiently (Forbes 2014).
After due consideration, Facebook decided to buy WhatsApp. Most of the industry analysts state that this decision cannot be considered to be appropriate but it is not true. $19 billion is a big amount and if Facebook has decided to make an investment on WhatsApp then they would have considered all the possible factors. Irrespective of the fact that Facebook and WhatsApp are two different things, this merger is considered as one of the major acquisition in the year 2014. Facebook is a very popular social media and hence, people from different corners of the world are addicted to it but there are people who still prefer to stay away from Facebook. This is not the case with WhatsApp. Most of the people today are dependent on Whatsapp so that they can stay in touch their real friend. By way of acquiring Whatsapp, Facebook can ensure that they have their presence in social media as well as messaging service. This will allow them to dominate the complete teen market (MacBride 2014).
In the past, Facebook had clearly stated that they are noticing a drop in the number of teen Facebook users. Facebook tried multiple strategies so that they can attract the young crowd but things didn’t work for Facebook as planned. The ultimate goal of Facebook is to ensure that they should play a keen role in social media. They want to have their presence in places wherein people interact and socialize with each other. Apart from that, Facebook is trying its level best since long to have its presence in messaging and chat service. Facebook twice tried to buy Snapchat. Snapchat is a photo chat application. Snapchat revoked the offer both the times as they were not satisfied with the price that was offer. In the year 2011, Facebook messenger was introduced but that was a failure as most of the people don’t prefer to have it in the mobile (Forbes 2014).
Acquiring Whatsapp, for Facebook, is more than that of having a chat application wherein people can interact with each other. With the help of Whatsapp, Facebook will get access to a wide range of database. Facebook can also understand and use the data to understand the mobile usage pattern of the Whatsapp users. Most of the people were under the assumption that Whatsapp and Facebook messenger is the same but at the time of merger, Zuckerberg made it clear that it is not a fact. Messenger cannot be used by people at all point of time but Whatsapp is used by people to interact with friends, relatives and colleagues at all point of time. Zuckerberg also made it very clear that Facebook will be investing time, resources and money on Facebook messenger as well as Whatsapp (Mail Online 2014).
Looking at the number of users, it can be seen that Facebook has already 1.2 billion active users, every month but the real problem is in reaching another billion. This is one of the areas wherein Whatsapp can add value to Facebook. Whatsapp has its strong presence in different corners of the world and this can add real value to Facebook. Whatsapp has its strong presence in developed markets as well as developing markets. This can be beneficial to Facebook as they can penetrate the market which was impossible in the past. Zuckerberg accepts to the fact that Whatsapp is the clear in countries like Europe, Latin America, Japan, Korea and in a lot of Asian countries. He states that he wants to be a part of social media but he is willing to explore other industries so that the business can explore (Bloomberg Business 2014).
Facebook and Whatsapp are two different things. One may say that they both are same as it is used by people to interact with each other but there is something to both the applications. Facebook allows people to share their things, feelings and activities on social media so that all their friends, colleagues and relatives can get to know. One of the major problems with Facebook is privacy issues. Most of the people opted out of Facebook because of the privacy issues associated with it. On the other end, the data shared on Whatsapp is one-to-one and hence, the users felt more comfortable. This is one of the reasons due to which Whatsapp was considered to be a beneficial deal for Facebook (Pawade 2014).
Facebook initially introduced chatting both the online users use to chat with each other, whenever both of them are online. This was very popular but then messenger was introduced by Facebook. Messaging is more like email wherein one of the users will drop a message to the other one and the other one will reply to the message on the next day when they will be online. Facebook messenger cannot be used for the purpose of real-time messaging but Whatsapp is used for real time messaging wherein one user can drop a message to the other one and then receiver can reply back to the message immediately. This ensures that people spend more time on Whatsapp rather than that of Facebook (The times of India 2014).
Twitter recently introduced messaging service in Twitter. They stated that if two friends are walking on the street and if they see something nice, different or amazing then they will whisper in each other’s years. Private conversation is loved by people and it cannot be avoided by people at any cost. Due to the introduction of the messaging service, the usage of Twitter has increased by 25%. Facebook after acquiring Whatsapp gets a competitive edge.
People today are completely dependent on smartphones and it is seen that the number of people using smartphone has increased drastically. Facebook believes that the features of Whatsapp will be an essential item for the smartphone users in the near future and this is when Facebook will derive the benefits of acquisition. Before the acquisition, the Facebook had its strong presence in the UK and the USA and hence, their revenue source was very much concentrated but that is not the case after the acquisition of Whatsapp. Whatsapp is used in other countries as well and hence, Facebook from have its revenue coming from different areas (CNN Money 2014).
There are various things which can be problematic due to the acquisition of Whatsapp by Facebook. The management of Facebook was sure that the benefits of acquisition will overweigh the disadvantages and hence, they decided to go ahead with the deal rather than that of being skeptical about. Few of the disadvantages that were noticed due to the acquisition are discussed below.
There are very high possibilities that Whatsapp will also require a registration in the near future. If every new user and the existing user will have to give their mobile number for the purpose of using Whatsapp application then Facebook will be able to create a huge database of mobile numbers. There are also very high chances that the users will not be interested to share their mobile number and hence, the number of users will automatically be reduced. Facebook should consider the fact that Whatsapp is a free application, which doesn’t have any advertisements and at the same time, the users aren’t required to register. This is one of the reasons due to which most of the people are using Whatsapp over other chat and SMS services. If registering is required then Facebook will have to look for ways by which they can attract the customers to register themselves (Volz 2014).
Facebook will be getting various advantages of having Whatsapp but this deal was expensive. Facebook had to sheel out $19 billion so that they can acquire one of the most popular chat systems that they have. Facebook has various plans to grow the business and that is one of the reasons due to which they have made this investment but there are high possibilities that some problem may arise when the plan will be implemented. Facebook is considered as one of the richest companies but yes, they will have to justify the investment that they have made. Most of the analyst stated that Facebook would have acquired some other chat system rather than that of Whatsapp. Due to the popularity of Whatsapp, Whatsapp is priced heavily and the room for negotiation for Facebook was very less (Tech Crunch 2014).
This acquisition is not only beneficial or problematic to Facebook and Whatsapp as other there are companies associated with these two companies. Snap Chat was having high hopes from Facebook as Facebook was willing to acquire that company before Whatsapp. Initially, Facebook offered $1 billion for acquiring this company but the offer was revoked by Snap Chat. Later Facebook offered $3 billion and again this offer was revoked by Snap Chat application company. The management of Snap chat might be expecting that Facebook will come back to them for the third time with a better offer but Facebook decided to shell out $19 billion to acquire Whatsapp. Snap Chat will continue to operate independently (Facebook Newsroom 2014).
The management of Facebook thought that the shareholders and the stakeholders will be more than happy about the decision of acquiring Whatsapp but the shareholders didn’t feel so. It was seen that within few hours, the share prices of Facebook fell by 5%. Even months after the acquisition, it was seen that the stock prices was 3% lower than what it was it was in the past. The stakeholders weren’t happy about the management’s decision to pay $19 billion. The shareholders were disappointed and hence, few of the shareholders bought back their Facebook shares. Facebook never thought that the shareholders will be disappointed and during the initial days of acquisition, the management was wondering if there are possibilities for the share prices to fall even more (Strugatz 2014).
Plenty of things were considered by Facebook before they decided to go ahead and buy Whatsapp. The management of Facebook considered various aspects so that they can be rest assured about their decision to go ahead with Whatsapp. Few of the things that were considered before Whatapp was acquired by Facebook are discussed below.
First and foremost, Facebook thought about the legal issues so that both the companies can be clear about the roles and responsibilities that each one will be playing during the acquisition and also after the acquisition. Facebook checked on the strengths and weaknesses of Whatsapp and accordingly, the purchase contract was prepared. Facebook requested Whatsapp to share their financial history. Facebook wanted to be sure that they are making an investment in the right company. Apart from that, Whatsapp also checked on the competitors who were prevalent for Whatsapp. Facebook also kept their options open so that they can acquire some other company, if that seems to be better than that of Whatsapp. The condition of the assets at Whatsapp was considered before commitment to the management of Whatsapp. Lastly, the operations of both the companies after acquisition were discussed. This ensured that the employees of Whatsapp will continue to work as they were doing in the past (BBC News 2014).
Facebook knew that this is going to be an expensive deal but the management of Facebook wanted to be rest assured that the money that they investing is worth. Once it was finalized that Facebook will be acquiring Whatsapp at the cost of $19 billion, Facebook took some time to decide if it is possible for them to make this arrangement. They considered various funding options so that they can be aware of the various sources of finance. Before making arrangements for cash, the management decided to check on the assets that are available, the condition of assets, and the experience of the employees in the organization, the skillsets that the employees possess and also the trainings that they will require in the near future. The physical land and also the equipment will be evaluated. Facebook evaluated the books of account in-depth so that nothing is left out. The accounts payable, accounts receivable and patents will be verified so that last minute confusions can be avoided (Yahoo Finance 2014).
Management of the business was well considered by Facebook so that they can manage both the organizations efficiently. The management of Facebook decided to clear communicate on the roles and responsibilities that will be handled by both the organizations. The management of Facebook wanted some time to learn about the business operations and hence, they decided to allow Whatsapp to continue with the operations as they did in the past. Apart from the regular activities, both the organizations also decided on the final decision making authority that will be held by different management members. There was a non-disclosure agreement between both the companies so that none of the confidential information is shared with the third party.
After all the due consideration, it was decided that this acquisition shouldn’t create any impact on the users. Facebook also wanted things to be as it is because if some changes in the application then there are very high chances that the end-users will not accept it. This will be a loss to Facebook and they were not willing to take this risk (Wood 2014).
This deal is beneficial to both the companies and hence, they decided to go ahead. Whatsapp is already having 450 million users and they are continuously growing. It is seen that there are many people who are using Facebook but they haven’t installed Whatsapp. Such users will install Whatsapp and hence, the user base for Whatsapp will grow. The business model of Whatsapp has the potential to grow further. This application can be installed for free of cost and hence, adds on to the possibility of being used by many. After using the application for one year, the user just needs to 0.99 cents and this is very affordable by everyone. This is one of the reasons due to which Whatsapp will grow without any stoppage.
Irrespective of the fact that Facebook and WhatsApp are two different things, this merger is considered as one of the major acquisition in the year 2014. Facebook is a very popular social media and hence, people from different corners of the world are addicted to it but there are people who still prefer to stay away from Facebook. The ultimate goal of Facebook is to ensure that they should play a keen role in social media. They want to have their presence in places wherein people interact and socialize with each other. Most of the people were under the assumption that Whatsapp and Facebook messenger is the same but at the time of merger, Zuckerberg made it clear that it is not a fact. Messenger cannot be used by people at all point of time but Whatsapp is used by people to interact with friends, relatives and colleagues at all point of time (The guardian 2014).
Messaging is more like email wherein one of the users will drop a message to the other one and the other one will reply to the message on the next day when they will be online. Due to the introduction of the messaging service, the usage of Twitter has increased by 25%. Facebook after acquiring Whatsapp gets a competitive edge. Before the acquisition, the Facebook had its strong presence in the UK and the USA and hence, their revenue source was very much concentrated but that is not the case after the acquisition of Whatsapp. There are also very high chances that the users will not be interested to share their mobile number and hence, the number of users will automatically be reduced. Facebook should consider the fact that Whatsapp is a free application, which doesn’t have any advertisements and at the same time, the users aren’t required to register (Sequoia Capital 2014).
Once it was finalized that Facebook will be acquiring Whatsapp at the cost of $19 billion, Facebook took some time to decide if it is possible for them to make this arrangement. They considered various funding options so that they can be aware of the various sources of finance. The management of Facebook wanted some time to learn about the business operations and hence, they decided to allow Whatsapp to continue with the operations as they did in the past. Apart from the regular activities, both the organizations also decided on the final decision making authority that will be held by different management members. It is seen that there are many people who are using Facebook but they haven’t installed Whatsapp. Such users will install Whatsapp and hence, the user base for Whatsapp will grow. The business model of Whatsapp has the potential to grow further (Time 2014).
Facebook and Whatsapp is one of the biggest acquisitions that have taken place in the year 2014. Stakeholders are still confused regarding the future if the deal. Facebook and Whatsapp have promised the end user that no change will be seen in the application. Apart from that, the management of Facebook has stated that Whatsapp will continue to operate separately as they were doing in the past. Both Facebook and Whatsapp are going to benefit from the acquisition. Whatsapp has got $19 million and this is a chance for Facebook to reach the customer base which wouldn’t have been possible otherwise. Facebook strongly believes that this deal is not expensive because they can reach the customers who wouldn’t have been possible otherwise (Reuters 2014).
References
Volz, D, 2014, Feds Approve Facebook Acquisition of WhatsApp, National Journal Daily, ISSN 2158-3862
Pawade, A, 2014, Impact of Whatsapp on Facebook, International Journal of Engineering sciences and research technology, Vol. 3, no. 7, pp. 147-150
Strugatz, R, 2014, Decoding Facebook and Whatsapp, WWD, Vol. 207, no. 45, pp. 1
Wood, N, 2014, EC approves Facebook’s Whatsapp Buy, Total Telecom Online, ISSN 1740-1267
MacBride, E, 2014, Insights on staffing, growing fast and finance, understand what attracts a Whatsapp type team, Crain’s New York Business, Vol. 30, no. 10, pp. 12-16
Forbes, 2014, Facebook Closes $19 Billion WhatsApp Deal, Viewed on April 08, 2015, https://www.forbes.com/sites/parmyolson/2014/10/06/facebook-closes-19-billion-whatsapp-deal/
Forbes, 2014, Three Smart Lessons From Facebook’s Purchase Of WhatsApp, Viewed on April 08, 2015, https://www.forbes.com/sites/adamhartung/2014/02/24/zuckerbergs-3-smart-leadership-lessons-from-facebook-buying-whatsapp/
Mail Online, 2014, Facebook completes its $22 billion acquisition of WhatsApp after European regulators give the green light, Viewed on April 08, 2015, https://www.dailymail.co.uk/sciencetech/article-2782370/Facebook-completes-19-billion-acquisition-WhatsApp-European-regulators-green-light.html
Bloomberg Business, 2014, Facebook $22 Billion WhatsApp Deal Buys $10 Million in Sales, Viewed on April 08, 2015, https://www.bloomberg.com/news/articles/2014-10-28/facebook-s-22-billion-whatsapp-deal-buys-10-million-in-sales
The times of India, 2014, Facebook buys WhatsApp: CEO Mark Zuckerberg explains why, Viewed on April 08, 2015, https://timesofindia.indiatimes.com/tech/tech-news/Facebook-buys-WhatsApp-CEO-Mark-Zuckerberg-explains-why/articleshow/30714548.cms
CNN Money. 2014, Facebook buys WhatsApp for $19 billion, Viewed on April 08, 2015, https://money.cnn.com/2014/02/19/technology/social/facebook-whatsapp/
Tech Crunch, 2014, Facebook Buying WhatsApp For $19B, Will Keep The Messaging Service Independent, Viewed on April 08, 2015, https://techcrunch.com/2014/02/19/facebook-buying-whatsapp-for-16b-in-cash-and-stock-plus-3b-in-rsus/
BBC News, 2014, Facebook to buy messaging app WhatsApp for $19bn, Viewed on April 08, 2015, https://www.bbc.com/news/business-26266689
Facebook Newsroom, 2014, Facebook to Acquire WhatsApp, Viewed on April 08, 2015, https://newsroom.fb.com/news/2014/02/facebook-to-acquire-whatsapp/
Yahoo Finance, 2014, Must-know: Facebook acquires WhatsApp for $19 billion, Viewed on April 08, 2015, https://finance.yahoo.com/news/must-know-facebook-acquires-whatsapp-162740629.html
The guardian, 2014, WhatsApp: Facebook acquires messaging service in $19bn deal, Viewed on April 08, 2015, https://www.theguardian.com/technology/2014/feb/19/facebook-buys-whatsapp-16bn-deal
Sequoia Capital, 2014, Four numbers that explain why Facebook required Whatsapp, Viewed on April 08, 2015, https://sequoiacapital.tumblr.com/post/77211282835/four-numbers-that-explain-why-facebook-acquired
Time, 2014, Facebook’s WhatsApp Acquisition Explained, Viewed on April 08, 2015, https://time.com/8806/facebooks-whatsapp-acquisition-explained/
Reuters, 2014, Facebook to buy WhatsApp for $19 billion, Viewed on April 08, 2015, https://www.reuters.com/article/2014/02/19/us-whatsapp-facebook-idUSBREA1I26B20140219
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