Facebook announced on Wednesday afternoon that it reached an agreement to buy popular mobile messaging startup WhatsApp for an upfront total of $16 billion, including $4 billion in cash and about $12 billion in Facebook shares.
Cofounder and CEO Jan Koum will join Facebook’s Board of Directors, but WhatsApp will continue to operate independently within Facebook, much like Instagram. The purchase price rises to as much as $19 billion once you factor in an additional $3 billion in restricted stock units that will be granted to WhatsApp’s founders and employees vesting over the next four years.
The purchase price is insanely high for a startup with only 55 employees, and many multiples of Facebook’s reported $3 billion bid for Snapchat last year. The $19 billion valuation means Facebook believes WhatsApp is worth over $42 per user.
What the heck is WhatsApp?
WhatsApp is a cross-platform messaging service that works on iOS, Android, Blackberry, Windows Phone, and yes, even Nokia's dying Symbian OS. It's basically messaging that works over your data connection or Wi-Fi instead of SMS—much like iMessage, except it works for everything. WhatsApp does multimedia, it does group chat, and it's widely used internationally. It's free for the first year, and then just $1 per year after that. According to the Facebook release, WhatsApp has 450 million active monthly users and is adding one million users per day. That's an impressive clip.
Why Does Facebook Want WhatsApp?
Facebook has been trying to nail down messaging for some time now. There were rumors that Facebook offered Snapchat $3 billion in cash, which only happened after Facebook tried to build its own version of Snapchat. Facebook Messenger is actually a nice product that works over data internationally, much like WhatsApp. Unfortunately, people don't use it, or rather, it's not incorporated into people's lives in the way text messaging is—and that's what Facebook needs. What's more, given Facebook's huge international reach, trying to edge out competitors on that front is a really smart move.
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