Facebook Whatsapp acquisition for $19 billion in a combination of cash, stock and restricted stock – and there’s a lot of curiosity surrounding the buy. Why did Facebook spend so much money? How the heck is it ever going to make back that $19 billion?
They are fair questions, too, because Facebook is only now starting to generate revenue from its $1 billion Instagram purchase – and it’s doing so through ads. We learned on a conference call last night that Facebook has no plans to add advertisements to WhatsApp. So how the heck is it going to make any money? It’s a question Facebook investors no doubt want answered, and probably sooner rather than later.
The first question is: why did Facebook buy WhatsApp? I think there’s been a lot of great analysis out there. My favorite so far is from GigaOm which suggests that Zuckerberg made the bid for one major reason: to keep the focus on Facebook, and away from any competitor. The social network has seen a decline in younger users – the same audience WhatsApp is chock full of – and there’s been speculation that the company is losing its mojo and the appeal of Facebook is dying off. More importantly, Facebook stopped Google from buying WhatsApp – for a rumored $10 billion – again, keeping itself in the headlines instead of Google. It’s a good strategy. Now back to how Facebook can make money.
Whatsapp generates its revenue from a small $1 asking fee following a year of use. A fee most of us shrug off. That $1 fee is also the key to WhatsApp’s revenue generation for Facebook.
These microtransactions, essentially what makes Apple’s iTunes App Store so successful, can be purchased on a whim for 99 cents and can be huge revenue generators. According to a recent report from Think Gaming, cited by Pacific Standard, the two most popular applications in the iTunes App Store, Candy Crush Saga and Clash of Clans generate $994,344 and $786,506 every day. Even more stunning, those apps add 33,714 and 37,083 users each day. WhatsApp adds 1 million new users per day. The secret to that revenue generation? Microtransactions – the sort that cost 99 cents for another life, or $4.99 for a few pieces of candy that make beating a level that much easier
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