FACEBOOK’s $19bn acquisition of the WhatsApp instant messaging (IM) service on Thursday rocked the world of information technology, leading to a near-instant reassessment of the value of hardware and software services.
The purchase price puts a $43 value on each of WhatsApp’s 450-million users, which is substantially lower than that of users on rival networks LinkedIn and Twitter, as suggested by their market capitalisation -respectively $84 and $83.
Facebook’s market capitalisation of $177 puts an even higher value — $141 — on each user.
The difference, of course, is that Facebook is generating substantial and rising revenue. For the fourth quarter of last year, it generated $2.59bn, up from $1.59bn for the previous corresponding period.
WhatsApp’s revenue is negligible, but its potential is huge. Its subscriber base more than doubled from 200-million in just nine months, and it is expected to pass the billion mark next year. While most users can download the app at no cost, WhatsApp does indicate a 99c cost payable after the first year. For now, reinstalling the app restarts the free year, but that is a loophole Facebook is likely to close.
The social networking giant has promised it will not tamper with WhatsApp, including its no-advertising policy, but this does not preclude the parent company from providing a version of Facebook that incorporates WhatsApp, enabling it to push ads at those WhatsApp users who go into the combined service. It may also create a free version supported by ads.
More significantly, however, the acquisition ends the threat of a Facebook rival gaining control of what may soon be the largest subscriber base in the world. It also provides a bulwark against emerging threats from other social networks. WhatsApp was said to have turned down a $1bn offer from Google in April last year — a claim it has denied -but reportedly received a $10bn offer from Google shortly before the Facebook deal.
However, the biggest threat is not from the Western world, but from China. Tencent, 34% owned by Naspers, has 300-million users of its WeChat instant messaging service, which is also growing rapidly. It is already highly profitable, generating an average of $7 a user a year, largely through games and online purchases.
Tencent also has several other weapons in its arsenal, including social network QZone, with more than 600million users. Another IM service linked to QZone, QQ, has more than 800-million users. Subscriber growth has flattened for these two properties and, while WeChat has restored the growth trajectory, there was every possibility that Tencent could make a play for WhatsApp to gain a foothold in Western markets. WeChat has about 100-million users outside China.
WeChat’s launch in South Africa in mid-2013 had the unintended consequence of giving WhatsApp a major boost.
Networks reported record downloads of the latter as Naspers launched a major marketing campaign for WeChat locally. According to World Wide Worx research released this week, in its first six months, WeChat achieved 5% penetration of South African adult cellphone users living in cities and towns.
The South African Social Media Landscape 2014 report indicates this will grow to at least 13% in 12 to 18 months.
WhatsApp, by contrast, has 53% penetration, and is expected to grow to 63%, making it the most pervasive internet-based service in South Africa.
Facebook now has 45% penetration of the adult cellphone market -expected to grow to 53% in 12 to 18 months.
These numbers reflect the dominance of Facebook in social networking and WhatsApp in instant messaging not only locally but also globally, and underline the significance of one company owning the world’s twin powers of communication. The jury is out on whether this is good news for the likes of BlackBerry, with about 100-million users of its BlackBerry Messenger (BBM) service.
BlackBerry’s share price improved on news of the WhatsApp deal, with the latter’s per-user valuation suggesting BBM alone could be worth close to BlackBerry’s $4.9bn market cap.
Homegrown network Mxit, with 6.5-million active monthly users in South Africa, is less likely to benefit.
The SA Social Media Landscape 2014 report shows that Mxit’s user base in the adult cellphone market in cities and towns stands at about 25%, holding steady for the past three years, but possibly about to be overtaken by BBM, now at 21% and still growing.
Mxit has not yet found the key to sustained growth, but with substantial investment it may play a more active role across Africa.