One of the founders of WhatsApp, the messaging app just purchased by Facebook for $19 billion, is a Ukranian immigrant who grew up in a family that needed food stamps after they first arrived in the US. Because of that history, the founders signed the deal with Facebook at the Mountain View Social Services office, where his family would go for assistance.
I just wanted to mention that to remind the McArdles of the world that not all American success stories involve feats of Galtian superheroics–some of the Howard Roarks of the world must eat actual food in order to survive.
As far as WhatsApp goes, it has 190 million active users who (at best) pay $1/year for the service, which is the sole source of revenue for WhatsApp. The lack of advertising or other annoying revenue-generating bullshit is probably a big part of WhatsApp’s success. So tell me how Facebook will monetize, as the kids say, their investment in WhatsApp without ruining it? I don’t see it. And, since WhatsApp had a whopping 55 employees when they were acquired, and since they grew from nothing to their current size in less than 5 years, it won’t take a huge investment by the next WhatsApp to get people to switch from the current one after Facebook turds it up. That said, Facebook hasn’t ruined Instagram yet, so who knows what the future holds for WhatsApp.
Jerzy Russian
I don’t really use Facebook, and I don’t have a smartphone, so I am uninformed. That said, how can anything like this be worth $19 billion?
slippytoad
I actually think very few or no American success stories involve Galtian anything. The kind of people who think they’re John Galt — are eminently and easily replaceable. Most success involves hard work (not a thing I think Randites are familiar with from my encounters with them) and a tremendous deal of good luck (a factor Randites wouldn’t acknowledge if it bit them on the ass).
NonyNony
@Jerzy Russian:
Hey 190 million users at $1/year – it pays for itself after only 100 years!
some guy
one of the co-founders applied for a job with Facebook in 2009 and was turned down.
sweet.
elm
Facebook doesn’t care if they ruin it. They didn’t pay $19b for the company or for the technology.
They paid that sum to eliminate a threat to Facebook and exert control over WhatsApp users.
Anon
@Jerzy Russian: WhatsApp isn’t worth $19b. Facebook not having it would have eventually cost Facebook more than $19b.
evolved beyond the fist mistermix
@Jerzy Russian: Dunno. BTW, $190 million annual revenue is a high point since the current WhatsApp deal is free for a year then $1/year thereafter.
@elm: But what control do they have if all the WhatsApp users need to do is to install WhatsApp2, a competitor’s product?
Lurking Canadian
Facebook are fools if they didn’t structure this deal such that the sellers can’t start up so muh as a roadside lemonade stand for the next ten years.
different-church-lady
Idiot — the whole point in being a megalith company is to pay astronomical sums for little companies specifically so you can ruin them.
WereBear
There’s another truth they are loathe to admit, because we are all sold the success stories on the basis of “and so they saved their pennies and started a hedge fund.” But let’s face it, you can’t save your way out of poverty so if you need money to start that business it can be hard to come by.
Then you dig down into most entrepreneurs and you find out they had a rich husband (Croc charms, Mrs. Fields cookies) or got an inheritance, or relatives with investment contacts. Not all of them, by any means… but most of them.
Yet that is NEVER part of their “success story.”
catclub
Also, the reason for the existence of WhatApp was those telecoms which charge separately for instant messaging. Roll that into all in one billing and the entire type goes away. The users were already the price conscious, they will switch to whatever is cheapest.
eldorado
i’m not going to use products in the facebook ecosphere, so they already ruined instagram for me, and now whatsapp.
Nylund
My guess is that the value is not in the subscription money they gain, but in the information. Maybe that’s a better understanding of networks, who knows who, or maybe it’s the information in the texts themselves. Facebook is basically trying to do the same thing as the NSA, only instead of doing it to prevent terrorism, it’s to gain insight into consumer behavior (which is a prized commodity among marketers who will gladly pony up cash for that info).
elm
@evolved beyond the fist mistermix:
1. WhatsApp’s advantage is the network effect of being the biggest operator in that space (this is also Facebook’s strength). *If* one existing competitor could convince lots of people (entire social groups at once) to switch, then that would be a threat. If three of their competitors try at once, then WhatsApp will remain the big dog.
If Facebook thought it was reasonable to get people to switch, they would have bought a smaller/cheaper competitor and tried it themselves.
2. Most of WhatsApp’s users probably aren’t very sensitive to advertising and privacy invasion. Facebook is terrible on both fronts, but is still popular in the U.S. Your (and my) idea of what would ruin WhatsApp probably isn’t the same as that of its users.
AJS
Whattsapp has the network effect in its favor.
For example where I am in Spain it has replaced Instant messaging . Everyone uses it so everyone will use it.
Facebook can mess that up if they put ads or do anything to clutter it. It is very clean and simple now.
Jerzy Russian
@Anon: [taking a break from yelling at those damn kids on my lawn] And while I am at it, how is Facebook worth anything? I think we as a society should be embarrassed that Facebook is worth billions of dollars.
Botsplainer
I’ve been trying to figure out how Viber is monetized. Basically, it is messaging and calls being phone number based, operable over any connection, whether data or wifi, wherever you are in the world. Works like a charm, and it is a free service. The advantage is that you can do it internationally without paying jacked up international text and call rates, and any smartphone will do.
Aimai
@Lurking Canadian: with 19 billion are they planning to start up a new company?
Certified Mutant Enemy
@WereBear:
Then you dig down into most entrepreneurs and you find out they had a rich husband (Croc charms, Mrs. Fields cookies) or got an inheritance, or relatives with investment contacts. Not all of them, by any means… but most of them.
Yet that is NEVER part of their “success story.”
People seem to conveniently forget to mention Bill Gates came from a wealthy family (to be fair, Bill Gates readily admits to his background).
Lurking Canadian
@Aimai: I wouldn’t. But there seemed to be a suggestion forming that the same people could start offering the same service tomorrow under a different name, thus rendering the purchase completely valueless. I think that is unlikely.
Barry
“I just wanted to mention that to remind the McArdles of the world that not all American success stories involve feats of Galtian superheroics–some of the Howard Roarks of the world must eat actual food in order to survive.”
This would be Megan ‘grew up on government pork and was rescued from failure by family connections’ McArdle?
gene108
@elm:
Facebook remembers MySpace…
Belafon
@Jerzy Russian:
Why? So someone found a way to make money off of people wanting to stay in touch with each other. We used to call that the telephone. I think we’ve got far more important things to be embarrassed about: So many people underfed and lacking health care, Exxon being worth billions, our scientific ignorance as a country.
Tommy
Messaging is where it is at IMHO. My parents are nothing close to the tech nerd I am. I got them a smart phone a few years ago for Christmas. My brother (a Cisco networking guy and fellow nerd) says it was the worse thing I ever did. My dad texts us like 24×7. I want to text him back, stop, stop, stop sending me messages. I don’t need to know it is cold where you are. I am only like 100 miles away, it is cold here. It is not like I am in another country, heck state :).
$19 billion seems like a lot of money for an app I’ve never heard of. I use Go SMS Pro. Will have to check it out. But as others have said Facebook wasn’t so much as buying their technology, they were buying their users. That is how these things work.
Amir Khalid
@Aimai:
Maybe they could do like Scrooge McDuck: fill swimming pools up with cash and go swimming in it. What else is there to be done with that much money, unless they want to do like Bill Gates and buy their way to Heaven?
danielx
@different-church-lady:
Yup. Can we say Microsoft, or IBM for that matter? It may not necessarily have the objective of ruining the much smaller company, there might just be some technology or other that the acquirer wants – but even if that’s the case they usually fuck up the acquisition one way or another. And hey, at least WhatsApp makes money – Angie’s List, to name one example, went public in 2011 after fifteen years of not having made any operating profits. They still haven’t, yet but people out there still think the company is worth fourteen bucks and some odd cents a share.
I admit to some confusion as to why Facebook would pay nineteen billion, other than because they can.
Before I forget – OT but too good (or bad) to pass up. Under the heading of “Eric Snowden is the devil and Glenn Greenwald is a bad person BUT….”
IU instructor accuses feds of email snooping
Yeah, they’re protecting us. Who protects us from them?
catclub
@Certified Mutant Enemy: “People seem to conveniently forget to mention Bill Gates came from a wealthy family (to be fair, Bill Gates readily admits to his background).”
Not only that, but his father was a corporate lawyer, and many people date the success of Microsoft to the contract with IBM wherein Microsoft maintained the rights to the operating system it was supplying to IBM – because somebody (Bill Gates dad) knew about contracts.
dcdl
You know what’s crazy, I read stories or hear stories from others about someone who knows someone who gets some crazy high amount from food stamps and I just roll my eyes. As someone who just applied for food stamps for a family of six because my husband got laid off after 21 years at the same company we get a whopping $300 a month. Yeah, we are living it up on t-bone steaks. People are so delusional.
When people say why doesn’t your husband go to a temp agency or get a $10 job, BTW, we are just hoping for $15, I just look at them like they are crazy. I normally tell them so you want my family to go on to welfare and have the taxpayers support us instead of Unemployment INSURANCE which is already paid in for by the company and is an INSURANCE.
Tommy
@Lurking Canadian: No way. I’ve worked for some of the largest tech companies in the world. Sure a company like AT&T could throw millions and almost unlimited resources to create a similar app. But alas they never do. You read about a company like this that launches an app after programming non-stop for a week or two.
Working with firms like AOL, AT&T, HP, EDS, and Oracle (just to name a few) it takes them a few months to ponder having a meeting to have a meeting to talk about a new product. That isn’t how technology works these days.
catclub
$15B of that $19B cost was in Facebook stock, which is buoyed by the present market.
AnotherBruce
Fucking News Max. “California to split six ways? Plan advances.” Dream on goat ropers. It’s never going to happen. Just like it’s never going to happen in Colorado. Nor was King county in Washington going to split in half to create “Freedom County”. If you right wingers are so adamant in splitting off, why not form your own country? Preferably at the north pole or at one of the gas giant planets.
AnotherBruce
Fucking News Max. “California to split six ways? Plan advances.” Dream on goat ropers. It’s never going to happen. Just like it’s never going to happen in Colorado. Nor was King county in Washington going to split in half to create “Freedom County”. If you right wingers are so adamant in splitting off, why not form your own country? Preferably at the north pole or on one of the gas giant planets.
Schlemizel
Not mentioned in the story was that FB set aside a billion dollars to go to the employees of whatsapp. Evenly divided that would be something like $18 million apiece!!! Not sure how much control FB will have over them. If I got even half that I’d be sending them postcards not going in to the office.
Tommy
@dcdl: I am not rich. But I charge $50/hour for what I do. Most of my week I have a lot of billable hours. Here is the thing. I want you to be able to buy food. If I have to pay more in taxes I don’t mind. In this nation folks shouldn’t go hungry. I don’t find it acceptable anybody in this nation should not be able to eat. I’ve never needed aid, but maybe at a time I would. Karma for me. If I need aid I want to know it is there for me so I have to think I will be open to giving it.
Jerzy Russian
@Belafon: I was being a bit snarky, of course. Facebook has its uses, but in my experience the signal was near zero and the noise was near infinity. There is worth there, but $25 billion (or whatever it is now) seems steep to me.
cat
@catclub: Re Microsoft.
Or that his Mother was friends of/board member with the IBM CEO and hooked Bill up. MSDOS was licensed/bought by MS from another company and resold the IBM.
Gates was a great programmer that had great connections but he could have been a mediocre programmer and still been as successful which is fine, just so long as the origin story is told truthfully.
Belafon
I definitely agree that whatever wall street says its worth right now is too high. But it has replaced the phone in more ways than my wife talking to her friends (I barely use it): Our kids’ schools now post information such as closures on their fb pages.
Some people like noise. It makes them feel busy. We on the other hand, use something totally different: Balloon Juice.
XeckyGilchrist
You know who else was a government handout moocher? AYN RAND, that’s who!
Tommy
@Belafon: I did a web site for a school district. I put social media upfront. The teachers I was working with told me they didn’t want this. I sat in on a conference call with the PTA. Figured they’d beat me bloody. They told me/them this was what they wanted. They might not like it, but social media was how they talked with their kids. If there was a snow day. Parent/teacher conference. Give them that with social media.
dcdl
@Tommy: You know what gets me is that my husband’s company got a new President and he brought in his people and they decided they wanted to do things their way. Fine whatever, but they got rid of a lot of the people who’d been there a long time, because they didn’t want any dissent on how they wanted to do things. You never know what can happen to your employment. No matter how good a worker, loyal, etc. You never know when you can lose your job. No one is safe. Logically, I always knew companies have no loyalty and only care about their stock options, bonuses, and such. You always feel sorry for the guy next to you who got laid off and then before you know it, it is you. Then you literally have to start over. As my husband says over 20 years ago he started at $10. He doesn’t want to do that again. Plus, 20 years ago $10 was worth more.
I feel that if company’s can’t pay a living wage then they need to pay taxes or an insurance like UI for welfare, food stamps, etc instead of taxpayers. If they can’t afford to do that then maybe they shouldn’t be in business. I feel like taxpayer’s are like the parents who have to pay someone to hire their child to work for them.
Mnemosyne
@dcdl:
Good point. People act like unemployment insurance is some kind of gift, but both the employer and the employee pay towards it with every paycheck because, as you say, it’s INSURANCE against job loss.
Also, in case you missed it, Slate had a great article about Reagan’s “welfare queen.” Reagan’s story was missing more than a few details, as you might expect. Highlighting her welfare fraud crimes is like saying Al Capone proved the need for tax reform.
Shakezula
Nice try, but Gibbertarians love rags to riches stories because it allows them to dump on people who are in rags.
The McCurdlian response would be to wonder what’s wrong with all of the food stamp recipients who don’t go on to found million dollar companies.
PreservedKillick
@elm:
WhatsApp runs on mobile devices. It took off, by and large, because telcos insisted on charging exorbitant prices for text messages (this is why it has such heavy penetration in developing markets.) You can be dead nuts sure that each and every one of the those telcos is now laser focused on making WhatsApp die so they can own those users – they won’t know why, but they will want to own them – which they can easily do by making SMS free and then extending MMS.
The competitor exists, and it’s ubiquitous, even more ubiquitous than WhatsApp.
WhatsApp will now go away. Which is exactly what Facebook wanted, so it’s all good.
OzarkHillbilly
@WereBear: “If you want to start a business borrow the money from your parents.”
pseudonymous in nc
I’d feel a little better about it if the photos weren’t taken by Sequoia Capital, whose $8m early investment in WhatsApp now translates into a swimming pool of gold coins for the venture capitalists to bathe in.
Anyway, WhatsApp is massive in the big wide world, and Zuckerberg clearly loses his shit and will pay ALL OF THE MONEYS for anything that he perceives as a challenge, as with Instagram. What makes it vulnerable is pressure from above and below: many countries where WA is huge have governments and/or ISPs that could block it tomorrow if they so chose, and those users will move to a different service once they encounter resistance.
catclub
@pseudonymous in nc: “taken by Sequoia Capital, whose $8m early investment”
Of course, when some of the investors in Sequoia are the Widows, Orphans and Teachers Pension fund, it gets complicated.
elm
@PreservedKillick:
Any scenario that starts with “First, the telcos pull their heads out of their asses” is dead on arrival.
ericblair
@elm:
I had a management consulting buddy that would bang his head against the wall about things like this. It’s basically the monkey trap problem: you’ve got a lot of companies (especially in the travel industry) that won’t let go of some ridiculously overpriced service they have that people try to avoid, to make more money via a cheaper-priced equivalent that people actually use. Hotel phone service and Internet comes to mind.
Then there’s the finance industry mindset that anything that’s useful and important must make buckets of money, and consequently anything that makes buckets of money must be useful and important.
? Martin
Ads are a diminishing source of revenue, but there’s a lot of room for mobile acquisition to generate revenue. For example, if you want to buy movie tickets online and distribute them to your friends, or send money. Buying them online isn’t hard, but there’s no clear mechanism for the distribution piece. Everything hangs off of some perverted amalgam of email, Facebook ID, Google ID, etc. Whatsapp has large enough marketshare in many places to do that – it has critical mass. Notably, it has critical mass precisely where Facebook doesn’t. There’s relatively little overlap between the two, which means that Facebook is now probably sitting on 1.5B user credentials.
The mobile acquisition piece is probably worth more per user if you can get critical mass than advertising is worth. If you can get transaction fees for moving money, referrals, distribution of content, etc. then that’s worth quite a lot. That’s really where Twitter is moving (see their Cards feature), and where Google is trying to move as well.
Facebook is currently valued at about $150 per user. They bought Whatsapp for $30 per user. They need to get about $3 per user per year to justify the purchase. That’s doable if they can build real services onto this. I’m skeptical that Facebook is up to that part of the challenge, but I think they are finally looking at this in the right way.
Mnemosyne
@pseudonymous in nc:
In principle, I don’t have a huge problem with venture capitalists: one person or small group of people has a great idea for a new business, they convince the venture capitalists to give them the money to start it, the business hires employees and creates a return on the investment. Win/win.
The problem, of course, is the ripoff artists who call themselves “venture capitalists” when they buy existing businesses, strip them of their assets, drain them dry, and then dump them. That’s vampirism.
ETA: I’d rather have bajillionaires put their money towards new business creation and actual capital investments (i.e. buildings, factories, etc.) than churning up the stock market and claiming “capital gains” from making numbers move up and down. YMMV.
? Martin
@PreservedKillick:
Telcos know full well that SMS is a fluke. It’s almost pure profit for them because it doesn’t incur any wireless bandwidth. It’s just free money to them, and they know it.
RIM worked out deals with the carriers to have BBM messages not incur metered costs (flat fee). Other services are doing that now, including Whatsapp. The carriers know that everything-over-data is inevitable. VoLTE is coming, SMS is dying off. The carriers aren’t going to limit Whatsapp, they’ll embrace it and wrap a payment model around it that you think is a good deal but really just shovels more money to them.
srv
MM, you just don’t understand, this is a new economy and you have to stop clinging to your traditional views about value.
catclub
@? Martin: Can I ask a possibly stupid question?
If WhatsApp needs a smartphone app connection ==? Internet, isn’t that more expensive, at least in principle, than a text message connection?
Also, is ‘Unlimited text messages’ different from SMS? In the US, I thought that Unlimited text was just about the norm.
? Martin
@catclub:
For users, yes. But keep in mind that quite a lot of the world simply skipped over the whole computer/internet step and went straight to mobile. Their phone IS their internet connection. Look at any place where wired infrastructure is unreliable. Power is unreliable. Wired networking (including the phone) is unreliable. By jumping to battery powered wireless devices, none of that matters. If the power is out 12 hours a day, that’s fine, you just charge when it is on.
So you go someplace like Africa where a new Android phone can be had for $75 (no contract) and a used one for $20, and where carrier rates are ⅓ of the US and so long as you have a moderate income you can participate. When my dad was in Togo last year, he noticed that quite a lot of people are either subsistence or just above subsistence fishermen. They have hand-made nets that in small groups they take out into the ocean to catch fish near the shore. They sell some, and they eat some. They pretty much all had phones and used them to communicate up and down the coast where the fish were, when they’d get a good catch they’d call the market, tell them what they caught, and get them to commit to buying right there on the spot. Services like Whatsapp can be foundations of economies like that. If they can get money transfer through that service, even if Facebook only gets a penny per day per user, they’ve paid for the investment.
The US is an outlier in many ways. Text messages and SMS are the same thing, But unlimited text messaging is the norm outside the US and is much much cheaper than in the US. The 140 character limit on SMS was imposed so they could stuff the messages inside the packets that the phones were constantly sending to the towers so the towers could know where to route an incoming call. There’s no additional wireless communication taking place for SMS. There’s barely any aggregate communication added by it. It incurs very nearly zero cost to the carrier to route SMS, but they charge $20/month here in the US, which is a cost we’ve internalized. Everyone else would be outraged that we pay that. If you send 10 messages a day, that’s 90 kilobytes of data per month. Our data plan is about $20/month and that’s for 5,000 times more bandwidth. I could send 50,000 whatsapp messages daily for the same $20.
Another Holocene Human
@cat: Great programmer, my ass. Steve Wozniak was a great programmer. Read up some time about how Woz programmed the ROM for the Apple computer. Gates’ BASIC SUCKS, always has, and, I guess to preserve backwards compatibility, always WILL.
Another Holocene Human
@dcdl: At that point, just hire direct. Marion County paid an obscene amount in tax forgiveness per job for a shitty minimum wage call center to come in while they were laying off government employees. Does that make any fucking sense?!
Joke’s on them–City of Ocala employee’s just unionized with IBEW.
pseudonymous in nc
@catclub:
It does, but it doesn’t stop the VC model from being fantasy football for rich dudes.
@Mnemosyne:
There was an interview today with the founder of Simple, the “anti-bank” that just got bought out by BBVA, which is a big ol’ Spanish bank. He said that the alternative was VC funding, but the VCs wanted him to move to Silicon Valley and fire most of the customer service staff, replacing them with online chat.
That’s the VC mentality. It’s the same VC mentality that made WhatsApp especially valuable because it’s 55 employees, 30-odd of which are engineers, and no way to report abuse. It’s the same mentality that makes Snapchat worth billions when there’s nobody replying to threats and abuse sent over the service, because it’s engineers all the way down. You can scale a service to millions very fast if you treat them as “monetizable users” and not people.
Mnemosyne
@pseudonymous in nc:
Maybe it’s just me, but I don’t think of “venture capitalism” as buying up existing companies. It’s not much of a “venture” if someone else already took the risks and made it successful and you’re just glomming on.
catclub
@? Martin: “But unlimited text messaging is the norm outside the US”
Now I am even more confused, because they said that WhatApp was far more popular outside the US than in. I thought WhatApp was made to get around text message fees. oh well.
catclub
@Mnemosyne: Mitt Romney tried to blur that distinction also.
Vulture capitalism is more accurate, just not waiting for the companies to die.
dcdl
@Another Holocene Human: Doesn’t make sense to me. I did read an article and at the moment to lazy to link to it, that talked about more and more cities hiring public employees. They are starting to do that, because surprise, surprise it’s cheaper and better quality work. Not only better quality, but in the private sector they build things to be fixed over and over. While public sector build’s things to last.
? Martin
@catclub:
It’s doing a few things. One is getting around SMS fees, more more it’s getting around SMS limitations. SMS is device dependent. A SMS message only shows up on your phone. A Whatsapp message can show up on your phone and your tablet (which doesn’t do SMS at all) and your computer. SMS is also limited in what and how you can send. Whatsapp doesn’t have a character limit, and it can hook directly into other internet services in ways that SMS can’t.
It seems clear now that Facebook is looking to explode what we think of as Facebook into a variety of different services. All of the photo stuff under Instagram, all of the wall stuff under Paper, all of the messaging under Whatsapp, etc. I assume at some point those identity credentials will become indistinguishable and users can pick and choose services in much the same way that Google was set up (but who is now unifying more under G+).
I don’t know if it will work or be better, but I’m somewhat more inclined to back Facebook services than Google ones, if for no other reason than Facebook doesn’t buy up half of my favorite services and then discontinue them a year later out of boredom. Google is shutting yet another service down.
catclub
@? Martin: “One is getting around SMS fees, more more it’s getting around SMS limitations.”
Thanks!
pseudonymous in nc
@? Martin:
That feels like a post hoc rationalisation of what could be attributed to fear-driven reaction. Paper is an interesting proof of concept, but it’s not the foundation of a grand diversification strategy.
The battle over the next few years is for ownership of your phone address book / contacts list, because it autopopulates to fill in and fill out the social graph. I’d agree that Facebook’s grand strategy is to iterate against the feed and the graph, but it’s driven by the ghosts of Friendster and Orkut and MySpace and Bebo.
Also, on the question of commitment to services: remember Facebook Home? It’s apparently still going, but let’s see.
Barry
@Nylund: “My guess is that the value is not in the subscription money they gain, but in the information. Maybe that’s a better understanding of networks, who knows who, or maybe it’s the information in the texts themselves. ”
They would need to get a huge amount of information and understanding to recoup $19 billion.
My guess is that they were squishing a threat, plus Facebook has too much cash on hand.