What Americans need to understand about Facebooks buy of Whatsapp ?

On Thursday morning I woke up to the news that Facebook has brought Whatsapp for $19B. My first reaction was 'Holy Cow'. I was more shocked at the sheer amount, than the fact if 'Whatsapp' is worth the money.

The whole discussion about the purchase has been limited to two topics

1. What else could be bought for $19B ?

2. Is Whatsapp useful at all ? (Especially by Americans who have never heard of this application before)

The first looks at different companies that have less market cap which include iconic companies like Harley Davidson, Airline company etc. All these comparisons are stupid as we are talking about apples and eggs. Facebook is in a business of connecting people online. Whatsapp does precisely that at costs which are very low and is making profits. For example it charges $1 per year after an year. Even if 25% of the 450M users have paid, it would mean more than a $100M of revenue. With a 55 member team and basic servers (remember it does not store data), with no advertisement other than word-of-mouth the company would be hugely profitable. Facebook does not know anything about running manufacturing or people centric companies. They are a technology company

Whatsapp does not any major technology however it has never reported downtime either and yet it works for millions of users. It is good at what it does and does just that.

For Americans who do not understand why Whatsapp is huge, you need to look at how this technology is revolutionizing many countries especially smaller developing countries like India with its cultural differences.. 

I will try explaining this by example in Indian context and unfortunately I do not have data to see if these have any similarities in other areas where Whatsapp is popular.

Let me start by a story. In Bangalore whole-sale market most shopkeeper (80-90% of the 10,000 odd shops) are connected by Whatsapp though very few have email. You can order items on Whatsapp and they will keep the item ready for you to pick up. Why Whatsapp and not email ? 

a) They do not have a desktop or laptop his shop nor do they have the place. He works out of his mobile.

b) Email was a replacement for traditional letter and made sense for a computers with a keyboard to write long responses. With mobiles, it is difficult to write longer text and Whatsapp is a perfect solution for short messages.

d) It has an instantaneous feedback.

e) Cost of sending and receiving a text is very low to being almost free.

f) It is available on almost all mobile platforms

g) Much easier to use as it has no login/userid and other person is just a name on his mobile phone.

Indians and I would say we represent the many other countries as well, we are bypassing desktops totally and moving to mobile directly.

h) In India there is negligible use of Voice message. So if you do not get hold of a person on phone you will want to MSG them and not leave a voice message. Whatsapp is a free solution for this. In India, like other hierarchical cultures, if you do not want to disturb a person, you again MSG them (Whatsapp them). Again I am not sure, if these observations can be seen in other country where Whatsapp and similar service are popular.

i) Facebook and Google+ know how important critical mass it for the app to become viral. Once you join one app, there is little chance to move to another group. Whatsapp with its 450M users was able grab the market place from the user base as Blackberry BBM became too expensive and exclusive. 

j)  My mother's side family has more than 40 members, spread 2 continents and 10 cities. Everyone has a mobile phone and most of us has email and Facebook. We also have in previous past use Yahoo groups and Facebook groups. But both these have become defunct once we have moved to Whatsapp group. Members keep adding as they get new phone numbers and they leave on will. It is a informal chat group... not a mail group. 

h) I know of many people like my mom and her friends who are moving to smart phone primarily because they will gets Whatsapp, where family/friends can send photos directly from phone to another phone. You may not be willing to share personal photos (especially of children) on photo-sharing website or Facebook. But you do not mind sending it to a person’s phone or to a closed user group. 

k) There is significant cultural difference on kind of personal statement one makes in public.  Culturally, Indian is more sensitive to the other people opinion. It is not about self but about the community. In India, for example it is not taken as a good sign if you post opinions in public and the fear is how it may be misconstrued or hurt other people’s sentiments. Twitter is not very popular in India and while Facebook is as it limits the viewers. But even on FB, the number of people who are actually contributors are very few and most actually share jokes rather than write some personal opinion. Whatsapp is again a closed group and hence you share the thoughts with limited people.

I know many people who spend more time on Whatsapp than on Facebook. In terms of usage in India, Facebook is the Indian Twitter while Whatsapp, the Facebook. On Facebook you do 'public' postings and on Whatsapp you do your private messaging.

All in all, I think it is a brilliant buy by Mark and Facebook. Mark has shown vision as well as guts. I admire him that as a CEO is thinking of Facebook in global reach rather than be holed up in the US market. He has not only bought a possible competitor and more importantly have another armament which will keep the company relevant in many markets. Only time can tell if Whatsapp will be Facebook's YouTube. 

Coming back to the valuation topic. Is Facebook worth $100B+ ? If it is and evidently the stock market has put its money behind that valuation, then Whatsapp is worth every penny of the $19B.