
Facebook's big deal shows we're back in the dot-com funny money era  - TheLegace
http://www.latimes.com/business/hiltzik/la-fi-mh-facebook-20140221,0,3459685.story
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nl
I don't know if WhatsApp is a good buy for Facebook or not. But I do remember
when people cried "bubble" at Google for purchasing YouTube (after all: it was
too much, it was only valuable because of illegally copied content, there are
hundreds of video sites, TV companies can do the same thing), and now they
look pretty silly.

$16B ($1B) for a hardly profitable mobile app (video sharing site) seems
stupid. $16B ($1B) for the future of telecoms (TV) world wide seems a bargain.

~~~
batiudrami
Youtube at the time had a massive marketshare in terms of video hosting and
sharing (mostly because it was one of only a few which actually worked
properly). Whatsapp is popular, definitely. But it's one of hundreds of
messaging platforms, and I suspect it doesn't have anything like a majority
share in the worldwide messaging space.

The similarities are of course that they're both defensive aquisitions - the
money is justified not on its earnings potential but that it could be the
start of a new social network that ousts Facebook. If that really is the case,
$16B is well worth it. Facebook's aquisition strategy at the moment appears to
be 'overpay for anything that could be the next Facebook to their MySpace'.
It'll probably work, too - at least for the near future.

But that said Whatsapp is not very popular in Australia so I have a skewed
perspective (current marketshare here seems to be roughly a 50/50 split
between legacy SMS and Facebook mesenger).

~~~
w1ntermute
> I suspect it doesn't have anything like a majority share in the worldwide
> messaging space.

Whatsapp has 450 million users. The issue is that most Americans (and
Australians, in your case) have never heard of it, so they assume that it's
not very popular.

[http://www.wired.com/wiredenterprise/2014/02/whatsapp-
rules-...](http://www.wired.com/wiredenterprise/2014/02/whatsapp-rules-rest-
world/)

~~~
batiudrami
I have heard of it and have used it - I'm not surprised at the 450 million
users figure, but the global messaging market is measured in in billions. Even
people in third world countries use SMS - they do not have the ~90%
marketshare which YouTube had when it was purchased.

In Australia it just, for some reason, never caught on - many people I know
have accounts (as many as say, Instagram, for comparison) - it just seems to
be something people try but don't stick with. Which in a sense, is a pity, as
it's demonstrably better than SMS.

But in Australia Facebook Messenger already has the equivalent marketshare.
Perhaps between Facebook Messenger and WhatsApp, Facebook would end with a
majority marketshare [of IP-based messaging] as one app is popular where the
other isn't. I honestly wouldn't know.

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audioglass
Long time lurker, first time poster here. There are tons of factors to this
deal, but here's a simplistic take.

If:

(Google acquires WhatsApp and builds from its existing social network of 450m
active users to form a mobile version of Google+ on steroids)

And:

($19Bn FB investment) minus (Actualized FB profit from WhatsApp over 10 years)
is greater than (Potential lost profit to Google+WhatsApp in the social
networking space)

Then: Buy WhatsApp

I also think its been largely undiscussed that WhatsApp was a company
desperately wanted by both Google (for a, finally, serious attempt at
competing in social networking) and FB (for a bunch of reasons, as well as
defending against a potential Google acquisition) really helped to
significantly propel this deal valuation.

~~~
bradleyjg
Maybe I'm missing something, I've never used WhatsApp, but how do you get from
it to mobile Google+ on steroids?

It's text messaging (including group text messaging) over the internet. In
other words a very stripped down walled garden email system -- like we had on
Prodigy in the mid 80s.

Once it got off college campuses, Facebook's killer app was discoverability.
That guy you went to high school with? The girl you met at the party last
weekend, and you only know her first name and who she came with? Your brother-
in-law's brother who offhandedly mentioned that he had season tickets he
wanted to split? All of them could be discovered on Facebook without having to
tediously trace the chain.

I'm hard pressed to see how you can have a social network without
discoverability, even leaving aside the text only nature of the thing.
Pictures were were Facebook's zeroth killer app, without those it never would
have taken off even at Harvard.

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m_ke
Facebook is doing the right thing by diversifying their portfolio. They've
seen how quickly a social network can dry up and are wisely using their
capital to avoid ending up like myspace.

If you really think about it there's not much more they can do with their
original platform without upsetting some of their users. It makes much more
sense for them to overpay for a product with traction than to try and spin
something off of their original brand (last time they tried it with the
Facebook phone it was a total flop).

~~~
pinaceae
it's the 19bn$ that's completely dumb.

whatsapp's entire business model is charging 1$ per month. for a little less
than 19bn $ you could:

\- build an app doing exactly the same

\- run a media/marketing ad blitz

\- charge 50c per year. or make it for free, until whatsapp is dead.

if it's about the awesome talent at whatsapp, 32 engineer can be hired for
19bn $. each one of the whatsapp members could have been acquired for less
money besides the 2 founders.

it makes no economic sense. as in old school economics, not the valley funny
money one.

~~~
zht
don't you think that Facebook has tried this already? Facebook
Messenger/Messages has a non trivial number of engineers working on it, but it
still doesn't have the usage that WhatsApp does.

~~~
nilkn
FB messenger isn't a replica precisely because it ties into FB. WhatsApp made
it a point to be extremely easy to sign up for and to not require any other
major social media accounts.

Somewhat ironically, Facebook may have been more successful in replicating
WhatsApp if they had also made a messenger that was not connected at all with
Facebook other than its corporate origins.

~~~
mkr-hn
This seemed to work for AIM and AOL.

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Tycho
I don't see much analysis of the obvious underlying motive: destroying the
bargaining power (SMS) of the phone carriers, who are currently extracting
vast sums of money from (mobile) Facebook users.

~~~
foobarqux
Messaging apps are going to destroy SMS regardless of whether Facebook bought
one or not. It doesn't give Facebook any more bargaining power.

~~~
Tycho
Facebook isn't bargaining with them directly though. This just accelerates the
process.

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badman_ting
We are, but I find it distasteful how people are reacting to this deal. I
think a lot of people really don't understand exactly how popular this thing
is. Who cares if people in India use it, I haven't seen it in my personal
little bubble so it must be pure hype.

People are taking out their feelings about other aspects of the industry and
the economy on this deal. If you're one of the people bitching about how
startups focus too much on the problems of rich young men, what's not to like
about this? What is more broadly useful than a messaging system?

~~~
objclxt
Just because something is _popular_ doesn't make it inherently _valuable_ ,
because popularity is often fleeting.

Over the past fifteen years nearly all messaging platforms have had bell-
curves of popularity. MSN, ICQ, AIM, BBM. What stops users of WhatsApp from
moving onto another platform? Nothing.

Personally I think the deal is bad for Facebook because they've spent $16+
billion acquiring users that are ephemeral. They are not buying technology.
They are not buying talent. It is purely a user buy.

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jmedwards
I don't think one extraordinary data point shows anything, actually.

~~~
allochthon
It's not one datapoint. Instagram, Snapchat, WhatsApp. Three smallish
companies, three mind-boggling valuations. I don't think it necessarily
indicates that there is a bubble, but it does sound like funny money.

~~~
argonaut
Instagram is a bad example. As far as we can see, Instagram has kept on
growing and growing, and the ironic thing is that all those blog posts talking
about how teens are leaving FB show them flocking to Instagram. So it was
obviously a brilliant strategic move, and time will tell if it was a brilliant
revenue generating move (I suspect Instagram will make buckets of money
eventually, like YouTube does).

The key thing to look at to see if it's a bubble is IPOs. And as far as I can
see, good companies are the ones IPOing successfully, and less stellar
companies (Zynga, Groupon) are getting punished.

~~~
bsder
> Instagram is a bad example.

Instagram is a good example. As soon as Facebook bought it, the teens started
switching to Snapchat, etc.

The problem for Facebook is that to be profitable it needs to connect and make
visible things that people don't want connected or made visible.

~~~
nemothekid
>the teens started switching to Snapchat

huh? AFAIK I've heard nothing of the Instagram exodus, and its actually
growing. Are we sure that Instagram is actually in a bad spot, or are we just
praying for doom and schadenfreude?

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pdevr
The dot-com buyouts were based on hope, while this era's acquisitions are
mostly based on fear - more of the defensive kind.

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akbar501
WhatsApp revenue is $1/user/year for all users who have used the service > 12
months. So, revenue is somewhere south of $450 million, but certainly a 9
figure number. That's real revenue.

What would be interesting is to know the gross and net margins, plus growth
rates. With these numbers you could back your way into a valuation using
various traditional valuation models.

That said, my opinion is this deal is a mix of traditional business plus
Zuckerberg's vision. The first and only time I got to hear Zuckerberg in
person was at Startup School in 2013.

Zuckerberg made some very interesting comments at Startup School. Basically,
it was something along the lines of FB already has almost everyone who can
afford a smartphone (i.e. developed markets) as a user. The next big idea is
to help connect the next 6 billion people to the Internet...and then he went
on to say this is an exciting idea but may not be good business. Make of that
comment what you will.

~~~
toomuchtodo
> The next big idea is to help connect the next 6 billion people to the
> Internet...and then he went on to say this is an exciting idea but may not
> be good business. Make of that comment what you will.

Someone is only a customer if they have money to spend on your
product/service/widget.

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codelust
Bubble 1.0 was greed without the knowledge on how to value digital companies
properly. This phase is greed even after knowing how to value digital
companies properly.

You will come off looking really silly if an attempt is made to make sense of
all these on actuals and fundamentals.

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jw2013
Facebook buy WhatsApp because it fears to die, much more than it wants to
grow. On that point I don't think $42 a user is too much.

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pbreit
If Facebook stock is wildly overvalued then using it as currency is
reasonable.

~~~
nly
Except they bought an even more worthless pile of stock with it. Compare that
to Google, who gutted Motorola for its IP and then flipped it for a
significant chunk of Lenovo.

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benched
No. Things can only be wrong if they're in the past. In the present, they're
anointed by the status quo effect: if it is the status quo, then it is the
best of all possible worlds by reason of many armchair economics-based
arguments.

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balls187
Anyone remember when armchair economists would talk about the inflated P/E
numbers of Google?

Oh how things have changed.

