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Facebook's Acquisition of WhatsApp: The Rise of Intangibles (A) Case SOlution

Question Number 1:

Possible reasons that prompted Facebook to buy WhatsApp:

The acquisition of WhatsApp is one of the largest acquisitions in the technological industry. The purchase consideration consists of $4bilion in cash, $12billion in stocks and restricted shares of $3billion. WhatsApp was founded in 2009, and at the time of acquisition, it had450 million users whichwere three times more than what Facebook has gained in thesame period.

The user volume of WhatsApp is way more than any other social media; itis estimated that 1 million new users join WhatsApp every day which is quite astonishing. Also, the founder of Facebook,Mark Zuckerberg has already confessed that WhatsApp is the only messaging service that beat Facebook.

All the competitors of Facebook and WhatsApp monetize their service through ads, in games purchases and sponsor channels, while WhatsApp won’t monetize the app through advertisement and stickers. The founders of WhatsApp always wanted a brightappearance for their users. Mark Zuckerberg also emphasized on this fact and explained that there is no pressure on WhatsApp to make profits. All he wanted was to increase the number of users.It is estimated that 5.6 billion people will have asmartphone by 2019 and it is facebook’s target that all those 5.6billion people become users of Facebook, Inc, which is not possible without the acquisition of WhatsApp.

The growth of Facebook is not steady in some countries of Asia and Latin America and is struggling to expand the market in those locations, while WhatsApp is already establishing its strong market in Asia and Latin America. Facebook can use the presence of WhatsApp in those countries to develop its desired market. Also, the absence of Facebook in China is also threatening Facebook by the loss of revenue from the biggest country in the world, acquiring WhatsApp could mitigate this threat to some extent because WhatsApp has agood presence in Asia. Also, through theacquisition of WhatsApp by Facebook, it can compete with some of the major competitors especially WeChat which is considered as the biggest social media network in China.

Other key players in thetechnological market such as Microsoft and Apple are also considering to buy WhatsApp, at the same time the growth of Facebook has just gradually decreased. Facebook immediately observed the situation and concluded that they could use WhatsApp to mitigate this risk. Other social media sites were also emerging in that period;Facebook did not compete with those potentially huge competitors in isolation and without acquiring WhatsApp. Although Facebook has its messenger which is quite successful in some parts of the world like U.S. and France but merging its services with WhatsApp could take the brand and its profits to theextreme. The impact of combining of two of the most reliable sources of connectivity in modern era might have an enormous impact on society. WhatsApp is also available inan extensive range of devices such as Samsung, Apple, Blackberry, and Nokia. Also, Whatsapp has anexcellent reputation in working in those areas where there is poor network coverage system. Furthermore, Whatsapp has also signed deals with various data operators to provide small charge data packages to the customer of WhatsApp for their use of Whatsapp, all these factors are indicators of a business which has strong growth and profitable prospects.

Answer Number 2:

Facebook’s center of attention is to simplify the connectivity through mobile communication, and WhatsApp  might be the best available option for this purpose. Facebook emphasizes that the plan that is to bring connectivity and utility to the world. Facebook is expected to fulfill this purpose by its messenger but, they didn’t get the response they wanted so they aspired to take the communication to a step further. On the other hand, WhatsApp has also replaced the SMS communication in many of the developed countries.It is one of the biggest benefits Facebook can get from the acquisition of WhatsApp.

Facebook doesn’t want to be replaced by the new entrants in the technological market, and WhatsApp appears to be the biggest threat for Facebook because of the attention and response it is getting by the majority of theyounger audience. The statistical data was the evidenceof the rapid growth of WhatsApp. Facebook is also not getting much response by younger audiences but is also becoming obsolete due to the increased privacy of WhatsApp. The best way to protect Facebook from increasing competition is to eliminate the competition from the market. Also, acquisition of a huge player in the connectivity market was also essential for Facebook to stay ahead of its other competitors...................................

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