Facebook and WhatsApp - Case Study Example

Report of a Business Case: Facebook Introduction In order to boost its business position in the social media industry, Facebook engaged in deal leading to the procurement of a messaging app, WhatsApp in a deal worth a total of $19bn (£11.4bn) in shares and cash. According to relevant financial analysis, this is the largest acquisition of the social networking giant. More than 450 million individuals use WhatsApp on a monthly basis making it one of the most popular aspects of communication leading to evasion of text messaging charges. According to Mark Zuckerberg, who is the founder and CEO of Facebook, said that the acquisition of the messaging app is ‘incredibly valuable’ (Kovach 2014). The application enables individuals to send messages across the Internet connections thus evading the text messaging costs. In addition, the organizations allege that they are on the verge of registering more than one million users one a daily basis. The application also makes money through charging the users $1 per year to substantiate the free model it operates on while addressing the needs and preferences of the users. (Kovach 2014) Case Overview (Summary) Facebook sought to enhance its performance and market penetration in the social media industry. This is through incorporation of WhatsApp into its ownership business concepts. The main objective of the organisation in the acquisition of this business concept was to increase the number of the target audience with approximately 1 billion consumers. The approach was vital because of the current 450 million subscribers of WhatsApp with a potentiality of reaching 1 billion subscribers in the next one year of transaction. In addition, the business proponent was a strategic approach towards increase in the revenues and output of Facebook in competition with the diverse operators such as Twitter. The deal incorporates $4bn in cash as well as approximately $12bn worth of Facebook shares and additional $3bn in stock to the founders and employees of the messaging app later. During the discussion of the deal, Jan Koum, WhatsApp’s co-founder noted the plan to operate the organization independently as well as autonomously besides becoming a member of the Facebook’s board of directors (BBC News Business 2014). Their main objective was to bring the product to more individuals or users under the influence of the deal with Facebook. In his plans to exploit the new deal, Zuckerberg indicates that advertisement of the interface of the app does not present an extensive opportunity to maximize the revenues while reducing the costs. Moreover, Facebook had the opportunity to transact the deal because of the potentiality of the messaging app to have more than one billion users (Facebook and WhatsApp: Getting the messages, 2014). The messaging app proves to have more or greater penetration in diverse international markets in comparison to Facebook. The messaging app is trying to maximize the opportunity that the telecom industry would make from integration of the traditional text messaging (SMS). The messaging app is on its way towards acquiring more users thus growing at a much exponential rate in comparison to Facebook. Prior to the engagement in what comes out as the largest acquisition by Facebook, the biggest business engagement by the social media giant was the case of $1bn in acquiring Instagram. According to relevant information, Facebook is in the running towards acquiring the photo messaging service Snapchat with the aim of improving its coverage and penetration in the social media industry (Kuchler and Bradshaw 2014). The main objective of the research essay is to evaluate the recent decision by Facebook to acquire WhatsApp for US$19bn. This is through examination of the relevant reasons for acquisition. In addition, the essay will focus on whether the purchase and price in relation to the deal are in line with the strategic goals and objectives of Facebook. Furthermore, the analysis will determine whether the deal was good or poor in accordance with the strategic goals and objectives of Facebook in the current and future engagements within the rapidly growing industry. From this perspective, the reason to procure WhatsApp in a $19 billion deal might prove to be the best decision to have ever happened in the case of Facebook operations thus aiding the organisation towards the achievement of the goals and objectives in the market and industry of operation. Evaluate the recent decision by Facebook to acquire WhatsApp for US$19 billion In the evaluation of the case, the focus is on the critical reasons why Facebook paid a whopping $19bn for the messaging application. In addition, the report focuses on evaluation of the purchase and price in relation to the strategic goals and objectives of Facebook. Finally, the report incorporates diverse illustrations of whether the approach to procure the messaging app was great or poor for the Facebook entity in the social media industry. What were the reasons for the decision? The main question in relation to this evaluation concentrates on whether WhatsApp is worth $19bn. From a financial metrics, WhatsApp is not worth what Facebook paid for in relation to the $19bn. In addition, the company employs 52 people in accordance with the latest evaluation. From this illustration, the company would have to increase the circa $50m annual revenue more than hundred times. However, WhatsApp’s business model is clearly unequipped to address the rapid growth in the telecom industry. Nevertheless, Facebook views the outlay to be worth more important thus the acquisition. This relates to the case of strategy in reaching maximum users in the social media industry. There are diverse reasons demonstrating the strategic influence of the deal enabling Facebook to pay $19bn for the acquisition of WhatsApp. One of the critical reasons for the acquisition of the messaging app by Facebook is the potential or next billion users. Facebook has been able to achieve more than 1.2 billion active users on a monthly basis. Nevertheless, the entity continues to experience stagnation in its growth and penetration. According to some reports, Facebook has been experiencing actual shrinking in the social networking or media industry. The problem emanates from developing nations or entities across the globe. For instance, Facebook is critical ubiquitous in the United States and large section of Europe (Guenthner 2014). On the other hand, Facebook traction seems to be slow across other entities and nations such as Asia, India, and Latin America. During the announcement of the deal, Zuckerberg noted this reason effectively and efficiently. According to Zuckerberg, “there are countries such as Korea or Japan where another messaging service is bigger, but if you look across the world, WhatsApp - across Europe, Latin America, India, and a lot of places in Asia- is a clear leader.” From this argument, the messaging app comes out as the potential opportunity for the Facebook to fill in relevant global gaps in the social networking industry. Moreover, Zuckerberg noted that the ability of the company to have a billion, two billion, or three billion users on a daily basis will enable the organization to monetize the opportunities thus the achievement of competitive advantage in the market and industry of operation. Another critical reason for the acquisition of the messaging app is the need to exploit the new SMS in relation to existing market segmentation. Some scholars and technicians note that Facebook already has a WhatsApp rival in the form of the Facebook Messenger. In addition, there are potential popular instant messaging rivals Facebook could have acquired in relation to its strategic operations and interaction with the consumers (Kelly 2014). This argument is ineffective and irrelevant because of the positioning of Facebook in the competitive market and industry. The main objective of WhatsApp is not to wipe out instant messengers from diverse operators such as Instagram, Twitter, Facebook, Google, and Skype. This is because of inability of the messaging app to succeed in the execution of the strategic goals in comparison with ecosystems that is beyond WhatsApp potentiality in replacing (Kopp, 2014). However, WhatsApp is about to replace SMS through the essence of being the new form of messaging among the consumers in diverse markets and industries of operation (Blodget 2014). The key to success for the messaging app is its ability to operate without an ecosystem. The model is lean, uncluttered, and simple thus tying the users to their phone numbers. WhatsApp has the ability to succeed in an area where MMS failed miserably in relation to handling the needs and preferences of the consumers. Facebook also sought to acquire WhatsApp with the whopping $19bn with the aim of preventing or stopping anyone else from procuring the entity and its operations (Mozur, Osawa and Purnell 2014). This is an essential aspect towards the achievement of competitive advantage in the competitive industry. WhatsApp faces competition from Line and WeChat operators dominating Japan and China markets respectively. Facebook’s previous target Snapchat has a small base for active users while other major players such as Skype, Yahoo! Messenger, and Google Hangouts fail to match WhatsApp’s numbers. None of these major players is for sale thus making it difficult to procure or acquire their operations (BBC News Business 2014). The acquisition of WhatsApp by Facebook was a strategic approach of preventing any deal from its competitors with the entity thus a business issue (Albergotti, Macmillan, & Stahl G. 2014). It is also essential to note that Facebook is now a conglomerate. In the previous encounter, Facebook had a substantial reputation for crunching up as well as incorporating its purchases with adequate efficiency. Nevertheless, the acquisition of Instagram is a critical illustration of the change of tactic by the social networking giant. Instagram users have the opportunity to express their love for the application because it is not Facebook (Chu 2014). The tendency of assimilating the application into Facebook operations would arguably kill the service thus providing few users since most of the Instagram subscribers are also likely on Facebook. From this perspective, Facebook is learning on the essence of diversifying its operations rather than consuming those services in one brand. Facebook would rather own diverse major players with different attributes while retaining the success elements rather than risking the opportunity to stamp its logo across the world (Berman 2014). Another potential reason for acquisition of WhatsApp by Facebook is the issue of engagement (Staff, 2014). According to Zuckerberg’s evaluation, WhatsApp comes out as the only application with higher engagement than Facebook itself. From this perspective, highly engaged users have the passion to exploit the platform thus generating the key difference between Snapchat and WhatsApp. In addition, it is not typical to send 20 Snapchat pictures in a day. On the other hand, it is uncommon for the users to send 20 WhatsApp message in the course of a day. Are the purchase of and the price paid for WhatsApp in line with Facebook's strategic goals? Facebook has diverse strategic goals in relation to addressing the needs and preferences of the consumers. In the first instance, Facebook focuses on the provision of a human touch to the pages. This is through effective and efficient communication among the users through generation of the personal touch in each post. In addition, Facebook focuses on creating a content platform to entertain, educate, and empower diverse users while keeping their engaged and coming back for more. Another strategic goal for the operations of Facebook is the need to cultivate effective engagement under the influence of a two-way dialogue. Users have the ability to engage in a two-way dialogue thus enhancing their interaction or communication under the influence of the Internet technology. It is also essential for the organization to generate consistent calls to action in the course of addressing the needs and preferences of the consumers in diverse contexts (Mozur, Osawa and Purnell 2014). Facebook focuses on the achievement of this objective or strategic goal through expansion of its market coverage on a daily basis. Moreover, Facebook focuses on the promotion of fan-to-fan conversation under the influence of the smart branding in the course of handling the diverse needs and preferences of the consumers in different contexts (Seitz 2014). I believe that the price paid for the acquisition of the WhatsApp was financially inappropriate. Nevertheless, the acquisition is a strategic approach by Facebook to enhance its market coverage and penetration with the aim of handling the needs and preferences of the consumers. In addition, the approach is in line with the strategic goals and objectives of Facebook to create an engagement platform for effective interaction and communication among the users or subscribers. From this perspective, Facebook had substantial reasons for acquiring WhatsApp. Some of the essential reasons making the approach to be effective include engagement issue, prevention of competition, and the potential billion users. This is indicates that Facebook had more than 450 million reasons to pay a whopping $19bn for WhatsApp (Hustad 2014). Conclusion In order to boost its business position in the social media industry, Facebook engaged in deal leading to the procurement of a messaging app, WhatsApp in a deal worth a total of $19bn in shares and cash. Facebook had substantial reasons for acquiring WhatsApp in accordance with the strategic goals and objectives in relation to handling the needs and preferences of the consumers in diverse markets and industry of operation. Some of the essential reasons making the approach to be effective include engagement issue, prevention of competition, and the potential billion users. This is indicates that Facebook had more than 450 million reasons to pay a whopping $19bn for WhatsApp. References Kovach, S. 2014, ‘Facebook: Here’s Why We Just Spent A Fortune On WhatsApp’, Business Insider Australia, viewed 3 June, 3 June, 2014, BBC News Business, 2014, ‘Facebook to buy messaging app WhatsApp for $19bn’, 20 February 2014, viewed 21 May 2014, Kuchler, H. and Bradshaw, T. 2014, ‘Facebook buys WhatsApp in $19bn deal’, Financial Times, viewed 21 May 2014, Guenthner, G. 2014, ‘450 Million Reasons Facebook bought WhatsApp’, Daily Reckoning, viewed 21 May 2014, Kelly, G. 2014, ‘5 Key Reasons WhatsApp is worth $19 Billion to Facebook’, Forbes, viewed 21 May 2014, Blodget H. 2014, ‘Everyone Who Thinks Facebook Is Stupid To Buy WhatsApp For $19 Billion Should Think Again’, Business Insider Australia, viewed 21 May 2014, Mozur, P., Osawa, J., and Purnell, N. 2014, ‘Facebook-WhatsApp Deal: Still a Tough Sell in Asia’, The Wall Street Journal, viewed 21 May 2014, Chu, K. 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