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Facebook $21-Per-Eyeball Offer Shows WhatsApp Appeal

February 20, 2014

Facebook $21-Per-Eyeball Offer Underscores Appeal of WhatsApp

Facebook CEO Mark Zuckerberg at the company's headquarters in Menlo Park, California. Photographer: Josh Edelson/AFP via Getty Images

Dan Stiller isn’t using Facebook much anymore. Mark Zuckerberg is paying $42 to get him back.

That $21 per eyeball is what the Facebook Inc. (FB:US) founder and chief executive officer will shell out for each user of WhatsApp Inc., the instant-messaging platform he’s acquiring for $19 billion. The goal: to ensure Facebook, and not another mobile application, stays at the center of the digital lives of people like Stiller, a 27-year-old construction manager in Melbourne.

“Everybody’s gravitating to WhatsApp,” said Stiller, who uses the service to co-ordinate evening plans with friends and keep in touch with relatives in England and Canada. “I use it pretty much all day,” he said. “I don’t really use Facebook that much and it’s pretty rare for me to even send a normal text message.”

With 450 million users, WhatsApp has a particularly strong following in Europe and India and is less known in the U.S., Zuckerberg told investors yesterday. The service is rapidly displacing traditional text-messaging as the preferred method for young people to stay in touch on mobile devices.

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One day last June, WhatsApp carried 27 billion messages, it said on its official Twitter feed -- 42 percent more than all the SMS texts sent worldwide on a typical day last year, according to researcher Informa Plc.

Data Mining

Free for the first year and 99 cents annually thereafter, WhatsApp is almost always cheaper than texting, particularly across national borders. For sending photos and videos, WhatsApp is typically far less expensive than multimedia messaging services from carriers. And unlike Apple Inc.’s (AAPL:US) iMessage and BlackBerry Ltd.’s (BB) BlackBerry Messenger, it has always been available across multiple operating systems, making it easy for an iPhone user, for instance, to chat with a friend with a Samsung Galaxy.

Bolting WhatsApp onto Facebook, which has been targeted by privacy groups for what some say is insufficient protection of customer data, raises concerns for some users. WhatsApp itself has been criticized for storing data mined from address books, which it does to find other contacts using the service.

Over coffee today at a Starbucks Inc. (SBUX:US) café facing Berlin’s Brandenburg Gate, Spanish tourist Patricia Peinado debated with friends whether to switch to another chat app to ensure the privacy of their conversations. “We think they’re going to share our information with Facebook,” the 30-year-old said.

Monthlong Chats

WhatsApp currently carries no advertising, and messages can only be seen by a pre-selected group. Those conversations can contain huge amounts of detail; it’s not uncommon for users to leave two-person or group chats on WhatsApp open for weeks or months, communicating in quick bursts throughout each day. Those messages offer a rich source of data for Facebook as it increasingly customizes its advertising, though Zuckerberg yesterday said WhatsApp would operate independently of the main Facebook service.

Facebook’s surprise deal follows the Menlo Park, California-based company’s $700 million acquisition of photo-sharing app Instagram in 2012, and what a person familiar with the situation has said was a $3 billion offer last year for Snapchat, which allows users to send self-deleting photos.

WhatsApp’s strength in Europe and India will help Facebook as it seeks to expand outside of North America, where it gets almost half its revenue. And the American market offers good growth prospects for WhatsApp, according to Informa.

Digital Natives

The shares of Facebook rose 2.3 percent to $69.63 at the close in New York.

Zuckerberg yesterday hinted at WhatsApp’s potential threat to Facebook in its bid to maintain its position as the preferred channel for marketers trying to reach so-called digital natives under 30.

It’s “the only widely used app we’ve ever seen that has more engagement and a higher percent of people using it daily than Facebook,” Zuckerberg said on a conference call.

Sayher Heffernan, 27, a wedding photographer in Melbourne, uses WhatsApp “dozens of times a day” to text or send videos and photos to his girlfriend in Singapore. “I don’t have a landline, and with the cost of international calls, I just don’t use a normal phone,” he said.

Zuckerberg’s Advantage

Similar, if less popular, services are offered through Microsoft Corp.’s Skype unit; Line, an app developed by South Korea’s NAVER Corp. (035420) that is most popular in Japan; and Tencent Holdings Ltd.’s (700) QQ. Another competitor, Viber, was acquired by Japanese e-commerce company Rakuten Ltd. for $900 million last week, and Facebook has its own mobile messaging application, Facebook Messenger.

What WhatsApp offers is a large and growing user base. That’s an inbuilt advantage Zuckerberg understands better than most; successive efforts to displace Facebook’s social-networking leadership have faltered as rivals including Google Inc. (GOOG:US) failed to sign up a critical mass of users.

“The value of these services lies in the number of people using them,” said John Delaney, a mobile technology analyst at research firm IDC in London. “Once you pass a certain threshold of users, it acquires a momentum of its own.”

That network effect will help keep users from defecting from WhatsApp even if Facebook makes unwelcome changes, said Vivian Serra Marques Pereira, a 25-year-old from Sao Paulo. Switching to another service would be “complicated,” she said. “It’s like Google Plus. I have an account, but nobody else uses it.”

To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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