I woke up today morning to learn that Whatsapp had finally been acquired by Facebook. Although a lot of folks on Twitter seem surprised and think that its a good move, its actually quite a bad move for all concerned except the founders of WhatsApp who end up making shitloads of money.
Facebook has been facing two major problems: Its not perceived as the cool place to be in terms of online presence and thus as an extension its not being used for sharing content , either between friends or colleagues or people in general. The 2nd problem is partly dependent on the 1st and is also because Facebook has needlessly complicated its platform, making it far more user unfriendly as compared to earlier, when it was just about posting a status and responding to your friend’s comments.
Partly the fact that Facebook took a long time to jump on board the mobile bandwagon also made it lose out on most of the users, specially the next gen who are more comfortable using phones and the application ecosystem rather than desktops or laptops.
Thus, the Facebook board has only 2 options –
a) Rejuvenate your existing offering
Facebook has been trying to improve itself over the last few years but most of its ideas have fallen flat. A lot of their ideas seem to be copied from Twitter and other social networks, thus making Facebook all the more “uncool”. Specifically ideas like Trending and Messages have fallen flat. The concept of Messages started out as an attack on Gmail and Facebook wanted to use it to keep Google at bay by threatening to hurt them where it would hurt most. However most people never really adopted Facebook chat and messages .
Facebook’s mobile application, although well used is used more on the lines of Gmail , namely to check on whether someone has commented or responded to one of your statements rather than to share content. This means that Facebook is losing out on content creation and sharing, which is a very important aspect for it, as their entire advertising concept relies on users sharing content about products and brands they use as well as engaging with brands online.Equally importantly, Facebook’s presence in the developed world i.e Europe and US is pretty strong but its presence in the developing countries such as Africa and Asia is still a battle with other networks and platforms.
Thus for Facebook, monetization of their ad platform becomes a problem when their user base increases in age but reduces interaction. Their validation as a platform to reach different segments is lost while users start migrating to other platforms. Its also more difficult to gain higher presence in markets such as China where there are already multiple platforms and social networks catering to the specific audience. At such a phase, Facebook has to resort to the 2nd option
b) Acquire a new brand/ network which is aggressively gaining users
Facebook thus has to resort to acquiring brands who are now the hot players in the social network/ content sharing space. The acquisition brings in two benefits –
1 ) a large number of users who use this new platform actively for content creation and sharing, which is necessary for Facebook ads and revenue growth
2 ) Access to new users and groups which are not interested in Facebook currently , both in terms of geographical usage as well as in terms of age groups
WhatsApp was designed as an alternative to existing messaging applications, built on the 1st generation of phone OSes. Thus it has never been aimed at creation of content/ sharing of content as much as providing a platform for folks to update their statuses, much like Gtalk statuses or the initial ways of Facebook. Engagement with users is limited and the company has refused monetization through ads or promoted content , preferring instead to charge users for the application.
The problems facing WhatsApp have been more about limitations in brand perception and strong competition in developing markets. Although user growth has been good and WhatsApp has seen a steady growth in revenue and user base, its gonna plateau. Equally importantly, Whatsapp, like Gtalk, was ideal for low speed networks where quick easy communication was the necessity. With improving internet speeds and preference for higher quality content , people are switching to the 2nd generation of apps such as Viber, WeChat and to a certain extent Hangout. Thus WhatsApp was already at a crucial crossroads where it would have to decide whether to stick to its simplistic model and lose out in the long run or try to elbow into a space already ruled by multiple apps and possibly lose the current user base who enjoyed the simplistic application.Equally worrisome would have been the fact that WeChat has been aggressively targeting first world markets now, after conquering China. WhatsApp has a low presence in the world’s next big digital market China and saw little chance of making inroads there. Their user base in the developed world was also getting attacked by new apps and the fact that Google Hangouts was integrating SMS and messaging features .
At such a point, Facebook’s purchase of WhatsApp gives a great exit for the founders. Not only do they get a lot of money just before WhatsApp starts going downhill, they also get to work with a company with far bigger wallet and muscle power to take on companies like WeChat and Google. Provided Facebook tries to monetize it without ads, its a win win for WhatsApp. Facebook however isnt really gonna get much content or user migration from WhatsApp. As a acquisition, for Facebook, this is more yet another attempt to stay cool rather than really focusing on solving the issues that plague them