Everyone Who Thinks Facebook Is Stupid To Buy WhatsApp For $19 Billion Should Think Again!

Facebook made a breathtaking move yesterday, buying messaging app WhatsApp for $19 billion.

Even for Facebook, that's a staggering amount to pay for a company with estimated 2013 revenue of only $20 million. It represents almost 10% of Facebook's overall value.

And in the wake of the announcement, the usual chorus of armchair pundits took to Twitter to snicker together and pronounce Facebook and its CEO, Mark Zuckerberg, brain dead.

But Facebook buying WhatsApp for $19 billion isn't brain dead.

It's just bold.

Very bold.

Like other bold moves, Facebook's WhatsApp deal could end up looking brilliant.

Or moronic.

That's what makes it bold.

If it were guaranteed to end up looking brilliant, it wouldn't be bold. It would be obvious.

I don't know how Facebook's WhatsApp deal will end up looking - and neither, it's worth noting, do any of the pundits who are pronouncing it brain dead. Based on everything I do know, though, I think the odds are that it will end up looking brilliant.

Here's why:

WhatsApp has both offensive and defensive value to Facebook.WhatsApp is the fastest-growing company in history (in terms of users). If the company's growth continues, and it can continue to "monetize" its users, it will be worth an even more mind-boggling amount of money someday. At the same time, WhatsApp's growth is gobbling up user messaging and connection time that once could have belonged to Facebook. Now those users and their time do belong to Facebook. So buying WhatsApp allows Facebook to both own "the next Facebook" and prevent "the next Facebook" from eating Facebook's lunch.

WhatsApp's growth and usage is absolutely mind-boggling. Five years after its founding, the company has 450 million active monthly users, of which a staggering ~315 million use it every day. WhatsApp is adding 1 million new users a day - 1 million! Facebook thinks WhatsApp could have 1 billion users in a few years, and this estimate seems conservative. (Facebook itself only has 1.2 billion users.) WhatsApp also does a lot more than "text-messaging." It allows users to send photos, videos, and voicemails to each other and keep the conversations forever. In short, it allows users to do a lot of what Facebook does. So, again, Facebook really does appear to be buying "the next Facebook."

WhatsApp already has a powerful revenue model, and other successful messaging apps are showing the potential for it to add many more. WhatsApp ostensibly charges its users $1 per year after the first year. ("Ostensibly" because I've never heard of anyone actually paying this $1). Assuming most current users end up paying the $1/year, that's a potential revenue stream of several hundred million dollars a year from WhatsApp's current revenue model alone. Meanwhile, other messaging apps like Line and WeChat have demonstrated the power of "stickers," user-to-user payments, ecommerce, and other revenue streams. When you have as many users as WhatsApp, generating even only a few dollars per year per user creates a massive business.

WhatsApp has very low costs, so it should eventually be wildly profitable. WhatsApp currently has only 55 employees. Assuming an all-in cost of $200,000 per employee, that's a total cost base of $11 million. Let's assume WhatsApp grows to, say, 300 employees over the next few years. Then it will have a cost base of only $50-$75 million. Meanwhile, if the company's growth trajectory continues, it could easily be pulling in more than $1 billion a year of revenue in a few years. Almost all of that would be profit.

The names of all the smart people who pronounced Facebook itself a "fad" or "worthless" and dissed every new investment in the company as "moronic" could fill a book. Most people have consistently underestimated the power, growth potential, and value of the leading social platforms, including Facebook. Facebook's $1 billion acquisition of Instagram, for example, which was then a revenue-less company with 13 employees, was seen as proof that Mark Zuckerberg was a clueless kid who had no business running a major company. Meanwhile, Facebook is now valued at $175 billion, and Instagram is considered one of the smartest pre-emptive acquisitions in history. $19 billion for WhatsApp is a much bolder bet than Instagram, but it, too, could end up looking a lot smarter than most people think.

The bottom line:

This is a very bold move.

Like other bold moves, it might end up looking stupid, but it also might end up looking brilliant.

It's also a long-term move, a bet on what the future will look like 5-10 years from now, not next quarter.

In that way, this deal is a vintage Mark Zuckerberg move.

Zuckerberg continues to be one of the few CEOs in the world (Jeff Bezos is another) who is willing to sacrifice near-term earnings and expose himself to short-term ridicule in order to make bold long-term bets. This approach has worked out great for Facebook so far. And it has worked out great for Amazon.

In short, Facebook buying WhatsApp for $19 billion isn't stupid. It's just bold.

Why Facebook is Blue in Color?

When you open Facebook, the first thing that you notice is the blue color it uses. Ever wondered why is Facebook so blue in color and not changing its color scheme?

Ever since they started as 'thefacebook', Facebook has stayed with the blue color. Although major changes have been made in the Facebook theme since then, the major unchanged thing has been the blue color.

Facebook from its early days when it was known as  thefacebook

An exciting fact: In its earlier days, thefacebook.com required you to have an  .edu email id to join.

Everywhere from its login page to Facebook groups, you find only blue.

Facebook Login Page. All Blue!

The reason for this is that  Mark Zuckerberg, the young founder of Facebook is red-green color-blind and blue is the richest colour for him which he confirmed in an online interview with Leo Laporte.

Another important commercial factor for using blue color is the fact that most colors tend to distract the viewers. Blue on the other hand acts as a transparent background to the main content as visible to the human brain due to which most popular websites tend to use the blue color. It can easily be called a webmaster's favorite color. Blue color is also sometimes referred to as 'Nirvana' for the brain.

All these factors make blue a prominent color on Facebook. 

How does Facebook Make Money ?

They say its free. They also say that Mark Zuckerberg – the guy who started Facebook – is one of the richest people around – a billionaire apparently. So how the hell does this guy give free accounts to its users and yet sit happily atop a goldmine? The figures going around about Facebook's annual revenue are heart-stopping to say the least. The numbers that did the rounds were all around the US$ 500 million mark, which means that since 2007, they've been more or less doubling their revenue. All this from a free website! So where is the money coming from? This article will answer the question, how does Facebook make money and solve the mystery for you.

How Facebook Makes Money?

Free account notwithstanding, Facebook is making money. And lots of it. How does Facebook make money? If only you knew how does Facebook work financially!

Ads

I'll solve the mystery for you in one simple word – ads. The same thing that runs most websites across the world. That is the big secret behind Facebook's burgeoning revenue. If you open your Facebook profile, you  will see that the while right hand side of the page is full of ads. You can give the thumbs up to the ad or the thumbs down. The thumbs down will remove the ad and it will not come back.

How do these ads work? Well Facebook being a decidedly smart social networking institution knows which ad to put where. Like the Google AdSense, Facebook too provides ad to the pages based on the interests and the overall profile of the user. So, if you mention in your profile that you are a fan of Nike or any other sportswear brand, the related ads will appear on the right hand side of the page for companies and websites selling them. Facebook ads are not intrusive and hence people do not get annoyed with them, unlike we do with those super-irritating pop-up ads.

And their advertising system makes sense, since it ensures that the right ad is displayed to the right customer, since the ads are selected for an individual page based on the interests and likes of the user. This avoids unnecessary waste of adspace on the page where the chances of the ad being 'hit' are theoretically pretty low. Also, the ad system of Facebook, gives the user a 'thumbs down' option, which ensures that the particular ad does not appear again. That too is a pretty interesting thought, given that the ad hasn't a chance of being clicked and letting it sit in front of the users will continue to rile them.

Facebook Gifts

Ever sent a virtual gift on someone's birthday? You must have at some point, if you knew how to use Facebook. Well you do pay for some of them and a big slice of it goes into coffers of the company. While simply writing 'happy birthday' suffices for some, the 'send a gift tab' on your friend's wall encourages others to send a virtual gift – paid for online. All the money almost always goes to the company, but if the gift is provided by an outsider, then a portion of it goes there. But much of it is still retained by the website.

Application Performance

The beautiful thing about companies like these which work on different platform are the plethora of business ideas that they bring to the table. Performance advertising is a unique answer to how does Facebook make money. Let us take the example of Farmville, which is doing reasonably well on Facebook. Now the application is provided free for use for the users of Facebook and the parent company (Zynga) is getting a lot of traffic because of the game's popularity on Facebook. So isn't Facebook entitled to take a slice of that pie? After all, they are providing a platform for gaming companies like Zynga to their burgeoning user base. So Facebook makes a bit of money there too, as a 'rental' for using their users.

I guess that answers your questions about what is Facebook and how does it work and how does Facebook make money. Now this information on how Facebook makes money is largely speculative. Facebook is a privately held company and has the complete liberty to not disclose their financial details – and they don't disclose their revenues and the sources of their revenues either.