I just don’t get it

For what type of company is Facebook paying $19b?


I’m not what you’d call a skeptic. On the contrary, I not only understand, but also ardently defend the role of technology when it comes to changing our habits, the way we do things, and even the way we live. On many occasions, I have welcomed acquisitions of companies at what other commentators feel are inflated prices, instead seeing such events through the prism of growth forecasts.

That said, however hard I look, I cannot find any logic in Facebook’s purchase of WhatsApp. Needless to say, I know a fair amount about the application: I don’t use it, and haven’t done so for some time, but I do help out a Spanish startup, Spotbros, which has developed an application that has been dubbed by mani “the Spanish WhatsApp”. Not that this has in any way influenced me in this case, although it has given me the opportunity to study WhatsApp in some depth.

To begin with, the price Facebook has paid for WhatsApp is completely over the top. In fact it’s insane. Yes, I know, the application is used by millions and has grown rapidly. So? Does anybody really think that WhatsApp users are any more loyal than users of other, now defunct, services? That each of the 450 million WhatsApp users is worth $42? Is it because they pay around a dollar a year to use the service, those that have bothered to pay at all? Is it because the app is enormously reliable and never breaks down? Is it because WhatsApp’s value proposition is unbeatable? Perhaps its users are regarded as loyal unto death, gripped by a quasi-religious fervor that will keep them tied forever to the platform, whose logotype is probably tattooed upon their person? Or are WhatsApp users a special segment that Facebook wasn’t reaching already?

I think we all know that the answers to these questions are negative. WhatsApp’s value proposition is weak, and does not hold up well compared to many other instant messaging services. It is not particularly stable and has crashed several times during its history, and recently. It is not secure, nor is its growth strategy especially impressive, while in communication terms it has proved a disaster. It is part of an adoption trend that could go into reverse at any moment: in the same way that people sign up, they can stop using it. There is a significant overlap with Facebook users, and neither is it clear whether the company intends to unify both services, nor that fact that users would see that as any sort of improvement.

Perhaps the only thing one learns after two decades studying the internet on a day-to-day basis is that one hasn’t learned anything. But, let me say it again, I just don’t get it. There have been any number of inflated purchases in recent years, but putting the share value of WhatsApp at a third of the price of Ford, seems to be utterly crazy. I cannot understand a purchase that assesses the price of a company in a multiplier of around twice the revenues… of the purchasing company! If I was an investor, the prospect of a company committing such a huge amount of money to the purchase of something like WhatsApp would prompt me to sell my shares as fast as I could. Let’s see what the markets say about this.

In my opinion, WhatsApp is not worth anything like the amount Facebook has paid for it. Not by a long chalk. I have read what reputable analysts at places like Sequoia Capital, Buzzfeed, or Business Insider have to say, but I just don’t get it. In fact, I would have bet that the company and its product were on track to be replaced by a second generation of superior messaging systems that were also more secure.

From my perspective, we are talking about a big, fat, dismal mistake that the company will regret for quite some time. But faced with such a wide variety of opinions, the best thing to do is to put one’s thoughts down in writing, as I have been doing online now for almost 11 years. This allows me to look back every now and then to see how wrong I was…

… or not.


(En español, aquí)

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