I don’t use WhatsApp, the communications app Facebook just bought for $19 billion. My iPhone is broken and I have to wait another month for my Soviet-style telecom contract to expire. Is WhatApp worth $19 billion? I have no idea, but it’s probably worth at least the $4 billion in cash that Facebook (FB) spent Mark Zuckerberg, Facebook’s CEO, is clearly smarter than I am so I’m sure he has the spreadsheets to prove it.
All I know is that What’sApp is the telecom industry’s nightmare, and there must be a few executives in the telecom and media industry who lost sleep over this deal last night (I’m just a lowly j-analyst, and I lost some sleep over it).
What’s disturbing about it? Everything, really. The founders were phenomenal, and they built and unbeatable product. Now, just 3 years later, $19B was paid for an app that costs $1 per year.
The question for the Telecommies: Why are small little app startups so much better at serving their customers than the telecom industry? First there was Skype, which is still a cool communications app that I use every day even though it has the worst interface in the world and Microsoft owns it. Skype was flipped to Microsoft for $8.5B, but it’s not WhatsApp. You see, WhatsApp was sold to Facebook yesterday for $4B in cash, $12B in stock, $3B in restricted stock units, and a $1B credit at Macy’s (okay I made that last part up). A phenomenal deal.
WhatsApp is a communication app. Probably the fastest-growing in history. Its legacy is that it’s “super clean.” That is, it works really fast, it has no ads — as famously shown in this picture published on the Sequoia Capital Website which shows founder Brian Acton’s note that says “No Ads! No Games! No Gimmicks!”
Cute. And a Nightmare.
I repeat: WhatsApp costs $1 a year.
It could be one of the scaleable, fastest growing, lowest-latency messaging services ever built — 50 billion messages a day. 450 million active users.
Every day about a million people download it.
The company spent zero money on marketing. It is being sold for $19 billion (or $4 billion and $X in stock) — it doesn’t even have a PR person. As Sequoia investor Jim Goetz writes on the blog:
“There may be no greater testament to the viral nature of WhatsApp than the fact that the company has accomplished all this without investing a penny in marketing. Unlike their smaller competitors, it hasn’t spent anything on user acquisition. The company doesn’t even employ a marketer or PR person.”
Think about it: A couple guys in a garage built the world’s most efficient, clean, viral communications app in the world and flipped it for $19B after only three years. They spent zero money on marketing or advertising. The app costs $1 a year, and is probably the fastest-growing communications services ever invented. And the telecom industry had absolutely nothing to do with it.
Even John Legere and his fancy pink clothes could not come up with this.
The telecom industry, which at its core is supposed to provide us with communications services, could never hope to compete with this — let alone make money on it. It’s their nightmare. And it has shown how the mobile Internet communications paradigm has shifted the balance of power from infrastructure to app developers — forever.