Facebook's $22B acquisition of WhatsApp is debated as the worst acquisition of all time or a brilliant move. The podcast explores Jan Koom's early life and challenges, the birth of WhatsApp, the unique network of the app, the rapid growth and choice of Sequoia Capital as a partner, the acquisition negotiation with Facebook, the internal conflict, and WhatsApp's shift as a platform. It also discusses WhatsApp's end-to-end encryption and data privacy, grades Facebook's acquisition, and includes a segment on recent purchases of sneakers and computer glasses by the hosts.
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Quick takeaways
WhatsApp became a market leader in mobile messaging by focusing on messaging and providing a cost-effective alternative to SMS services.
Sequoia Capital's investment in WhatsApp and its reputation played a crucial role in the company's growth and success.
Facebook's acquisition of WhatsApp for $22 billion was a strategic defensive move to neutralize a potential global competitor.
WhatsApp's disruptive technology and user-friendly platform changed the way people communicate and connect globally.
Deep dives
WhatsApp's Initial Struggle and Pivot
WhatsApp initially launched as an app focused on away messages, but it failed to gain traction. Users, however, found value in the app for messaging and started using it as a messaging platform. With the addition of push notifications, WhatsApp's growth exploded, and it quickly became a market leader in mobile messaging.
Product-Market Fit and Monetization
WhatsApp's focus on messaging struck a chord with users and provided a compelling alternative to costly SMS services. By charging a yearly fee of 99 cents for the app, WhatsApp created a sustainable business model that allowed them to cover server costs and operate profitably.
Investment from Sequoia Capital
Sequoia Capital became interested in WhatsApp and offered a blank term sheet to invest in the company. However, Jan Koum and Brian Acton opted to work with Sequoia due to its reputation, past successes, and a strong personal chemistry with Jim Goetz. Sequoia invested $8 million in an earlier round and later another $50 million, valuing WhatsApp at $1.5 billion.
The Meeting with Mark Zuckerberg
After resisting a meeting with Mark Zuckerberg, Jan Koum and Brian Acton finally agreed to sit down with him. Mark's persistence paid off, and the meeting led to a discussion about a possible partnership or acquisition. Despite their initial resistance, this meeting would be the start of an important chapter for WhatsApp.
WhatsApp: A Strategic Defensive Move
WhatsApp's acquisition by Facebook for $22 billion was a strategic defensive move for the social media giant. By acquiring the largest messaging network in the world, Facebook mitigated the risk of a powerful global competitor emerging and threatening their dominance in the social media space. WhatsApp's disruptive business model, offering free messaging and end-to-end encryption, posed a potential challenge to Facebook's ad-based revenue model. With the acquisition, Facebook neutralized this threat and ensured their continued control over the world's digital attention. While WhatsApp has yet to generate significant revenue for Facebook, the value of the defensive move alone makes this a successful acquisition.
Creating Value through Disruptive Technology
WhatsApp's disruptive technology, offering free messaging and end-to-end encryption, created significant value for users worldwide. The platform capitalizes on the shift in consumer behavior towards mobile devices and data networks, rendering the traditional text messaging model obsolete. By providing a user-friendly and secure messaging platform, WhatsApp created immense value for users, changing the way people communicate and connect globally. The company's ability to address a clear need and leverage emerging technologies played a crucial role in its success.
Capture was a Secondary Concern
While the acquisition of WhatsApp by Facebook did not result in immediate revenue generation, it effectively neutralized a potential global competitor and safeguarded Facebook's dominant position in the social media landscape. Facebook's acquisition of WhatsApp can be seen as a major defensive move, aimed at capturing value by preventing the emergence of a formidable independent competitor. The focus was on maintaining Facebook's control over the world's digital attention rather than immediate value capture.
Neutralizing the Threat and Securing Dominance
By acquiring WhatsApp, Facebook effectively neutralized a potential threat to its ad-based revenue model. WhatsApp's disruptive business model, offering free messaging and end-to-end encryption, had the potential to challenge Facebook's dominance in the social media space. Through this acquisition, Facebook safeguarded its position and ensured its continued control over the world's digital attention. The value of this defensive move, even without immediate revenue generation, makes the acquisition a strategic success for Facebook.
We kick off Season 6 with a long-awaited Acquired Classic: Facebook’s $22B purchase of WhatsApp in 2014, which still ranks as the largest acquisition of a private VC-backed startup in history. Yet despite that enormous pricetag and all its associated fanfare, as we sit here 5+ years later WhatsApp actually generates LESS revenue than the meager ~$20m it was bringing in at the time of acquisition. Was this this worst acquisition of all-time, or a brilliant strategic chess move by Mark Zuckerberg & co? Tune in as we render Acquired’s judgement!
Note: Unfortunately David’s audio quality in this episode was impacted by a technical glitch which we didn’t discover until after recording. Our editors worked super hard to fix in post-production, but it’s still not totally perfect. We hope you’ll give it a listen regardless, and we’re working on getting a transcript made ASAP, which we’ll post to the website when it’s ready. Thanks for bearing with us,
