Here’s why Facebook bought WhatsApp for $19 billion

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Facebook today announced it was buying WhatsApp for what looks like an outrageous $16 billion. Make it even more insane $19 billion if you add the $3 billion of restricted stock units that will vest over four years after the deal closes. Microsoft acquired Skype for $8.5 billion and Skype had a monetization model in place. On the other hand, WhatsApp looks like a social service, charging users in some countries a subscription fee of just $1 a year and remains largely free in some of its top most countries that have over 20 million users each. So why did Facebook pay so much for it?

There are multiple reasons.

The threat of Google or someone else acquiring WhatsApp: The mobile messaging service has been rumored to be in talks with multiple companies over the last year or so. While Facebook and Google were repeated quite often, BGR India learns that China’s Tencent was also interested in an acquisition or partnership with WhatsApp. Tencent owns WeChat, which is the most popular messaging service in China but has few active users outside the country. However, WhatsApp CEO Jan Koum was willing to wait for the right valuation (a minimum of $10 billion BGR India was told earlier) as the service kept adding more than 50 million monthly active users every quarter. It would have been detrimental for Facebook’s growth had someone else acquired WhatsApp, which now has over 450 million monthly active users with 70 percent of them active daily.

Users were spending more time on WhatsApp than Facebook on mobiles: Users were spending much more time on WhatsApp on their phones than Facebook. According to a survey by mobile marketing firm Jana Mobile, in India 55 percent of respondents said WhatsApp was their most used mobile app versus just 0.85 percent said Facebook. In Brazil, 63 percent said WhatsApp and 5.58 percent said Facebook. In Mexico, 76 percent said WhatsApp, 5 percent said Facebook. In the most recent quarter, Facebook revealed that 945 million of its 1.22 billion users came from mobile. But users in countries where Facebook hopes to get its growth wave are just not spending enough time on Facebook on their phones.

It’s all about connecting people: According to Facebook CEO Mark Zuckerberg, the two companies have the same vision of connecting people and it makes sense for them to work together. “Our mission is to make the world more open and connected. We do this by building services that help people share any type of content with any group of people they want. WhatsApp will help us do this by continuing to develop a service that people around the world love to use every day,” Zuckerberg wrote in a post on his personal Facebook profile.