A few months ago a 23 year old kid named Evan Spiegel turned down a $3 billion cash offer from Facebook to buy his photo sharing app Snapchat. Yesterday we found out through an SEC filing that insanely addictive smartphone game Candy Crush earns $3.5 million per day ($1.26 billion per year) from in app purchases. Continuing the trend of making me feel like a huge pile of crap for deciding to create a website and not a smartphone application three years ago, earlier today Facebook announced that it was buying an app for $19 billion in cash and stock. As if that wasn't insane enough, if you are an American, there's a very good chance that you've never even heard of this app that Facebook thinks is worth $19 billion. The app is called WhatsApp and it was founded just under five years ago. This is madness! What's the world coming to??!!
Today Facebook announced it was spending $19 billion in cash and stock to buy messaging service WhatsApp. Have you heard of this app? If you are an American, the answer until today was most likely no. People outside of the US on the other hand are VERY familiar with WhatsApp. In fact, WhatsApp is probably the most frequently used app for all smartphone users outside of the United States. WhatsApp is a messaging service that lets you send texts to any smartphone completely free of charge. Technically the message is sent through your mobile broadband so it counts against your data plan. You can send photos and texts without charge to anyone in the world who has the app. As of February 2014, WhatsApp has 450 million users. A mind-boggling one million new users sign up for the app every single day. It's not unreasonable to imagine a world where WhatsApp has billions of users in the very near future.
American readers are probably scratching their heads right now trying to figure out how this is such a valuable service. Aren't text messages already free? When was the last time you worried about the number of texts you sent per month or the number of photos you shared with friends? For me it's been at least four years since that was even a minor consideration.
The reality is that the expectation of essentially free unlimited texts might be an only-in-America phenomenon. Consider this: The vast majority of Americans only need to send texts to other people in America. This is not true around the world. In Europe and Asia especially, it's much more common to have friends or co-workers who live in other countries. For example, there are 50 different countries in Europe, in an area that is 1/3 the size of the United States. Imagine if there were 50 different countries on the East Coast of the United States. And imagine if each of these 50 countries had its own group of cell phone services with varying fees and rates. Someone who lived in New York would probably think twice before texting a friend in Massachusetts, let alone a group of friends. WhatsApp makes this possible in one easy to use, basically free app. I say "basically free" because technically the app costs $0.99 per year, but the entire first year is a free trial.
The company was co-founded in 2009 by Brian Acton and Jan Koum. At the time of today's acquisition, Koum's 45% ownership stake in WhatsApp is worth $8.55 billion. Acton's 20% stake is worth $3.8 billion. Facebook is funding the deal with 184 million shares of stock (worth $12.5 billion at today's closing) and $4 billion in cash. The owners of WhatsApp will also receive an additional swath of 46 million restricted stock units worth $3 billion. Restricted stock units are basically incentive shares that vest over time as long as the owners remain at Facebook and certain performance goals are met. Jan Koum will also join Facebook's Board of Directors.
So I'll say it one time: WTF!!!!! I should have created an app!!! Is it too late? Send me a message if you have any good app ideas. But don't bother sending me a message with WhatsApp. I prefer good old fashioned American text messages. Standard message and data rates may apply.
P.S. You know who must be kicking himself? Instagram founder Kevin Systrom. He sold his company, which is arguably more popular than Facebook today, to Mark Zuckerberg for $1 billion. Using the same math that made WhatsApp worth $19 billion, Instagram could have held out for at least $5 billion. Or you could use Twitter as a comparable. Twitter, which has a little less than twice the users as Instragram, is worth $30 billion today. So by that math Instagram could have been worth $15-16 billion. I wouldn't cry too hard for Kevin, he's still worth $400 million. But by this quick math he could have been worth $2 -$8 billion. Damn… Know when to fold em, bro.