By Will Goodbody, Science & Technology Correspondent
Because it’s free.
The straight answer given to me by a number of young people this morning, when I asked them why they use WhatsApp.
But while their attraction to the messaging service is clear, the question of why Facebook would shell out a mesmerising $19bn for the four year old company remains something of a mystery. A deal which puts its $1bn purchase of Instagram in the ha’penny place.
So what are Mr Zuckerberg & co getting for their investment? 450 million users to start with. Mostly young, which is good for Facebook’s aging user profile. And predominantly in developing countries, which is where Facebook sees much of its future growth coming from. 1million new users each day too, which is pretty impressive. And a lean 50 person strong, clearly very focused and smart workforce.
But is that really worth $19bn? Clearly Facebook thinks so, although how it plans to sweat value from the asset is far from clear. There are many theories being bandied about. Some suggest Facebook will force the here-to-for ad-less WhatsApp to start accepting ads. Others, that it will add other revenue generators like stickers, games etc to the service. Another theory is that with its existing major foothold in messaging, it would make sense for WhatsApp to move into telephony. And then of course there’s the pot of gold that is user data, which WhatsApp says it currently doesn’t collect and sell, but potentially could.
But WhatsApp claims it will remain true to its “no ads, no games, no gimmicks” mantra. So where will the revenue come from?
Facebook obviously has a plan which, if their statement is to be believed, is predicated on growing WhatsApp’s user profile to such a scale that whatever they decide to do with it, it will produce pots of money. And when your pockets are as deep as Facebook’s are, then I suppose you can afford to take a long term punt.
Nevertheless, it does all underline the dizzying valuations that are being placed on “hot” tech stocks. It also prompts further questions about whether we are entering, or perhaps even in the midst of a tech bubble. WhatsApp aside, Facebook itself is worth $170 billion, 50 times its 2014 estimated earnings. Twitter and LinkedIn are valued at $20 billion. China’s Tencent is worth $140 billion. While Facebook last year reportedly valued Snapchat at $3bn when it made overtures to buy it.
Only time will tell if such ventures live up to the hype and expectations put on them by their valuations. Some big tech acquisitions in the past, like Google’s purchase of YouTube in 2006, have proven clever in hindsight.
But hindsight is 2020.
Ask the investors of the dotcom boom to bust around the turn of the millennium.