At $19 billion for a digital service operated by 55 people, Whatsapp was great value. Well that is what Zuckerberg told the audience at Mobile World Congress last week. Most talk in the audience though was quite the opposite: $19 billion for 55 people; that’s just mad even if they do have over 450 million users.
Much though I hate to admit it, I’m with Mark on this one. Digital Services scale in a way that makes Whatsapp a good buy for Facebook. Yes, it changes Facebook’s offering and broadens the user base, but this is just the additive value of more services to more users; a simple A + B = C calculation that would come if Whatsapp remains a stand-alone asset – one that goes nowhere near justifying the size of the deal. To make the numbers work the value of Whatsapp must come from the Network Effect where C = (A + B) Squared.
Putting the math(s) to one side for a moment; for me, Whatsapp gives Facebook access to a truly mobile personal identity, something I suspect that they have lacked to date. This is probably rather a contrarian view, given the fact the Facebook is all about sharing our identity with the world; but mobile identity is rather different and potentially more akin to a Key.
My mobile identity is likely to be the thing that unlocks my access to world of the future: a future one driven by the Digital Services that power the Internet of Things.
Why? Because without an robust identity that is authenticated by a device that is with me at all times, I will forever creating, forgetting and requesting new passwords every time I want to do anything; each one both less secure than the one before and forever at risk of large scale hacking.
Initiatives such as the GSMA’s new Mobile Connect, and the OpenID standards it uses, focus on using an email address as the key to my online identity, with a secure app on the SIM giving me the second factor for authentication: An approach that naturally favours Google and Microsoft for the key, along with a somewhat fragmented community of mobile network operators.
Whatsapp is not limited by this fragmentation. It is an over-the-top service that has little friction and could truly scale, especially if it makes a success of voice. And, given Facebook’s recent closure (failure) of its email service, this is even more important for its future. Though there is a fair bit still to be done, not just to get voice working and address some important markets, but also to handle the uncomfortable link between phone number and user identity that is a weakness for Whatsapp.
As an aside; this weakness is less of a problem for Microsoft’s Skype, which has a globally unique handle that does not need an email. This should be the sort of asset that gives Microsoft an edge here, but this is Microsoft. It was late on the internet and messed up mobile email badly enough for Blackberry to gain a toe hold. Even with the recent purchase of Nokia, I recon it still doesn’t really get mobile, even now.
So, at risk of future ridicule and in the face of all historical precedent (every single previous internet company acquisition over $10billion has been a complete flop) Whatsapp will eventually be seen as a good deal; that is as long as Zuckerberg now delivers on the opportunity – truly integrating these services (in a way that he didn’t need to for Instagram) reducing the friction in the network to allow Metcalfe’s law to deliver the value the shareholders will soon be demanding.
Quite a risk perhaps, but I’m not going to bet against it quite yet …