Facebook has splashed out $19bn (£11.4bn) to buy the mobile messaging service WhatsApp – a price which it is claimed has been driven by the value of its customer data – but has already ruled out running advertising on the platform.
The deal has raised more than a few eyebrows given the huge price tag, although Mark May, an analyst at Citigroup, says the valuation appears “reasonable or even conservative”.
Andrew Pringle, head of performance media at Performics, part of ZenithOptimedia Group, believes the value has been derived from WhatsApp’s unique and vast customer data set.
He said: “The purchase has now given Facebook access to millions of phone numbers and intimate conversations worldwide. This rich data can be used by the network to enable its advertiser’s to data-match and enhance ad targeting capabilities. Facebook’s latest app permission updates now means it can read user’s text and MMS messages for keywords. The purchase of WhatsApp will likely see an extension of this, enabling Facebook to fill in the gaps in their own data and provide greater insights to target their own users with more appropriate advertising.
“Moreover, Facebook currently has no access to markets such as China and Russia unlike WhatsApp which does; further enabling them to expand their global footprint over the next year.”
Under the terms of the cash and shares deal, WhatsApp app will continue as a standalone service with its own brand and HQ in Mountain View, California, with founder Jan Koum joining the Facebook board of directors.
WhatsApp claims 70% of its 450 million subscribers use the service every day and claims its messaging volume is approaching that of the global SMS market.
Facebook founder and chief executive Mark Zuckerberg said: “Our explicit strategy for the next several years is to focus on growing and connecting everyone in the world. And then we believe that once we get to being a service that has a billion or two billion, maybe even three billion people one day, that then there will likely be many clear ways that we can monetise. I don’t personally think that ads are the right way of monetising messaging services.”
Koum added: “We don’t think in terms of our service that advertising is the right way to go. We feel we have a very solid system in place that helps us create a direct relationship with our user. WhatsApp is really going to focus on growth; monetisation isn’t really a priority for us.”
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