Running Head: Facebook Acquisition of WhatsApp 1

Facebook Acquisition of WhatsApp

Jabura Calisto

Kenya Methodist University

October 27th 2021

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Mergers and Acquisitions (M&A) are amalgamation of organizations. Even though the

two terms, mergers and acquisitions, can at be used interchangeably, they have different

meanings. Mergers means combining two organizations to form one, while for acquisitions, an

organization takes over the other. In the corporate finance. The whole essence around coming up

with M&A idea is to join two separate organizations together to build more value as opposed to

operating on an individual stand. With the chief aim of maximizing on production and wealth

generation, organizations keep examining various opportunities through the course of merger or

acquisition.

This essay tends to focus on the Facebook acquisition of WhatsApp. It will assess

whether the acquisition was horizontal, vertical or conglomerate. The essay also tends to

examine the reasons for the Facebook acquisition of WhatsApp.

The Type of Acquisition of Facebook on WhatsApp

In the corporate financial world, there are three chief types of acquisitions: Horizontal

acquisition, where an organization acquires another organization that operates in the same sector,

industry or business, that is a competitor. An example of such acquisition can be seen in google

acquiring Looker company (Miller, 2020). The second type of acquisition is vertical acquisition,

whereby an organization acquire a distributer of its products or its supplier of inputs, or a

company that buys products from the organization. An example of such acquisition is a hotel

company acquiring a company that deals with production of beverages. Thirdly, conglomerate

acquisition involves an organization acquiring another, which is in totally different sector,

industry or kind of business. An example of such is a tourism company acquiring a company that

deals in electronics dealership.

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Facebook and WhatsApp operate in the field of media, and are both used for messaging,

voice over Internet Protocol (VOIP), and therefore their range of services are more or less the

same. From the discussion above, it comes out clear that the Facebook acquisition of WhatsApp

is horizontal.

Reasons for the Facebook Acquisition of WhatsApp

Facebook’s acquisition of WhatsApp has been one of the biggest that has ever been

observed by the Silicon Valley. It is said to be more than 20 times larger than Facebook

acquisition of Instagram in 2012 (Nigam, 2020). There are several reasons as to why a company

may choose to acquire another, all of which are aimed at optimizing productivity and profits.

Such may include: Seeking greater share in the market, new niche offerings, reduction in

operation costs, diversification and economies of scale.

The main reason why Facebook chose to acquire WhatsApp is because Facebook saw

WhatsApp not only as an upcoming rival but even as a diminisher of the social media network.

This point can be seen and expressed clearly by analysis of the Porter’s five forces, where

WhatsApp was growing to be a menace of substitute to Facebook. The growth of WhatsApp was

steady, and its percentage in the market reach was outshining the popular social networks.

Facebook therefore saw both opportunity and vulnerability in WhatsApp and acquired it in 2014

for $19 billion. Facebook did so to Keep WhatsApp out of control by other social network

competitors. Other major reasons as to why the acquisition was done are as discussed below.

User Growth

WhatsApp had more than 500 million Monthly Active Users (MAU) in 2014, and one

million users were added daily by the service. MAU is a key performance indicator (KPI) in
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social media domains, as it shows the social media companies the number of visitors and users

that they gain in a month, or over some period of time. In a day, users sent 500 million pictures

back and forth, which was around 150 million more than the amount sent by Facebook in a

single day. 70% of the WhatsApp users were more active as compared to their counterpart

Facebook, whose users were only 62% active daily. Furthermore, in the messaging application

wars of the early 2010, WhatsApp was an expanding and growing social network giant.

WhatsApp was initiated in 2009, and as of 2020, over 2 billion people were WhatsApp

subscribers. Facebook had reached 2.8 billion MAUs as of 2020. The chief aim was to boost

global connectivity through internet services, and therefore the acquisition of WhatsApp has

been and will hopefully continue making Facebook to accelerate and grow its profits due to the

growth in MAUs. The idea behind Facebook’s success is that it prioritizes on the growth of

users, and focuses on monetization later (Investorrelations.com, 2021, blog.whatsapp.com,

2020).

Thanks to the acquisition of WhatsApp by Facebook, the growth of Facebook has been

boosted in growing markets where the connectivity of internet is sparse but where the use of

WhatsApp is widespread. Facebook therefore gets to access these user bases, which are mobile.

Linking with the users of WhatsApp in the said places will also help Facebook’s internet.org

drive, Mark Zuckerberg, Facebook’s Chief’s plan to carry out the issuance of internet access to

the world’s parts that are not yet online (Kumar, 2019).

Market Share in developing Markets

The use of WhatsApp was extensive and active in markets where sparse internet

connectivity was involved. WhatsApp is one of the most basic inventions in the field of social
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networks. The interface is simple and easy and easy to use. The interface is also ‘lite’ weight,

and this has enabled it to have ascendancy in developing markets across Latin America, South

Asia, and Africa, where internet access is either too costly or too slow to operate some of the

much developed and heavier social media platforms. The tendencies of the said markets are also

informing the strategy of WhatsApp, which appears to be increasingly different than that of

Facebook.

Thanks to the basic and simple nature, and the fact that it has a simple user interface,

WhatsApp has the most popular feature for ‘stories’ or ‘status’ in the world, as compared to

Instagram, which was also acquired by Facebook, and even more than Facebook itself. This may

be also be contributed by the fact that WhatsApp, and particularly its feature of group chat, have

taken on a direction of their own. This is because of the assured privacy of the group chats,

thanks to the restrictions made in that one can only partake in the activities of a given group

(sending and accessing information) if they are a member in that group. WhatsApp has,

therefore, been gaining more popularity as compared to Facebook due to its end-to-end

encryption feature, that enhances the privacy and security of its chats. With the end-to-end

encryption feature, the photos, videos, documents and music files are protected from reaching the

unintended recipients.

Different from most social media apps, WhatsApp does not keep any sent information

and files on its operational servers, but instead, the sent message can only be viewed by the

sender and the recipient (Osmanski, 2021). This kind of safety and privacy does not exist in other

social media channels like Facebook. By acquiring WhatsApp therefore, Facebook adds to itself

the advantage of safety and privacy to its customers, who subscribe to WhatsApp messaging
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services. The safety and privacy associated with the use of WhatsApp are some of the reasons for

the growing market share in developing markets.

User Engagement Time

WhatsApp became a big menace to the social media giant, Facebook when it (WhatsApp)

was transcending Facebook in the terms of time of engagement. WhatsApp offers services more

than just sending text messages and allows subscribers to send photo, video, textual and audio

media. In other words, WhatsApp allows its users to be able to get a lot of what Facebook is able

to offer. Users therefore tend to spend more time on WhatsApp as compared to amount of time

spent by Facebook users. It therefore comes out clearly that many users tend to spend less time in

traditional social media as compared to messaging. This could be looked at differently, and a

conclusion be made that the habit of taking longer hours on social networks is typical with the

youths and the younger generations, as compared to the older people. The younger people tend to

take a lot of time in communicating, as well as viewing the media platforms for entertainment

from their mates.

As of 2018 August, WhatsApp had had users spend 85 billion hours of active usage,

while Facebook had seen a 31-hour active usage from its users. This indicates that the users in

WhatsApp could be enjoying much privileges as compared to what the Facebook users are

enjoying (Koetsier, 2018). Such privileges may include the ability to make calls even where

network coverage is so weak, since WhatsApp works well even with 3G and 2G networks. Also,

WhatsApp allows for group calls, where a call can be initiated between a group of four at much

lower rates. With such advantages, people get to connect freely with others, thus boosting the

number of engagement time of WhatsApp over Facebook. The problems and fear of being
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overtaken attacked Facebook as WhatsApp’s engagement time increased. Facebook therefore

saw that with the increased and rising engagement time that WhatsApp was possessing, it was at

a great risk of loosing users to WhatsApp, and therefore bough it, thus adding to itself the

privileges that were enjoyed by WhatsApp.

Mobile Connectivity

WhatsApp was launched and started replacing SMS services, which made it dominate the

mobile industry in many countries across that world. Facebook accounts for about 16% of the

total mobile traffic, but it consumes much bandwidth since it has features like giving out high-

quality pictures and auto playing videos by default. With WhatsApp, on the other hand, has the

highest amount of traffic, since it is the most widely-used social media platform in continents

like Africa, Asia and South America. According to Sandvine, a company that assists large

Internet Service Providers to manage and monitor all the transactions around their networks,

WhatsApp accounts for over 10% of all traffic that moves to and from mobile computers in

Africa (Metz, n.d.). It can therefore be seen how the social media network is widely-popular

across Africa., since it allows users to send and receive information with very low fees paid to

carriers. It also shows that the users of WhatsApp do not just use it for texting purposes alone,

but even for sending media data, showing that it has a robust connectivity that enables it to

receive such information. Additionally, it allows for not only sending and receiving but also

voice and video call, and can therefore allow for real-time communication, which are charged at

lower rates, as compared to Facebook, which charges higher rates for the same services.

Facebook therefore read the trends in the low-cost s and reliable services that WhatsApp

offered and felt threatened. Facebook felt the threat because it is heavy and bandwidth-greedy,
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and could not be able to support the services that WhatsApp supported with very low network

coverage and lower rates and charges. It therefore decided to acquire WhatsApp to help it grow

and reach the heights that it could hardly achieve. According to Dan Deeth, a new Sandvine

report author on Internet traffic trends, the only way that Facebook could use to dominate the

world was through acquiring WhatsApp. According to his report, he suggested that the smallest

way to boost the traffic on WhatsApp, and other social media channels is through texting (Pariag

& Brecht, 2017). Sending of media data like photos, videos and voice data is what makes the

traffic to go up. And since WhatsApp is the most used platform for the same, it becomes the

platform with the highest traffic, and therefore Facebook had to acquire it to succeed in earning

greater traffics.
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Conclusion

From the above discussion, it can be clearly seen that the acquisition of WhatsApp by

Facebook is horizontal, since Facebook and WhatsApp operated in the same line, which was

media, messaging and VOIP services, even before the acquisition. It is also clear that Facebook

acquired WhatsApp because of the competition that WhatsApp posed to Facebook, and therefore

to reach the heights that WhatsApp had gained, Facebook had to acquire it. Facebook was also

avoiding its diminishment from WhatsApp. With the growing number of users, who opted to use

WhatsApp and not Facebook, the traffic on WhatsApp rose, and increased the company’s

number of engagement hours, thanks to the level of high connectivity and low costs the company

was offering.

WhatsApp has therefore been useful in ensuring that Facebook has grown. By suspending

monetization efforts, Facebook aimed at the future of cross-platform, international

communications. The acquisition has enabled Facebook to reach billions of people who

subscribe to its services, thereby increasing its engagement time. With the grown user base,

Facebook is assured of finding its way to financial growth.

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References

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Fourth-Quarter-and-Full-Year-2020-Results/default.aspx

blog.whatsapp.com. (2020, February 12). Two Billion Users—Connecting the World Privately.

WhatsApp.Com. https://blog.whatsapp.com/two-billion-users-connecting-the-world-privately/?

lang=en

Koetsier, J. (2018, August 20). People Spent 85 Billion Hours In WhatsApp In The Past 3 Months

(Versus 31 Billion In Facebook). https://www.forbes.com/sites/johnkoetsier/2018/08/20/people-

spent-85-billion-hours-in-whatsapp-in-the-past-3-months-versus-31-billion-in-facebook/?

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