By Scott Onigman
For an introduction to this article, see the News Section, where the facts and logistics of this deal are outlined.
The Facebook acquisition of Whatsapp made big waves in the technology world this last week. For a reported $19 billion, Facebook is taking over WhatsApp and leaving the company as a standalone product. For a relative comparison to other companies that Facebook has acquired for sums comparable, Facebook acquired Instagram in 2012 for $1 billion, which at the time seemed like a tremendous sum for a competing but smaller social network. Recently, Facebook was turned down in an offer to acquire Snapchat for $3 billion. The Whatsapp deal marks a success on the part of Mark Zuckerberg for his ability to lure in and deftly choose companies to acquire that will expand their market share (see background behind this in other article). For comparison to other historical acquisitions in the technology world, the largest deal in recent history was Time Warner’s acquisition of AOL in 2001 for $124 billion. This most recent news in the technology has sparked talk of another technology bubble, similar to that of the Dot.com era from which the previously mentioned deal hails.
Although it may seem like Facebook may have overpaid for a messaging app that they almost completely replicate in function, there are many strategic benefits to this takeover that may merit the enormous price tag accompanying the deal. Facebook will most likely make it easier to message Facebook friends through Whatsapp, or the inverse, incentivizing greater usage of the Facebook platform and creating more ad revenue for the company. This move may have also been to stave off Google or other technology companies from acquiring Whatsapp. In the past few years, huge acquisitions to deter competition have been frequent (e.g. Google acquiring and spinning off Motorola as well as recent acquisition of Nest, as well as Facebook acquiring Instagram). It seems that market competition in Silicon Valley is stifled and kindled through the acquisition processes; there are huge incentives to innovate as a small company if the right opportunities are taken. At the same time, given how large many of the companies have become, competition is entangled in a field of enormous players with enormous engineering and financial capabilities.
And in recent history, though it is not unique, this has led to a centralization of power in the companies that succeed (as well as technology lock in — shout out to Jaron Lanier). Although centralization of power and wealth is a negative concept given the recent NSA data mining revelations, these companies are aligning their business interests with public interests in some “emerging markets.” In order for Facebook to get the next billion users, it will need to aid in the expansion and proliferation of high speed Internet connection and mobile phone access. WhatsApp fits into this initiative nicely as it is used primarily outside of the United States, where Facebook needs to expand in order to survive. Google also realizes that in order for it to gain users for its product ecosystem they need to also aid in the proliferation of Internet connections and mobile phone connection. Google has undertaken projects on the more logistical side of connecting those who don’t have a connection yet. At the end of the day, initiatives like these are not altruistic, each company stands to benefit greatly from more internet users.
Junior joint Public Policy-Economics major Scott Onigman is a staff writer of The College Reporter. Email him at email@example.com.