Facebook and WhatsApp: Acquire or Ally? 

Group 3Sarah Bennani Vladimir Pushmin Anton Telepnev Maria Zatkova

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"WhatsApp is a great company and it's a great fit for us.” Mark Zuckerberg 

Industry outlookNumber of mobile

communications subscribers would increase by 471%

between 2017 and 2018 and exceed 4 billion

Emerging markets are becoming a center of

growth, where Asia Pacific region is leading

Number of mobile communications users would increase from 1 billion to 2,9

billion between 2014 and 2017

Chat application’s annual revenue would increase from $1 billion to $25

bullion between 2013 and 2017

User volume Fill global gaps Monetization Users tracking Defense from rivals

Synergies

• Facebook would be able to add 450 million WhatsApp users

• Facebook has lower daily active users > 63% vs 72%

• WhatsApp is growing faster than majors > 1 million user per day

• WhatsApp is a leader in Asia and Latin America, where Facebook have difficulties to enter

• In India, WhatsApp have 76% reach, while Facebook only 52%

• WhatsApp will support “Internet.org” initiative

• Facebook can add $20 million to its revenue stream from WhatsApp

• But, the main gain is that chat application’s annual revenue would increase from $1 billion to $25 billion, which can be captured by Facebook

• Facebook will have an opportunity to use data from WhatsApp users to drive its advertising revenue

• Google and Microsoft was in active discussion to acquire WhatsApp

The high cost of acquisition combined with monetization issues may result in failure to achieve a return on this investment

Financial risks Strategic risks

Growth perspectives WhatsApp is facing a high level of competition from many specialized messengers that can limit its growth outside Western countries.

Extremely high cost $19B is 13 times Facebook's entire 2013 net income - and almost 2.5 times Facebook's (950 WhatsApp's) 2013 gross revenues! WhatsApp’s value can be overestimated.Monetization issuesWhatsApp’s revenue (£20M in 2013) and privacy concerns create new challenges for Facebook to return its investment.

Cannibalization of Facebook apps WhatsApp messaging app, Facebook Messenger app and Facebook's core app offer similar services. So these offerings are at high risk of cannibalizing each other’s market share, resulting in loss of value for the Facebook.

Data collection concerns WhatsApp is based on advert free model that is conflicting with Facebook’s data collection for adverts practices.

Compliance risks• Facebooks acquisition of WhatsApp is at risk of being banned by Competition Commission of India who claim that it

would result in unfair trade practices in the Indian marketplace.• Another problem is Federal Trade Commission that guard privacy of WhatsApp users and threatens to ban this merger

in case of data sharing between WhatsApp and Facebook, while ads is a big share of Facebook’s income.

Strategic alliance vs acquisition decision making based on available capabilities/resources and mutual collaboration outcomes  

1 Resources/synergies Facebook & WhatsApp desire

• Communication is their common feature, however the scale is not the same: Integration problems may occur

• High uncertainty in the real value of WhatsApp

2 Market place Facebook & WhatsApp compete in

• Two companies having the same vision - connecting billion of people around the world

• Same market -> for Facebook, it would reduce the number of players and competitors

3 Competencies at collaborating• Based on the contract, WhatsApp would stay

independent• After all, it is a property of Facebook= saving

and developing its core business is a priority at any event

The advise based on “Three sections” framework

• Firstly, develop a strategic alliance, for better understanding of core strengths, weaknesses, capabilities and cultures of both companies involved -> expanding the vision of possibilities

• If the uncertainty goes down, the collaboration is valuable and feasible for acquisition

Based on “three sections” framework, the advise is: