Why Facebook bought Whatsaap?

Last week (feb 19th really) Facebook acquired WhatsApp, a company with at most $300M revenues, and 55 employees, for $19billion.

That’s billion – with a “B.”

 $19B is 13 times Facebook’s (not WhatsApp’s) entire 2013 net income – and almost 2.5 times Facebook’s (again, not WhatsApp’s) 2013 gross revenues!

So the question is why would Oga Zuckerberg go for such a small company????

       Answer = TO AVOID BECOMING IRRELEVANT: 

Becoming Irrelevant can happen remarkably fast.  True in any industry, but especially in digital technology.

Examples: Research-in-Motion/Blackberry.  Motorola.  Dell.  HP.  All lost relevancy in months, and are struggling.  (For those who want non-tech examples think of Circuit City, Best Buy, Sears, JCPenney, Abercrombie and Fitch.)  Each of these companies were industry leaders that lost consistency, many of their customers, employees and much of their market valuation in months when they were unable to keep with the trend.

Check it out people:

WhatsApp already processes almost as many messages as the entire telecom industry.  It has 450million users with 70% active daily, which is already 60% the size of Facebook’s daily user community (550million.)  By bringing these people into the Facebook corporate family it assures Facebook of continued relevancy as the market shifts.  It doesn’t matter if these are the same people, or different people.  

The issue is that it keeps Facebook relevant, rather than losing relevance to a competitor.

All companies risk becoming irrelevant.  New technologies, customer behavior patterns, regulations, inventions and innovations constantly challenge old success formulas.  Most leaders fall into a pattern of trying to defend & extend their old business in the face of market shifts, hastening the fall into irrelevancy.  Or they try to acquire a new business, then integrate it into the old business which strips away the new business value and leads, inevitably, to irrelevancy.

The leaders of Facebook are giving us a lesson in an alternative approach.  

(1) Recognize the market shift.  Accept it.  If there is a better solution, rush toward it rather than ignoring it.  

(2) Bring it into the company, and leave it independent. That leave them to continue the way they were , don’t try to change anything about them , leave them to do what they know how to do best. (You never know, in three years the company may need to be renamed WhatsApp to reflect a new market paradigm.) 

(3) And as long as you can convince investors that you are maintaining your relevancy use your highly valued stock as currency to keep the company moving forward.