Thursday, February 20, 2014

Facebook and WhatsApp: if you can't beat 'em, buy 'em

Facebook and WhatsApp: if you can't beat 'em, buy 'em

Facebook: now with added WhatsApp

It's 1999 and Mark Zuckerberg is CEO of Microsoft, despite only being fifteen. Microsoft's board is rapt as they await his decision.

"Buy it," he says. "Whatever it costs. Whatever they ask for. Buy it."

He's talking about Google, a small company that's doing clever things with search. Like Hotmail, which Microsoft bought the previous year, it might be the shape of things to come - and if it is, it's a business Microsoft wants to be in.

The Google sale wouldn't be the last time Microsoft appeared to pay over the odds for technology firms.

Zuckerberg would go on to arrange the purchase of Android Inc and Flickr in 2005, YouTube in 2006 and Firefox - or at least most of its key engineers via financial offers they'd be mad to refuse - in 2008. It acquired Twitter in 2008, Instagram in 2012 and WhatsApp in 2014.

The companies were very different, but the rationale for buying them was always the same. As Zuckerberg put it: "If you can't beat 'em, buy 'em."

It's made Microsoft the most valuable company the world has ever seen.

Back in the real world...

None of that happened, of course, but if it had then today's technology industry would look very different - and that's because Facebook is a very different company to the tech giants of the late 1990s and early 2000s.

Facebook has both enormous scale and huge paranoia, and that means it does interesting things such as buying WhatsApp.

Facebook may have overpaid - although at around $40 per user what it's paying for WhatsApp is much the same as what Microsoft paid for Hotmail; most of the deal is in stock, so if we are indeed in a bubble then Facebook won't be too out of pocket if the market crashes - but it makes complete sense if you're absolutely loaded and worried about younger, smarter competitors eating your lunch.

By buying WhatsApp Facebook isn't just making a fairly safe investment - WhatsApp's fee of $1 per user per year is serious money if its current explosive growth continues, and the $4bn of actual cash Facebook is shelling out will be recouped in a couple of years even if it doesn't - but neutralising and monetising a potential competitor.

I've written before that Facebook cannot possibly be the best, most popular service in every sector. What it can do, though, is buy the best, most popular services in every sector: Instagram in photos, WhatsApp in messaging and so on. And if it's smart, it won't try to assimilate them, integrate them or otherwise mess them up as the previous generation of tech giants - *cough* Yahoo! *cough* - so loved to do.

Mark Zuckerberg is trying very hard to make Facebook an unkillable business. It might not work - even Facebook can't buy everything, and it might not necessarily buy the right businesses; some pundits are already suggesting that instead of WhatsApp, LINE might have been a better buy - but the beat 'em or buy 'em strategy makes it very tough to compete with.

Rivals don't just have to invent a better product and attract millions of users: they also need to be unbuyable at any price.


Source : http://www.techradar.com/news/internet/facebook-and-whatsapp-if-you-can-t-beat-em-buy-em-1226539

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