WhatsApp Case Study Analysis

Document Type:Case Study

Subject Area:Economics

Document 1

The motivation behind Facebook’s interest to acquire WhatsApp, as argued by many analysts, is multifaceted. From the competitor point of view, WhatsApp was becoming the only widely-used app, more engaging and with higher percentage of users than Facebook. Just five years in operation, WhatsApp showed the strongest user engagement which stood at 70% in 2014 compared to Facebook’s 61% in the same year. From another perspective, WhatsApp appeared more appealing to the young generation than Facebook and its acquisition would rejuvenate Facebook user engagement. Facebook noted that WhatsApp had penetrated most international markets and acquiring it was an opportunity for Facebook to expand its geographical operations by inheriting the WhatsApp user base. Prior to acquiring WhatsApp, Facebook experienced a stagnant growth due to the decline in its user engagement. Facebook’s success primarily depended on its ability to maintain its user engagement above the bar by drawing more users and keeping them more entertained while at the same time earning revenue. The decreasing user engagement and the high rates of leaving the social network were just a few among the numerous challenges that plagued Facebook. Many teen users lost enthusiasm for Facebook and diversified their social network activities with more appealing platforms such as WhatsApp, Snapchat, Instagram and Pinterest among others. For instance, in the third quarter of 2013, Facebook reported a significant decline of daily users among young users by 2. from the first quarter. Another critical challenge that Facebook faced was the consistent decline in growth in monthly active users (MAUs) in the developed economies.

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Facebook had reported that growth in MAUs stalled in Europe, Canada and US in a couple of years preceding the acquisition. According to the report, Asia was the only market that was driving user growth but it was not easy to monetize the users in the region. Besides, there were increasing number of competitors from the regional social networks which offered the same online advertising, products and services. For instance, Korea had a social network platform known as Cyworld and Japan had Mixi which posed a strong competition to Facebook. However, after the successful acquisition of WhatsApp, Facebook had numerous opportunities to expand and grow in the messaging market. By acquiring WhatsApp, Facebook had an opportunity to control a new segment of social networking. The acquisition gave Facebook an opportunity to position itself as the best firm in the messaging industry.

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It was a move to shun competitors from purchasing the well-established app. From the stockholder’s point of view, the purchase of WhatsApp would increase Facebook’s portfolio and allow it diversify its services which can generate more returns on their investments. The acquisition of WhatsApp was an opportunity to develop new product and grow user base which would eventually lead to huge payouts to stockholders. For employees, thee $22b purchase of WhatsApp meant expansion of services. It provided an opportunity for Facebook’s employees to be promoted to positions previously occupied by the former employees of WhatsApp. In overall, the acquisition WhatsApp by Facebook was a justified deal with promising prospects to take Facebook to another level to achieve its mission of making the world more open and connected. Since WhatsApp use based on the number of people owing smartphones, it was prudent to foresee the increase in the use of smartphones in three to five years period.

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Facebook projected that the increase in the use of smartphones would monetize the usage through subscription model. By acquiring WhatsApp, Facebook had an opportunity to capitalize about the new information obtained from WhatsApp users for financial gain. Comparing the statement of incomes of Facebook with that of WhatsApp in the year 2012 & 2013, WhatsApp showed a consistent growth in revenue generation. The consolidated statement of income of Facebook shows that revenue increased from $5,089 in 2012 to $7,872 in 2013. Secondly, even if Facebook attempted to develop a similar app to compete with WhatsApp, it would simply flop just the way its Poke app failed to compete with SnapChat. Facebook had already started to lose its users to WhatsApp prior to the acquisition. This it was a clear sign of success in the messaging market. Based on 2013 financial statement of WhatsApp, the revenues the firm generated surpassed what Facebook generated in the similar period.

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Thus, if WhatsApp had stood on its ground to decline the deal, it would probably be offering the most advanced services than what Facebook is offering currently to its users.

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