Business
3:21 pm
Thu February 20, 2014

What's Up With Facebook's Big Acquisition?

Originally published on Thu February 20, 2014 7:02 pm

Transcript

AUDIE CORNISH, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

ROBERT SIEGEL, HOST:

And I'm Robert Siegel. Yesterday, Facebook bought a little startup for a lot of money, $19 billion in cash and stock. It's hard to fathom a price tag that big. Half the companies in the S&P 500 aren't worth that much. But a look at who exactly is using the application called WhatsApp may explain the value that Facebook sees in it. Here's more from Aarti Shahani of member station KQED in San Francisco.

AARTI SHAHANI, BYLINE: A few months back, Mark Zuckerberg gave a talk that foreshadowed yesterday's big news. On stage at a popular tech conference, the CEO said, yes, Facebook did hit the goal of connecting one billion users around the world, but there's a lot more work to do to connect everyone else.

MARK ZUCKERBERG: Now the focus for us is actually kind of retooling. And you're going to see us retooling the company in a lot of ways to go take on a lot of harder problems that fulfill this mission. So, for example, connecting the next 5 billion people. It's going to be really because a lot of them don't have Internet access.

SHAHANI: WhatsApp, the company Facebook just bought, is getting around that problem by using less Internet. The app rides on the coattails of traditional phone carriers, bypasses their expensive texting services and lets people send instant messages for free. 450 million users are on it, including technology writer Om Malik. He chats with his elderly mom in India and she converted him to the app.

OM MALIK: It is one of those things which starts out as a way to save money. But in the end, it, you know, it turns out to be a social glue for all of us.

SHAHANI: WhatsApp has really cute emoticons and even Emoji animals like a baby tiger. But does that make it worth $19 billion? Analyst Nathan Eagle with China Mobile explains why he thinks it does.

NATHAN EAGLE: Facebook is an emerging market company, ultimately.

SHAHANI: Zuckerberg is an American with global ambitions. The co-founder of WhatsApp, Jan Koum, is a first-generation immigrant who grew up in an emerging market - Ukraine. That country is rocked by political violence and bloodshed. Other emerging market countries, while more stable, struggle with problems like corruption and no electricity at times. But where most of us see instability, some Silicon Valley giants see economic promise.

MALIK: Within the next, you know, three years or so, the majority of Facebook's revenue is going to be coming from emerging markets. I mean, it's certainly not coming in from North America or Western Europe, for that matter.

SHAHANI: China Mobile conducted a small survey in emerging market countries and found that in India, Brazil and Mexico, people use WhatsApp way more than Facebook to send messages. So whether you call the purchase defense or offense, the point is...

EAGLE: They're really doubling down. And it's frankly the right call.

SHAHANI: Analyst Rob Enderle has a different take.

ROB ENDERLE: Massively overpriced.

SHAHANI: Enderle totally agrees that there's lots of money to be made in emerging markets. But he says WhatsApp doesn't have a firm leg to stand on. Telecom carriers in other countries who have to spend lots of money to build radio towers and networks will take exception to these dirt-cheap products coming out of America.

ENDERLE: The carriers can always step in and say, you know, we'll just do the same thing and you're done because I'm closer to the customer. I mean, why would we need WhatsApp if you didn't have to pay extra for instant messaging?

SHAHANI: Enderle says all the buzz from yesterday's acquisition might get those carriers finally making a move to kill the startup competition. For NPR News, I'm Aarti Shahani in San Francisco. Transcript provided by NPR, Copyright NPR.