Facebook whatsapp acquisition case study

Professor David Collis and Research Associate Ashley Hartman prepared this case. Aakash Mehta (MBA 2018) was responsible for the 2018 revisions. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2015, 2016, 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800- 545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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$19B 4 txt app WhatsApp...omg!

The $19 billion purchase price for such a young company without a fully developed business model is without precedent.

— Martin Garner, Senior Vice President at CCS Insight

The combination of WhatsApp and Facebook will allow us to deliver new and engaging mobile experiences, connect many more people around the world, and achieve our mission of giving people the power to share and making the world more open and connected.

— Mark Zuckerberg, Facebook CEO

In February 2014, Facebook announced the acquisition of WhatsApp for $19 billion. The acquisition closed in October 2014 at a final price of $22 billion ($4.6 billion in cash, 178 million shares, and 46 million restricted stock units), approximately 10% of Facebook’s market capitalization. WhatsApp, founded in 2009, was a relatively young company that employed only 50 people and earned merely $10 million in revenue in 2013 (see Exhibit 1). It was one of many mobile messaging services that allowed users to contact each other without paying costly text message fees. However, its popularity and growth potential enticed Facebook, which was looking for opportunities to expand its user base. CEO Mark Zuckerberg believed that WhatsApp was a logical next step that would help it achieve its mission of “making the world more open and connected.”

WhatsApp’s application was relatively simple and straightforward; in fact, one of its cofounders kept a Post-it note that stated “No Ads! No Games! No Gimmicks!” taped to his computer as a constant reminder of the company’s mission to focus on the messaging service, not extraneous add-ons.1 WhatsApp prided itself on the fact that it collected limited personal information about its users, requiring phone numbers but not names, genders, e-mails, or ages.2 In contrast, Facebook collected mountains of information on its users, asking for more and more personal data, encouraging users to fill in additional details, and tracking search histories to pitch targeted ads to users. When Facebook announced the acquisition, it vowed to keep WhatsApp operating independently, letting the founders control the direction of the company and allowing WhatsApp to stay true to its mission. Yet many debated the logic behind paying so much for such a small company with limited revenue streams. Was Facebook correct to purchase WhatsApp? Even at $22 billion? How could it create value if it did not integrate WhatsApp with Facebook?