What the Facebook!-Facebook to buy WhatsApp for $19 Billion

Facebook Inc. agreed to buy messaging company WhatsApp for $19 billion in cash and stock, a blockbuster transaction that dwarfs the already sky-high prices that other startups have been able to recently command.


The 55-employee company, which acts as a kind of replacement for text messaging, has seen its use more than double in the past nine months to 450 million monthly users. That makes its service more popular than Twitter Inc., the widely used microblogging service which has about 240 million users and is currently valued at about $30 billion.

But who is the face behind the WhatsApp phenomena 

Jan Koum

 According to a profile by Forbes, Jan Koum, 38, was born and raised near Kiev, Ukraine during the Soviet era. He lived as an only child in a house that didn't have hot water. He moved to Mountain View, California as a teenager with his mother, and lived off food stamps for a time. He taught himself computer programming and earned a job as an infrastructure engineer at Yahoo in the late 1990s. After working at Yahoo for several years he decided to launch a messaging app through which people could send text messages via the Internet instead of through cellular SMS texting. Brian Acton, a friend of Koum’s at Yahoo, rallied the first seed funding for the new company was named a co-founder.

Facebook’s CEO Mark  Zuckerberg has been eyeing WhatsApp for a long time and first began courting Koum early in 2012. The two had a series of discussions in the ensuing years, over dinners and walks and hikes. Zuckerberg officially popped the question on Feb. 9, telling Koum,

 “If we joined together, that would help us really connect the rest of the world.” 

Koum considered for a few days, then visited Zuckerberg’s home on Valentine’s Day to accept the deal. The two reportedly hashed out the terms of the buyout over chocolate-covered strawberries.

:In a conference call with analysts, Koum would not disclose any planned features for WhatsApp. He only offered that the company hopes to make messaging faster and more stable this year. But he did emphasize that, for now, the company is focusing on growth instead of monetization. With Zuckerberg himself saying that advertising isn't appropriate for messaging services, WhatsApp will likely continue is $0.99-per-year subscription fee as its main revenue source. But given massive amount of money Facebook just doled out, the app’s new parent company no doubt has greater long-term aspirations for it as a revenue generator.

 Forbes estimates that Koum owns about 45 percent of WhatsApp, which would net him $6.8 billion in the deal. That figure dwarfs the amount the founders of Twitter received during the company’s IPO in November.

Besides making its founders billionaires, the deal marks an enormous windfall for Sequoia Capital, the only venture firm that backed WhatsApp. Sequoia invested about $60 million for a stake valued at up to $3 billion in the deal, according to a person familiar with the matter.

The deal price also easily outranks any acquisition of startups in recent years, including Facebook's purchase of photo-sharing app Instagram for more than $1 billion in 2012, and, a year earlier, Microsoft Corp.'s $8.5 billion buy of video-calling company Skype.

Columbia Business School professor Moshe Cohen joins the News Hub and explains how Facebook's plan to purchase WhatsApp will help the social-media giant where Twitter has tripped up: ramping up its user growth.

Beyond revenue, the deal could help shelter the social network against the shifting tastes of teen users, some of whom have grown cool to it, and bolster its position internationally. WhatsApp is particularly popular outside of the U.S.

The transaction comes in the wake of Facebook's failed attempt to purchase another messaging service popular with younger users, Snapchat, for roughly $3 billion last year.

WhatsApp has long been seen as a takeover target for Internet giants. Google Inc. had reached out to buy the company several years ago, two people familiar with the situation said, while two other people said deal talks between the two companies also took place recently. A Google spokesman declined to comment.

The growth of WhatsApp

Facebook had fewer than 150 million users after its fourth year, one third that of WhatsApp in the same time period.

Equally enticing is the percentage of WhatsApp users who log onto the service at least once a day. That figure sits at 70%, even higher than Facebook's 61%.

WhatsApp processes 50 billion messages a day, Mr. Goetz wrote, yet has only 32 engineers and doesn't employ any marketing or public-relations people.

WhatsApp built its business on the idea of offering instant messaging without the fees that carriers often charge. The app lets uses send text, pictures and video to anyone with the software, free. Unlike Apple Inc.'s iMessage, it works on all the major mobile operating systems.

The company goes out of its way to remain private, offering little in the way of information to government agencies trying to track people. Once delivered, messages are deleted from the company's servers. Privacy was particularly important to Mr. Koum, who grew up in a communist country with a secret police.

"Jan's childhood made him appreciate communication that was not bugged or taped," Mr. Goetz wrote. "When he arrived in the U.S. as a 16-year-old immigrant living on food stamps, he had the extra incentive of wanting to stay in touch with his family in Russia and the Ukraine."