It was an inauspicious beginning for the most ridiculous internet purchase since the last dot com bubble, Facebook’s $19 billion acquisition of Whatsapp.
Facebook acquired WhatsApp, a company with at most $300M revenues, and 55 employees, for $19billion. That’s billion – with a “b.” An astonishing figure that is second only to HP’s acquisition of market leader Compaq, which had substantial revenues and profits, as tech acquisitions. $19B is 13 times Facebook’s entire 2013 net income and almost 2.5 times Facebook’s 2013 gross revenues.
On the mere face of it this valuation should make the most dispassionate analyst swoon. In today’s world very established, successful companies sell for far lower valuations. Apple is valued at about 13 times earnings. Microsoft about 14 times earnings. Google 33 times. These are small fractions of the nearly infinite P/E placed on WhatsApp. SEE MORE AFTER CUT>>>>>
Not So Fast: Why The WhatsApp Deal Doesn’t Mean BlackBerry Messenger Is Worth Billions
There is a leadership lesson offered here by CEO Zuckerberg’s team that is well worth learning.
1. Move fast to avoid irrelevancy.: Irrelevancy can happen remarkably fast. True in any industry, but especially in digital technology. Examples: Research-in-Motion/Blackberry. Motorola. Dell. HP. Facebook is not immune to changing market trends. Although it has been the benchmark for social media, it only achieved that goal after annihilating early leader MySpace. And although Facebook was built by youthful folks, trends away from using laptops and toward mobile devices have challenged the Facebook platform. Simultaneously, changing communication requirements have altered the use, and impact, of things like images, photos, charts and text. All of these have the potential impact of slowly (or not so slowly) eroding the value of Facebook.
Most leaders address such challenges by launching new products to leverage the trend. And Facebook did that. Facebook managers and technologists not only worked on making the platform more mobile friendly, but developed Facebook’s own platform apps for photos, messaging and all kinds of new features. But, and this is critical, external companies did a better job. Two years ago Instagram emerged as a leader in image sharing. And WhatsApp developed a superior answer for messaging. Historically, we trained leaders to say “we need to find a way to beat these new guys.” Management would make it hard to integrate new solutions with their dominant platform in an effort to block their growth. Management would spend hugely on marketing and branding to try overcoming the emerging leader’s building brand position. Often management would file intellectual property litigation in an effort to cause short-term business interruption and threaten viability. The entrenched leader might even try hiring the emerging company’s tech leader away to stop development. So while Facebook’s newly acquired subs are scrambling to figure out why they cant send a text message halfway around the world for free, and are considering using the iMessenger service, which would also achieve the same result, also for free, one well known hacking group, Anonymous, has implied it may be involved in the crash.