Billion Dollar Babies

This week Mark Zuckerberg made an announcement which resulted in the collective orgasm of the whole world: no, he did not star alongside Pamela Anderson in Baywatch Reloaded, almost twenty five years after the first episode made waves (no pun intended), but this was even bigger, better and more real than… you get the drift!

He bought whatsapp, for a whopping $19 billion, which is almost half of India’s defence budget. Yes, read that again: half of India’s defence budget for a messenger app on your mobile phone. Granted, only a smartphone, but still, what does it tell you about Facebook or Whatsapp?

Before you go and throw up on your FB wall with all sorts of lame jokes (Why did he pay so much? He could have just downloaded it for free), views/opinions of experts/analysts, valuations (If I wanted to revisit Aswath Damodaran, I would go back to B school, so thanks, but no thanks) or random comparisons with blackberry/Wikipedia/snapchat or any other apps/services, ask yourself one simple question: Is it his American ego at play here or is it really a astute business decision?

Did he pay such an obscene amount, well, because he can? After all, he IS THE Mark Zuckerberg. Or is it more about insecurity, as more people are shifting away from Facebook while Whatsapp is increasingly sweeping the mobile messenger market? Or is it more about recognizing a potential and less about the immediate short-term on-your-face gains? May be it is a combination of all or may be none of the above.

I don’t know. But what I do know is despite being a tech-challenged, social media averse and somewhat uncool person, I do like whatsapp and spend at least an hour every day using it. Despite being overwhelmed with multiple services (text messaging, google hangout, Facebook chat and numerous other interactive options), I prefer whatsapp for three reasons: simplicity, affordability and versatility. You don’t need to be a Mensa member to figure out the functionalities and even a self-confessed technology blonde like me can use it fairly easily (though I do have some issues with the extensive range of smileys). Secondly, it’s free. I don’t have to worry about running a huge phone bill or internet bill to keep in touch with people. Finally, it allows me to share everything from photos to videos to links with people I want to, without compromising on my privacy.

Interestingly, this philosophy of simplicity, affordability and versatility holds true for ANY product/service, be it a public good like education/infrastructure, a gadget like a tablet/phone or a service like banking/hospitality. Ask yourself, as a consumer would you rather have multiple platforms or a single one-stop-shop? As a consumer would you rather have multiple points of contact or a single touch-point? As a consumer would you rather pay a flat fee at one point which is more transparent and economical or have multiple transactions with hidden costs or commissions? It’s this philosophy that makes whatsapp so popular and any shrewd businessman would lap up the concept.

Which now brings me to Facebook. Yes, at first glance, $19 billion sounds obscene and almost smacks of arrogance. But take a look at the breakdown of that $19 billion: $4 billion in cash, $12 billion in Facebook shares and $3 billion in restricted stock units. It’s that figure $12 billion: nicely ensconced in the middle, which tells you that this is as much about Zuckerberg’s confidence in Facebook as it is about his faith in Whatsapp. Is this conviction a misplaced one? Only time will tell, but what this deal does do is make the purchase of Instagram for $1 billion look miniscule (like Orkut)

Now excuse me while I go plan a movie with my friends on Whatsapp.

After all, Facebook is paying $42 for each of us: a price which I doubt any of us can command in the job market in this economy…