The Facebook acquisition of popular real-time messaging company WhatsApp for $12 billion in Facebook stock, $4 billion in cash and an additional $3 billion in restricted stock to WhatsApp employees over the next four years has sent reverberations not just through the blogosphere but also through board rooms around the world.  

As explained below, the fact that WhatsApp is being purchased is no surprise because of its customer base and the vital customer profiles that the company contains. That Facebook is its hunter is also not shocking since it needs to super-charge its own user base in the real-time messaging arena with some sense of urgency and this is the fastest way to do so.  This is a big deal in so many ways that it is hard to know where to start. 

What Facebook had to say

Putting aside for the moment that Facebook is paying roughly $42 dollars per user for a company with problematic monetization challenges and a WhatsApp management team coming over that is adverse to muddying its waters with advertizing, a good place to start is what Facebook itself had to say in revealing the WhatsApp acquisition. 

Where they began justification of the deal was with the facts, which are impressive.

WhatsApp has built a leading and rapidly growing real-time mobile messaging service, with:

• Over 450 million people using the service each month;
• 70 percent of those people active on a given day;
• Messaging volume approaching the entire global telecom SMS volume; and
• Continued strong growth, currently adding more than one million new registered users per day.

The key to this was then articulated with the following:

The acquisition supports Facebook and WhatsApp's shared mission to bring more connectivity and utility to the world by delivering core internet services efficiently and affordably. The combination will help accelerate growth and user engagement across both companies.

Ecosystem wars 

For some context on the deal, internationally recognized research firm Ovum provides some valuable insights.  According to Eden Zoller, principal analyst, consumer telecoms at Ovum:  “The social messaging market is growing rapidly, with messaging volumes to reach 69 trillion with subscribers growing to 1.8 billion by the end of 2014 according to Ovum forecasts. An immediate benefit to Facebook in the WhatsApp acquisition is that it has enabled two strong social messaging players to be on the same team.” Zoller continued by explaining that WhatsApp gives Facebook a strong presence in both mature and emerging markets outside the U.S. and Europe, and fits nicely into Facebook’s focus on keeping mobile users engaged in the Facebook  “E”vironment. 

Where Zoller really hits the nail on the head is with comments about Facebook approaching one billion active mobile users and the need to mind the gaps: “This makes innovation in mobile services and capabilities an imperative, either organically or by acquiring best in class applications like WhatsApp. With the acquisition Facebook has gained access to WhatsApp’s large repository of phone numbers, which was a missing link for Facebook’s user information. The access to phone numbers now bridges the offline and online worlds of Facebook users.”

My own take on why this is so important to everyone in the online world is that it is another indication of two important industry trends.

First, in the battle of ecosystem development, where the idea is to keep customers so delighted they will never leave your “E”vironment and you can translate face time into wallet share, the hunters have a sense of urgency to fill in the missing pieces. For Facebook, WhatApp nicely fills in the real-time mobile messaging puzzle piece.  As noted, and maybe most importantly, this acquisition gives Facebook access to all important phone numbers that will please advertisers with Big Data mining aims.

The second industry trend is that given the speed at which market dynamics are driving change, if you can’t beat them, buy them. 2014 already is on track across the information and technology industries as being a huge one for M&A, and we are not talking chump change as this deal and Comcast/Time Warner Cable have accentuated.

This is a case where the parties will not be viewed as strange bedfellows. How the mobile messaging offers of Facebook and WhatsApp eventually get melded is an open item, since for the foreseeable future they will remain separate.  In addition, the monetization of the acquisition—given the customer acquisition costs here—will be daunting.    

As I have pointed out on numerous occasions in the past two years, if you want to understand all of the M&A machinations roiling the information and communications tech world all you really need to know is to be mindful of which ecosystem—Google, Apple, Microsoft and several other aspirants to dominant player status—is missing which pieces in their positioning of their “E”vironments as places that delight customers and thus are places they never wish to leave. Those are the ones who will have treasure troves of almost invaluable customer profile information for them to use for new services and for them to leverage in attracting advertiser dollars.

What hunter is going to make the next big move?  That question is worthy of setting up a betting pool and putting odds on various “hot” companies.  One thing is certain: the time to act if you are a hunter is now, and given the valuations being thrown around, it is good to be the hunted. 

Facebook is now going to have more of our face time, and that is not just food for thought for competitors, it is a call to action.  This is really going to get interesting sooner rather than later.