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3 Reasons In House Counsel Should Know WhatsApp With Facebook

By William Peacock, Esq. on February 20, 2014 11:55 AM

Facebook struck again, this time dropping $19 billion ($16bn for the company and $3bn for the company's founders, per Wired) on WhatsApp, an insanely popular messaging app. For context the number is:

In short: it's a big, big number. And even if you didn't strike it rich in the deal, there are reasons you should be paying attention.

3. WhatsApp was Actually Pretty Great Private. What Now?

As Wired notes in its feature on WhatsApp's founder, Jan Koum, who escaped Communist Ukraine at the age of 16, was understandably spooked by surveillance. Early on, he declared that the app would not carry advertising and would not store messages.

The money quote from Wired: "People need to differentiate us from companies like Yahoo! and Facebook that collect your data and have it sitting on their servers."

Facebook and WhatsApp say that things won't change with the acquisition, but it's $19 billion. Fellow Facebook acquisition Instagram has slowly creeped towards Facebookism, with a similar-looking web interface (it was app-only before the purchase) and ads displayed to users.

If your company, or your employees, were relying on WhatsApp for secure messaging, it's time to look elsewhere.

2. Revenue Matters

Instagram, even now, has only a third as many users as WhatsApp. Even still, why was it worth $18 billion less?

One factor could be revenue. Instagram was free for users and lacked ads. It's revenue, at the time of purchase, was nill.

WhatsApp has 450 million active monthly users, many of whom pay about $1, £1, or €1 annually. (The first year is free. After that, the app nags you to pay.) The company adds another million users per day. The high rate of growth and willing paid subscriber base is something Facebook's prior acquisition lacked.

Plus, Facebook has had ongoing problems with an aging user base and teens flocking to apps, like WhatsApp, for social interaction. They just bought back an important demographic.

Attorneys guiding young companies should take note: free apps with advertising isn't the only way for a company to make it big.

1. The Techpocalypse in Neigh

Seriously, we repeat: the bubble has got to burst soon. Monster prices like $4 billion for Pinterest, a social scrapbook, $3 billion for Snapchat, $19 billion for this image/video/audio/text messaging app are not sustainable.

Facebook is worth $170 billion or so now, but it's already seeing declining popularity amongst the most important demographic (young people). Zynga was the next big gaming company, with its FarmVilles and Mafia Wars. It's now a withering laughingstock.

Consumer tastes are fickle, popularity is fleeting, and yet, companies are spending unimaginable sums on basic apps. That's just one of the parallels to the last bubble.

Am I nuts? Do 450 million active users, and one million more per day, add up to $19 billion? Tweet us your thoughts @FindLawLP.

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