In January 2004, Mark Zuckerberg started “thefacebook.com”. 10 years later, the classic example of disruptive innovation is an aggregator of a rich news feed, fan pages, games, apps, video and photographs albums, calendars and, maybe one of its most important features: its messaging platform. Unlike many other companies that are evaluated only by their brands and physical assets, Facebook’s greatest value is the data collected from each one of its users.
Facebook’s business model is based on two main points: the reach of those advertisements – 1.23 billion monthly active users (The Guardian, 2013) – and the possibility to direct them to their perfect target audience based on information like age, location, gender, relationship status and even what people write to their friends.
With smartphones becoming more and more essential, in 2013 Facebook noticed WhatsApp, a strong competitor. Although mainly a smartphone application, in the beginning of 2014 it had already more than 450 million monthly active users, exceeding Twitter’s 232 million (Bloomberg, 2014). According to GlobalWebIndex, a study on digital consumers, Whatsapp may be one of the reasons behind the decrease of almost 26% of Facebook’s daily teenage only in the third and fourth quarter of 2013 (Forbes, 2013). On February 20, 2014, Facebook Inc. acquired WhatsApp Inc. for approximately $19 billion in cash, stock and restricted shares (Bloomberg, 2014). According to Jim Patterson (2014), CEO of Cotap Inc., a business communicator company, “Facebook took out their primary threat and they recognize that overnight it makes them the leader in the mobile messaging space. It was clearly the first mobile app other than Facebook that was going to get to 1 billion users”.
Brian Acton and Jan Koum, former employees of Yahoo, founded WhatsApp in 2009. One of its greatest particularities is that the company did not spend any money with marketing and since the beginning avoided advertisement within the app (BBC, 2014). As mentioned by Yahoo Finance (2014), the strategy of avoiding ads was important for the company to focus on an “easy-to-use messaging product”.
But why did Facebook acquire WhatsApp? For the Financial Times (2014), JPMorgan analysts declared that mobile messaging was a “crucial part of Facebook’s core mission of connecting the world”. According to those specialists, WhatsApp is one of the few networks with a high probability of reaching 1 billion users within a few years. According to Bloomberg’s analyst, Paul Sweeney (2014), “Facebook is clearly taking out one of its main competitors.”
It is clear the importance of strategic planning in a fast growing industry like technology. Data collection and data mining became an enormous source of profit to some of the biggest companies in the world, including Facebook. The social network has a complex business model unlike most corporations in the world: millions of unpaid users generating meaningful content and value to the company, every day. WhatsApp, on the other hand, a company with a simple product and business model and less than 5 years of existence, today is worth $19 billion.
In this market, price strategies are not ideal since in order to obtain data, companies like Facebook and WhatsApp need, beforehand, users. To have differentials, regardless of the size of the target market, is the only way to gain competitive advantage. Both Companies did this by investing time and money on their products and the experience that they bring to their users. Furthermore, in such an industry, small and external threats can quickly become financial issues to the biggest corporations. Constant improvement is fundamental.
All the technological advances in hardware, software and wireless connections that we constantly see created a completely new market. With Facebook losing market to mobile applications, understanding its greatest competitors and substitutes became extremely necessary. Facebook’s acquisition of WhatApp was a strategic move in witch while it takes control of a main competitor; it acquires more than 450 million monthly users. Remains to know what will be done with all this fresh data.
About the author
Norman Pegden. Norman Pegden is a Westminster Business School student, currently studying MA in International Business and Management. Norman has plans to work with Marketing or Logistics in a Technology Company based in the UK. Get in touch at LinkedIn
