The entire blogosphere is buzzing with the news of Facebook’s $19 Billion acquisition of WhatsApp. Yeah you read it right, billion with a B. For an app that allows people to send messages to each other. Something similar to what ICQ did in the old days and the AOL messenger not so long ago. Two questions come to mind:

  1. Why does this acquisition makes sense?
  2. Is the price tag justified?

WhatsApp is a fairly big deal in developing countries. I got to witness this first-hand when I visited India couple of months back. I was surprised to see that grocery stores owners, carpenters, plumbers talk to their customers via Whatsapp. All of them probably use facebook too, but the simple, yet effective interface of WhatsApp makes it a good candidate for simple business transactions. I also feel that WhatsApp is very popular tool for group communications. All my cousins and aunts and uncles are communicating with each other all the time. There are gazillions of applications that allow people to communicate, one-to-one or in groups. So what sets WhatsApp apart?

It doesn’t have the best looking UI, neither does it have a lot of cool features. On the contrary, WhatsApp’s no nonsense and simple design have made it so popular. It performs one function and does it admirably well. The second reason why it rose so much in popularity was because it allow people to message in groups internationally. There was no other application at that time that offered this functionality.

Now what does this mean for Facebook? Is it acquiring a lot of customers through the WhatsApp acquisition? I don’t have any sense, but probably not ¬†judging from the huge overlap in my FB and WA networks. However, at the very least, they are acquiring a lot more mindshare. Think of all the time users spend on WA.

Now, is WA worth $19 to FB? I have no clue and only time will tell.

However, I am amazed at the rate of growth of WA in terms of value. Do the crazy (high) valuation for companies like Snapchat, Instagram and WA and the relatively low valuation for companies like Tesla, Airbnb, ALCOA, Campbell Soups etc. point to a structural change in the market economics – one where customer attention is more important than $$? Or does it just represent an enormous bubble in the social network/tech market?