Analysis of the case - $19B 4 txt

app WhatsApp…. Omg!

Section A – Group 7

Karan Piyush Kariya | BJ22018

Krupal Kuruvilla Abraham | BJ22020

Philip MP |BJ22028

Rahul Jain | BJ22034

Rutwik Borkar | BJ22036

Swathi C | BJ22046

Vivek Philip | L22005

Q1. Do you think that Facebook’s purchase of WhatsApp for $22 Billion is either:
a. The most outrageous waste of shareholder funds or
b. The deal of the century?

Explain your reasons.

It's debatable whether Facebook made the right choice in purchasing WhatsApp for $22 billion, but
it was one of the largest tech acquisitions during that time. Many speculations flew around both
criticizing as well as in support of the deal.
We think that the purchase of WhatsApp by Facebook for $22 Billion can be considered as the deal
of the century. The rationale for this decision is the following:
1. The founders of both WhatsApp and Facebook had similar visions for their companies. They
wanted the emergence of a connected world where people from all over are in a network for
which they wouldn’t have to pay exorbitant fees. This common vision helped Mark Zuckerberg
to create a good rapport with the founders of WhatsApp and helped in the formation of this
jaw breaking deal even when the fact remains that Google was ready to acquire WhatsApp at
the same time and was even ready to top the price quoted by Facebook.
2. The increasing popularity of chat applications over text messages. To quote from the case,
“Nielsen reported that three out of every four smartphone users used a chat application in
2013. Social messaging traffic exceeded SMS volume in 2013, and researchers predicted that
global annual SMS revenues would decrease from $120 billion in 2013 to $97 billion by 2018.
In contrast, annual revenues earned by chat applications were expected to increase from $1
billion in 2013 to nearly $25 billion in 2017.”
In addition, Mark itself acknowledged the fact that WhatsApp is the only app that had higher
engagement and a higher percent of people using it daily than Facebook itself.
3. The younger generation found the WhatsApp attractive and preferred it over every other
application in the social media landscape. They felt that the application was very convenient
to get started with. It is also known to have very strong privacy and security features including
end-to-end encryption. This was very important for people concerned about their online
privacy.
4. Future potential for synergy between WhatsApp & Facebook. Facebook valued WhatsApp
at $15.3 billion and attributed it to the expected future benefits from synergy of WhatsApp &
Facebook. It was expected to give them the strategic advantages from expansion of our
mobile messaging offerings. According to the case, Sterne Agee estimated that WhatsApp
would have 2 billion users by 2020. This was a great option for Facebook to expand its user
base exponentially which could translate into significant revenue in the future.
5. Success of Instagram Acquisition. At the time of Instagram's acquisition, Instagram had 30
million users; at the time of WhatsApp's acquisition, WhatsApp had 600 million MAUs.
Therefore, adding WhatsApp to Facebook's portfolio allowed Facebook to diversify and move
into a popular new segment of social networking. By keeping WhatsApp independent, its
founders were able to focus on product development and user growth, which eventually
would lead to major pay-outs for Facebook.
6. Acquisition as a defensive move. WhatsApp constituted a long-term danger to Facebook,
particularly given that both businesses aimed to enhance communication and link people
around the globe. Meanwhile, Google and Apple, two of Facebook's rivals, were attempting
to make significant inroads into the messaging market, with Google even making a bid for
WhatsApp. By acquiring WhatsApp, Facebook eliminated a worthy rival and gained a
competitive advantage in the crowded messaging market. It was likely that Facebook would
eventually resemble WhatsApp or at least provide many of the same features.
7. Linking WhatsApp with Facebook. The two apps may attract users to one another and
lengthen their use overall. The relationship would enhance the amount of data Facebook
would have, allowing it to target even more precise adverts to consumers, even though
historically WhatsApp only requested the bare minimum information from its users.
Q2. If it was up to you, how would you monetize WhatsApp?
Note: Present one specific option (in brief) which is different from what Facebook/Meta is currently
(as of 2023) doing.
Product
• Since, WhatsApp is already onboarding businesses on its platform, we feel there is a strong need
for a unified experience to enable customers to complete end-to-end shopping experience on
WhatsApp itself, for the following constituent elements are needed:
• New page/tab for discovering both local businesses based on user location and for browsing
through established nationwide brands.
• Chatbot-powered chat windows provide customers with a comfortable buying experience that
opens once they select a business from the aforementioned page. Integrated payment gateway
in the chat window for checkout and payment through WhatsApp Pay
• This integrated solution can be called ‘WhatsApp Marketplace’. WhatsApp Marketplace will bring
in revenue through the following 2 streams:
o Transaction fees on items bought through the WhatsApp Marketplace
o Transaction fees on payments made through WhatsApp Pay
• The vendors on WhatsApp Marketplace will be provided with a discrete app to design and
maintain their landing pages, chatbots, product listings etc. and will be able to view the purchase,
returns, in-transit history also of the products sold on WhatsApp Marketplace
• Potential synergy can be achieved between Facebook, Instagram and WhatsApp through
leveraging cross-platform customer data analytics to provide tailor-made user experience on
WhatsApp Marketplace:
• Based on user behaviour and products browsed on Facebook and Instagram, a customised list of
businesses and products can be shown to the user on WhatsApp Marketplace. The data can also
be used to do targeted marketing of relevant businesses or products on the WhatsApp
Marketplace page.
• The revenue is mainly driven by transaction fees on WhatsApp Marketplace and WhatsApp Pay,
as the pricing power increases due to an increase in market share, the Revenue side can grow
over the years.
• The Cost side is mainly driven by amortized R&D costs, API costs and other operational costs.
Over time we can optimize the operations of the product and marginally reduce the cost side.
Users of the Planned Service

Small Scale Businesses/MSME

Our Monetization model can help small businesses discover the best prices and
at the same time use WhatsApp’s marketplace to scale up quickly and sell off
their products to those in need of it.
In return, WhatsApp can charge a nominal platform usage fee/ discovery fee to
generate sizeable revenue.
Further WhatsApp with expertise from Facebook can generate specialized
business solutions to present personalized services and charge premiums to
resolve problems and aid in their growth story, creating loyalty.
Also, WhatsApp can explore governmental collaborations to create brand
premium and aid in social development causes and make it indispensable to
any country’ s economy and have very high user recollection rate.

Working Population
On the integration of a possible marketplace with WhatsApp Pay, the adoption
rate and use frequency of the service are bound due to the perfect
supplementary nature of the services and the boost to possible value creation.
The changing demands and needs can be understood via Facebook data
collected over time and synergies can be created to ring-fence the consumers.
Further, the adoption of WhatsApp Pay can be boosted post creating a
sustainable brand value to enhance the use cases and frequency of use for
personal & even low-value transactions.
The penetration brought by the first B2B business category will help faster
adoption and higher growth rates in developing countries in the near future
Monetization Model
WhatsApp currently has 2.44 billion active users. Assuming 10% of the users are deeply engaged
with the platform – this implies around 244 million would adopt the WhatsApp Marketplace
product.

• The adoption rate and usage frequency will vary across the age groups with younger groups
exhibiting higher adoption rates and higher usage frequency.

• It is estimated that the ‘revenue:user’ ratio for developing countries is 20% to that of
developed countries (as per the case), this will also be a major factor while considering
cashflows.
• The userbase will increase gradually over the years as penetration of WhatsApp increases and
furthermore penetration of WhatsApp Marketplace grows.