STRATEGIC

MANAGEMENT
STMBJ22-3

Case Analysis: $19B 4 txt app WhatsApp…omg!

Group 8, Section C
Akash Gupta BJ22112

Alankrit Khanna BJ22113

Ashmita Chatterjee BJ22117

Ishit Agarwal BJ22124

Jash Vora BJ22126

Manisha Mandal BJ22130

Sagar Garg BJ22145

a. The most outrageous waste of shareholder funds or

b. The deal of the century

Explain your reasons.

Solution:

The acquisition of WhatsApp by Facebook for $22 billion was a highly debated topic in the
business world. Some argued that the price paid by Facebook was too high, while others saw it
as a strategic move to expand Facebook's reach and diversify its portfolio. From a financial
perspective, the price paid by Facebook for WhatsApp was high compared to traditional
valuation metrics, such as revenue or earnings multiples. However, WhatsApp had a massive
user base and a fast-growing messaging market, which made it a strategic asset for Facebook
to acquire.

Both Facebook and WhatsApp are market leaders in the social networking space, however,
WhatsApp has a completely different customer value proposition and economic strategy than
that of Facebook. As a consequence of their different value propositions and revenue models,
they appeal to starkly different market segments. Thus, Facebook's acquisition of WhatsApp
allowed them to diversify and enter the instant messaging space. One may argue that
Zuckerberg's acquisition of WhatsApp is an effort to extend Facebook's current economic
models rather than rethinking them entirely. WhatsApp's value comes from its pristine
messaging platform and engaged active user base. WhatsApp's value would swiftly disappear
if Facebook were to entirely integrate it into the current Facebook app.

The acquisition was made for two main reasons. First, to continue to be the top social media
firm, the primary goal for Facebook was to strengthen its market position. Since people in other
countries prefer instant messaging to Facebook, WhatsApp is seen as a danger to Facebook,
and this agreement eliminates this threat. Additionally, the PJC Teen Survey indicates that
Facebook and Google are rivals (see Exhibit 2), and given that Google has also made a bid for
WhatsApp, its acquisition will aid Facebook in temporarily keeping Google out of the instant
messaging realm. The acquisition of WhatsApp offered Facebook a huge competitive
advantage in the messaging market as Facebook was also facing rising rivalry from other
messaging apps like WeChat and LINE. Furthermore, WhatsApp's emphasis on encryption and
user privacy was in line with Facebook's plan to increase user security and trust.

Second, Facebook prioritizes customer growth over revenue generation. In 2014, WhatsApp
had a monthly user base of over 500 million and added over 1 million new users per day.
Compared to the 70% of active users on WhatsApp, only 62% of Facebook users were active
every day. Also, 500 million photos are shared daily between WhatsApp users, a number that
was 150 million greater than that shared by Facebook users.

With the aim of bringing people from all over the world together, Facebook and WhatsApp
both have sizable, active user bases in the social networking space. Both businesses would gain
from the consolidation of powers since they have the same goal of improving global
communication through internet services. WhatsApp would support Facebook's growth in
remote regions with less access to the internet but high WhatsApp usage, in turn helping
Facebook gain access to this enormous consumer base. Thus, there are countless ways to make
money off of this user base, and when the opportunity cost of letting rivals take over WhatsApp
was taken into account, acquiring WhatsApp appears to be the right move.

Q2. If it was up to you, how would you monetize WhatsApp?

Solution:

WhatsApp generates revenue through WhatsApp for Business and WhatsApp Pay. In addition
to these two avenues, WhatsApp may also show targeted advertisements in the stories section,
without endangering the users' privacy. One possible way to monetize targeted advertising on
WhatsApp could be through sponsored messages, where businesses pay to send targeted ads to
users. These ads could appear as messages in the user's inbox, similar to how regular messages
appear. Another possibility is that WhatsApp could offer businesses the ability to advertise
within WhatsApp Status, which is a feature similar to Snapchat and Instagram stories.
Businesses could create targeted ads in the form of short videos or images, which would appear
within the Status section of the app. However, any move towards targeted advertising on
WhatsApp would likely face strong opposition from users and privacy advocates. As a result,
WhatsApp would need to tread carefully and find a way to monetize the platform that respects
user privacy and provides value to users.
In addition, WhatsApp might use the duration between dialing and for the receiver to pick up
broadcast advertisements to subscribers. In addition, WhatsApp might use the duration between
dialing and for the receiver to pick up broadcast advertisements to subscribers. WhatsApp can
also test out different ad placement strategies without harming the user experience.
WhatsApp has also introduced a range of business tools aimed at small and medium-sized
enterprises (SMEs), such as WhatsApp Business, WhatsApp Business API, and WhatsApp
Business Solution Providers. These tools allow businesses to communicate with customers,
automate messaging, and integrate with their existing customer relationship management
(CRM) systems. WhatsApp could monetize these tools by charging businesses a subscription
fee or a transaction fee for using them. WhatsApp could charge users for access to advanced
features like voice and video calls, cloud storage for media, or customized stickers.

Nowadays, gamification has also become very popular. Allowing users to play some
straightforward paid games on the WhatsApp platform and then taking a cut from the revenue
can be another way to make money without impacting user interaction experience, even though
the platforms may need to incorporate some alterations to accommodate the idea.