Strong messages from Mideast after Facebook-WhatsApp deal
The Arab world’s youthful population makes it a ripe market for WhatsApp, analysts say. However, making the business pay is another matter
As the dust settles on Facebook’s mammoth deal to buy WhatsApp, analysts point to strong growth opportunities for the instant-messaging app in the Arab world.
However, just like in other markets, questions remain over how WhatsApp’s ever-growing user base will be better monetized.
The numbers are staggering: Facebook will spend a total of $19bn - including stock and restricted stock - buying WhatsApp, which has just 55 staff.
This makes it the “largest-ever purchase of a company backed by venture capital,” the Wall Street Journal reported.
Given WhatsApp’s user base of 450 million active users, Facebook is paying the equivalent of about $42 per user. That is steep considering WhatsApp’s main revenue stream is the 99 cents it charges users in some countries after one year.
WhatsApp lets people share text messages, photos and videos on their phones. It does not release its revenue numbers, nor does it break down its user base in the Middle East.
However, regional experts say anecdotally, the user numbers are growing.
Matthew Reed, principal analyst at Informa Telecoms & Media in Dubai, said there has been a “strong” uptake of WhatsApp in the Middle East, pointing to the region’s large youth population.
Harris Breslow, associate professor in the Department of Mass Communication at the American University of Sharjah, said WhatsApp is “becoming the de-facto messaging app for many people.”
Breslow added: “It’s become very popular among young people in this region. Going forward, WhatsApp has got huge potential.”
Having users is one thing, but growing revenues is another, and there are mixed messages about how Facebook may tackle that.
WhatsApp has been steadfast in its resolution not to sell advertising - which is, ironically, Facebook’s main revenue stream.
Facebook founder Mark Zuckerberg has ruled out advertising via WhatsApp in the immediate term.
“I don’t personally think ads are the right way to monetize messaging,” he said, IT news website TechCrunch reported.
So why did Facebook buy WhatsApp?
“Facebook has been making acquisitions and has also been trying to continue its move onto mobile,” Reed said. “WhatsApp was a potential rival to Facebook.”
Breslow said the WhatsApp deal could have been an “entirely defensive” move by Facebook. “It’s amazing how much defensive purchases drive up the value of a company,” he said.
While ads may annoy existing WhatsApp users, the lure of the platform - which Zuckerberg wants to extend to 1 billion users - is clear.
Breslow said WhatsApp and other messaging apps represent the “next frontier in the monetization of social.”
The platform would be attractive to advertisers as a “highly targeted multimedia-advertising service,” he added.
WhatsApp was formed just five years ago, but is adding about a million users daily, with Zuckerberg confident it will reach a billion users.
With a contacts book that big, Facebook can perhaps afford to take a long view on making a return on the biggest investment in the company’s history.