Much has been blogged, tweeted and written about Facebook’s massive 19 billion dollar acquisition of WhatsApp. It’s fascinating story that hits at the heart of the new American dream. A dream that imagines anyone with a simple idea cannot only find success, but success on gargantuan scale. Yet as a story of rags to riches aside, a core question still remains. Why?
Many will point to a massive disruption occurring within the traditional telecom world. The research firm Informa stated in a recent report that global annual SMS revenues will fall by $23 billion by 2018 from $120 billion in 2013 mainly due to “continuing adoption and use of over-the-top messaging applications in both developed and emerging markets.” Yet these stats speak to a decreasing revenue stream, not exactly a compelling reason in itself.
Others may point to the massive growth within the mobile world. In announcing the deal the Facebook founder stated, “WhatsApp is on a path to connect one billion people. The services that reach that milestone are all incredibly valuable,” said Facebook’s CEO Mark Zuckerberg.
But does massive user growth alone makes apps like Instagram and WhatsApp so valuable? After all, Facebook already has a significant portion of the global instant messaging market through its own messaging service called Facebook Messenger. In November 2013, a survey of smartphone owners found that WhatsApp was the leading social messaging app in countries including Spain, Switzerland, Germany and Japan. Yet at 450 million users and growing, there is a strong likelihood that both Facebook and WhatsApp share the majority of the same user base. So what’s driving the massive valuation? One answer might be users attention. Unlike many other mobile apps, WhatsApp users actually use this service on an ongoing daily or even hourly basis.
“Attention,” write Thomas Mandel and Gerard Van der Leun in their 1996 book Rules of the Net, ”is the hard currency of cyberspace.” This has never been truer.
WhatsApp’s value may not have much to do with the disruption of the telecom world as much as a looming battle for Internet users rapidly decreasing attention spans. A study back in 2011 uncovered the reality for most mobile apps. Most people never use an app more than once. According to the study, 26% of the time customers never give the app a second try. With an ever-increasing number of apps competing for users attention, the only real metric that matters is whether or not they actual use it. Your attention may very well be the fundamental value behind Facebook’s purchase.
In a 1997 wired article, author Michael H. Goldhaber describes the shift towards the so called Attention Economy; “Attention has its own behavior, its own dynamics, its own consequences. An economy built on it will be different than the familiar material-based one.” writes Goldhaber.
His thesis is that as the Internet becomes an increasingly strong presence in the overall economy and our daily lives, the flow of attention will not only anticipate the flow of money, but also eventually replace it altogether. Fast-forward 17 years and his thesis has never been more true.
As we become ever more bombarded with information, the value of this information decreases. Just look at the improvements made to Facebook’s news feed over the years. In an attempt to make its news feed more useful, the company has implement-advanced algorithms that attempt to tailor the flow of information to your specific interests. The better Facebook gets at keeping your attention, the more valuable you become. Yes, you are the product.
Google has implemented a similar strategy around its Google Now service. Google Now is an intelligent personal assistant, which attempts anticipate your information needs before you even realize you need or want it. Its contextual, it adapts to you, its omni-present and its tuned to your particular needs. Yet its true value is that it has your attention, just when it thinks you need it.
Yet Goldhaber, Facebook or even Google weren’t the first to notice this trend toward an attention centric economy. Back in 1971 Herbert A. Simon was among the first to write about the concept of attention economics in his book “Designing Organizations for an Information-Rich World” where he wrote that “…in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it” (Simon 1971, pp. 40–41).
In a nutshell this is what I believe Facebook is buying. They are buying an application that people use on daily basis. They are buying your attention.