Menu
Kim Kardashian Leaked Photos Backlash

Kim Kardashian Leaked Photos Backlash

Benedict Cumberbatch is Alan Turing in The Imitation Game

Benedict Cumberbatch is Alan Turing in The Imitation Game

Amber Heard Topless Photo Leaked

Amber Heard Topless Photo Leaked

The Sexiest Halloween Costumes of 2014

The Sexiest Halloween Costumes of 2014

Oculus Unveils Crescent Bay, its New Virtual Reality Headset Prototype

Oculus Unveils Crescent Bay, its New Virtual Reality Headset Prototype

Facebook WhatsApp Deal: Boneheaded or Brilliant?

Feb 25 2014, 3:17pm CST | by , in News | Technology News

Facebook Buys WhatsApp: Boneheaded or Brilliant?
Photo Credit: Forbes
 
 

YouTube Videos Comments

Full Story

Facebook WhatsApp Deal: Boneheaded or Brilliant?

Conventional wisdom seems to be seeing that Facebook paid too much to acquire WhatsApp, a mobile texting startup that is enjoying meteoric success in  developing countries. At $19 billion, the price may exceed the GNP of some of those countries, so I see the point if you think that is what should be measured.

But I don’t think Mark Zuckerberg is much os a conventional thinker. If he was, then Facebook would not have transcended from a dating site for Ivy League fraternity boys into the world’s largest social network. I am not Zuckerberg’s greatest fan, but his ability to choose roads not taken and get to important goals before anyone else has been pretty impressive so far.

I personally, think this is a brilliant–but risky–deal, one that give Facebook a clear shot of becoming the most successful of all Internet companies in the 21st century, but I am looking through an unconventional prism.  As Katie Paine, a social measurement expert has taught me, companies become what they measure.

Brandon Wirtz, CTO at Stremor.com in Scottsdale and I are Facebook friends. We have talked there often, but have never met in real life. I like his ideas and perspective over all, but last week we banged heads over this acquisition. He hates the deal, but I love it. He is looking at the numbers which don’t add up; I am looking at the story, which is exciting whether Facebook soars or plummets because of this buy.

While I see this deal as brilliant, Wirtz sees it as boneheaded. He sees evidence that this deal must be bad because Facebook stock immediately ratcheted down upon its announcement. I don’t find much credibility in the knee-jerking, wallet-slapping reactions on Wall Street. There was a time when the place was about what a company might achieve in a few hours. Now it seems to me to be more like offtrack betting that the stock price will open higher tomorrow morning than it closed last night.

Mark Zuckerberg has already demonstrated his respect for Wall Street by showing up in a hoody when he first visited the folks in Gucci suits and Ferragamo shoes before Facebook’s IPO.  The stock suffered from that play but not for very long. I think he deals with Wall Street the same way most of us deal with the IRS–as an unpleasant requirement.

Wall Street sees Zuckerberg as quixotic. Zuckerberg, in forging the strategy for the world’s most successful social network complies with them, but doesn’t play to them. And he is anything but quixotic. His goals are clearly stated and have been often repeated: He wants Facebook to dominate the world. For several years he closed staff meetings with employees all shouting “Dominate!” Once the company went public he complied with legal advice that this was an unwise ritual.

For the last few years, he has modified his stated goal: Facebook will connect all people in the world.

I first noticed him saying that in his poorly received address to Wall Street, way back in 2013. He repeated it, when Facebook announced last October that it would spend $200 million to acquire Onavo, an Israeli company that trims mobile phone  costs for people in developing and underdeveloped countries, a move that was scorned on Wall Street for a few days until investors forgot about it.

Zuckerberg’s moves, it seems to me, are much more carefully orchestrated than most people realize. Facebook has a firm position in the first world where it must compete–often fiercely–with several other capable and and agile Internet companies. The real question is where are all these companies going in the next five, ten and 20 years. And what is the shortest–least travelled–route to getting there?

Hs competitors follow conventional wisdom and play to the investment community in the way that most public companies feel compelled to play. Corporate strategies very often end up about making quarterly results. Zuckerberg give every possible indication that he is looking elsewhere and that elsewhere is in developing nations often overlooked or disdained by the tech elite community.

That hoody didn’t play well to the house on Wall Street but the perception might have been quite different on the streets of Senegal, Brazil or India where ancient feature phones are shared by entire families and iPhones and Androids still have a few years before they find their way into the lives and budgets everyday people in developing lands.

My friend Brandon Wirtz is dismissive of a deal that has Facebook paying $80 per WhatsApp customer, when many of those customers don’t make $80 in a month. That’s good conventional analysis of good conventional numbers, but I doubt that is where Facebook is looking. In WhatsApp they see a bridge into the 21st century when the world inches toward the flatness that Thomas Friedman wrote about.

Facebook is taking a long view, that Google, Apple, Amazon, Microsoft, Yahoo! and other may not yet be seeing. Most of those companies are doing quite well with available low-hanging fruits of the First World orchards. Facebook seems to be forging out into the jungles and deserts that are yet unexplored by rivals.

Wirtz sees what these other companies sees and what Wall Street sees and there is nothing wrong with that perspective. There is a great deal of money to be made in marketing to the sort of people who read Forbes; who drive upscale cars and are willing to pay a few hundred dollars for a tablet computer, and only grumble slightly at the price of our data plans.

But sooner or later, you reach a point of saturation where all pack members end up selling the same goods and services and the only way to compete is on price. This is the conventional thinker’s dilemma.  If you keep doing what you have always done, you end up trying to pilfer your competitor’s customers because there doesn’t seem like anywhere else you can go.

The WhatsApp acquisition shows Facebook’s determination to follow the road not yet paved. It is a bold move, filled with peril along the way. But that’s the right course if you measure the number of potential users in the workd rather than the cost of acquiring each user and the potential for selling ads to each user today.

Using rough and unpolished numbers, there are about about 1.5 billion people using Internet technology today. Most  are already Facebook users.  Where is the growth? If you stay focused on just these, you can only hope more babies are born and grow up to use your technology before their grandparents wither off and sign out. Where does a company like Facebook, Google or Apple find its next billion customers? And what about the billion after that?

The answer may be more likely found in Paraguay than in Palo Alto. Currently, they are carrying not-so-smart feature phones in their pockets, phones from companies like  Nokia, Symbian, Motorola and Sony Ericsson—brands rarely mentioned in Silicon Valley.

Very often the people using these phones  are young and hungry for more than what they have now, more than what their parents had before them. In these devices that you might consider to be outmoded, they see hope. In these devices they are conducting their first online conversations, and in time they will start connecting with stangers in other places, stranger with whom they share common interests, strangers with whom they may eventually do business, strangers who become friends like Brandon Wirtz and I have done on Facebook.

For nearly two years, the first place such online conversations have taken place has been on WhatsApp where more text conversations are being held than through any other means. In a short while 450 million people have signed on and that number is growing at one million per day. It is a good bet that post-acquisition, that rate of adoption will rise. Chances are likely that in the coming years, the first conversation hundreds of millions of people in developing nations will have online will be on a Facebook platform. When you look at it that way, then $19 billion is a bargain.

You have probably been reading and hearing about a new global phenomenon called that is being called the sharing or collective economy. You hear about alternatives to taxi cabs or hotels or way for affluent people to not have to sell off their yachts. All this interests me, but I see something far lager, more enduring and world-changing taking place. I believe that what is really happening is the the Internet and the contextual forces of mobile, social media, sensors, location technologies and data are removing the barriers to marketplaces. More people in more places are getting more opportunities to buy, sell, trade, barter and share.

I think my friend Wirtz is missing how this new open economy  is about to disrupt the formulas and ratios of traditional investors. We are entering a world where a revolution that started with the Internet, was accelerated by social media and the other contextual forces is reshaping the fundamentals global economics. Traditional best practices are starting to be shunted aside by better practices. Governments are no longer the only ones who can create currency; banks are being cut out of transactions. Artisans joining a global community working on dirt floors in jungle huts are getting access to Nordstrom shelves. through Etsy, a relatively new online community.

As my friend Robert Scoble says. The haves and have nots are not being defined by wealth, so much as by who has Internet access.  Geography as an economic barrier is waning as more and more marketplaces relocate to online spaces and the result very well could be a more balanced distribution of global wealth.

This balancing trend has been going on but remains pretty much ignored. While the US seems to be widening its gap between affluent and poor, other countries are  reversing direction, a trend apparently unnoticed by many conventioal strategists–but not all.

At some point last week, Scott Monty, Ford’s top social media executive, joined Wirtz and me in our Facebook debate. He pointed out that the world’s leading auto makers are investing hundreds of millions of dollars in Brazil where WhatsApp enjoys great popularity.

Wirtz had some fun discounting Brazil in terms of economic opportunity for either Ford or Facebook.

“[Buying WhatsApp] would be like Ford saying ‘Llamas are really popular in Brazil. Let’s buy all the llama dealers, at $25k a customer, so we can convince the users to buy a $15k Ford Fiesta, without bothering to check to see if the Fiesta will make it up to their mountain homes.’”

Well, beside the fact that Brazil is more jungle than mountain, and that the llamas are mostly on the other side of those mountains in Peru, Argentina, Bolivia and Chile, much has happened in  South America, apparently without Wirtz’s notice.  Far more Brazilians live near te ocean than up mountains.

Apparently also unnoticed was that Brazil’s GNP has been growing at a healthy pace during the very same years that the ours has been lulling around doing very little. Brazil’s unemployment is at an all-time low, according to the Mundi Index. Brazil and its llama-accommodating neighbors have an emerging middle class. They are gaining unprecedented family affluence as well as education and access to the rest of the world via technology.

What will this move mean to Facebook over the next five, ten, 20 or 50 years? How will it position Facebook against Google, Apple, Amazon, Microsoft and the other titans of today?

One can only guess. But Zuckerberg is willing to bet it is worth a lot more than $19 billion and I for one would not bet against him. The biggest obstacle will be to figure out how to converge texting and social networking platforms. Historically, that has been like trying to mate sheep and llamas. It remains to be seen how Facebook will handle that.

Source: Forbes

 

You Might Also Like

Updates


Sponsored Update


Advertisement


More From the Web

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Erica Mena Announces Engagement to Shad Moss
Erica Mena Announces Engagement to Shad Moss
The couple had been dating for a little under six-months before he proposed.
 
 
The Big Bang Theory Season 8 Premieres Today
The Big Bang Theory Season 8 Premieres Today
The Big Bang Theory Season 8 premieres with the first two episodes today at 8 p.m. on CBS. Watch the newest The Big Bang Theory Season 8 teasers below. And, yes. Kaley Cuoco has short hair.
 
 
Roger Moore Knows more about Star Wars VII Than You
Roger Moore Knows more about Star Wars VII Than You
Sir Roger Moore, the Bond actor with the most missions has visited the Star Wars VII set.
 
 
Rockefeller drop Fossil Investments in Favor of Clean Energy
Rockefeller drop Fossil Investments in Favor of Clean Energy
Money Talks. That fact makes this announcement of the Rockefellers a huge deal.
 
 
 

About the Geek Mind

The “geek mind” is concerned with more than just the latest iPhone rumors, or which company will win the gaming console wars. I4U is concerned with more than just the latest photo shoot or other celebrity gossip.

The “geek mind” is concerned with life, in all its different forms and facets. The geek mind wants to know about societal and financial issues, both abroad and at home. If a Fortune 500 decides to raise their minimum wage, or any high priority news, the geek mind wants to know. The geek mind wants to know the top teams in the National Football League, or who’s likely to win the NBA Finals this coming year. The geek mind wants to know who the hottest new models are, or whether the newest blockbuster movie is worth seeing. The geek mind wants to know. The geek mind wants—needs—knowledge.

Read more about The Geek Mind.