Mar 6 2014, 2:26am CST | by Forbes
Facebook’s $19 billion acquisition of messaging service WhatsApp, announced last month, is one of many signs of large businesses’ insatiable appetite for customer data and better reach.
This is according to industry experts, who note the large price paid for the company – and the context of Facebook looking for both greater access to a young audience and better knowledge of customers’ spending habits. But experts also warn of the information analysis challenges facing Facebook and other companies that make acquisitions with data and reach in mind.
Last week, Facebook founder Mark Zuckerberg insisted that WhatsApp was “worth more” than the $19 billion price tag, because of its user base and “engaging” format.
Part of Facebook’s information-related rationale for the acquisition lies in the way users share data, according to Ovum principal analyst Mark Little. “The more Facebook users there are, the more sharing activity and the more connections that users have, then the more inventory is available for advertising, thus driving revenues,” he explains.
Whatsapp could be used to drive sharing activity and therefore advertising on Facebook, Little says, by adding experience-enhancing features on the platform – “thereby splitting a functional business model in two: ‘value creation’ on Whatsapp but ‘value capture’ on Facebook”.
Todd Thibodeaux, president and chief executive at industry Association CompTIA, likens the data and customer gain in Facebook’s acquisition to other major M&A activity in the technology market. One example is the $1.1 billion Yahoo acquisition of Tumblr, which Thibodeaux describes as “lots of money for a list of names”.
An even larger example is Microsoft’s $8.5 billion purchase of Skype. “They [Microsoft] paid a premium way above what they might have to get customer data,” Thibodeaux says.
At the time, “many pundits and media outlets wondered what Microsoft was getting for its money”, adds Tim Herbert, VP of research at the organisation. “Some of the same arguments were made back then: Skype had a large user base; it allowed Microsoft to further extend its reach into the consumer space, international market, and so on.”
The vast data analysis challenge
While acquisitions of this scale can seem attractive on paper, given the and amount of user data on offer, businesses face a real challenge retrieving useful, actionable information, and then monetizing it.
“The truth is that most companies are not equipped to deal with the data streams they have now,” says Thibodeaux. “Adding to the volume only compounds this challenge.”
“For those companies, almost exclusively large companies with sophisticated supply chains, they can do a lot. It’s still a big mystery to most companies.”
Another challenge is user trust, Little at Ovum says, and the risk of failing to establish it is great. But if this area is managed properly, a treasure trove of information can be monetized. In Facebook’s case, “Zuckerberg needs to build ‘Big Trust’ with Whatsapp users or face watching them try out new apps such as Telegram, the new German Whatsapp clone,” he warns.
Julie Ask, a VP at Forrester Research, wrote in a recent blog that she was convinced Facebook would be effective in making the most of the data. She notes: “Facebook gets how to monetize mobile through paid advertising, without wrecking the user experience.”
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.
blog comments powered by Disqus
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.