If you ever wonder what’s fueling America’s staggering inequality, ponder Facebook’s acquisition of the mobile messaging company WhatsApp.
According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.
That’s the highest price paid for a start-up in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.
(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)
Given that gargantuan amount, you might think WhatsApp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.
WhatsApp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.
It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.
The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.
WhatsApp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)
How does it make money?
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