Here's Why Facebook Acquired Messaging App WhatsApp For $19 Billion

Facebook announced that it is acquiring mobile messaging app WhatsApp for $19 billion, making it Facebook's largest acquisition to date.

In a statement, WhatsApp said that it will continue to operate independently and autonomously and will stick to its policy of not taking ads.

WhatsApp is the largest and fastest-growing mobile messaging app competing for revenue in the $100 billion-plus mobile messaging market, which was once dominated by mobile carriers and their SMS text services. Here's why it was an attractive target, even considering the big price-tag:

·         WhatsApp has more than 450 million monthly active users as of today, which is approximately 37% the size of Facebook's monthly active audience. 

      WhatsApp's closest competitor, WeChat, has approximately 320 million monthly active users as of Jan. 20, who are located primarily in China. WhatsApp has a much broader user base geographically.

·         In fact, it's extremely popular virtually everywhere: As recently as April 19 2013, it ranked as the number one top-selling paid iPhone app in 54 countries, and was in the number two spot in the United States, according to AppAnnie. It has shown persistence on the leader-boards. Today, it's number one in thirteen countries.

·         It boasts huge usage numbers, meaning it could be a valuable source of data for Facebook: WhatsApp users were sending 16 billion messages and 500 million images each day in December 2013. For comparison, Facebook users were sharing approximately 350 million images each day.

·         Facebook already has a messaging app with Facebook Messenger, but WhatsApp will bring a much larger footprint to the social network. For example, WhatsApp is used by 41% of Android smartphone users globally while Messenger is used by 16%. Moreover, Android smartphone users average 195 minutes each month using WhatsApp, while Messenger users average 21 minutes. That's roughly nine times more time-spend. It's evidence that WhatsApp oft-praised clean and fast user interface is very effective in keeping users glued to the app.

The acquisition of WhatsApp will also bolster Facebook's growing portfolio of stand-alone mobile apps that focus on different activities. Instagram is for photo and video-sharing, Paper is for consuming news, and WhatsApp is for messaging.

An interesting storyline that will emerge from this acquisition is how Facebook plans to make money from WhatsApp. Currently, WhatsApp is free to use for the first year and costs $0.99 each year thereafter. WhatsApp's founders have been extremely vocal about never showing ads on the app and even published a manifesto of sorts explaining why.

As we mentioned, WhatsApp CEO and co-founder Jan Koum said in announcing the deal that WhatsApp will not change that no-ads policy, and that "nothing" will change for users. Koum will have a seat on Facebook's board of directors, so there is evidence that he will have real clout.

However, Facebook generates revenues largely through advertising, and so it wasn't a surprise when it introduced ads to Instagram shortly after that acquisition. If WhatsApp really is to rely solely on subscription revenue, there might be pressure for WhatsApp to at least share user data with its data-hungry parent social network. In any case, it will be an interesting test case to watch in the context of mobile monetization.