Saturday, February 22, 2014

WhatsApp? Some Random Thoughts

- Market basically liked this $19 Billion purchase of 'WhatsApp' by Facebook (FB). Market thinks that spending around 10% market cap (Facebook is around $170+ Billion in Market Cap) to acquire 400+ Million is a fair game. Zuckerberg is right, WhatsApp is going to have Billion adapters soon and that is valuable given that those audiences spend more time on WhatsApp and they are younger. Media and Market already know how 'desperate' Facebook is to get 'fleeting teens' as its users. Even if FB makes per user of WhatApp $20, FB would get back its money in a year. 

- "Zuckerberg's one year whatsapp subscription expired, so he bought whatsapp instead of subscription." 
Friends's friend on Facebook commented.

- Distortion of VC money flow to Instant Messaging or Social Media start-ups would continue; probably in accelerated manner. To that extent we are likely to see wastage of some Capital, reminiscent of Dot Com Boom. But then that boom happened all across multiple Tech Sectors - Internet, Hardware Maker, Network Gear Makers and traditional pre-Internet industries tying to switch to Internet era. Right now that does not seem to be case. Google is not that desperate to buy 'eyeballs' as like FB is (though Nest was an expensive acquisition it was more of money going from one pocket - Google - to another one - Google VC Arm). And Apple generally buys only technologies, by nature at lower price tag; since it does not care for any additional user base as it has it's own. All this means we are talking exorbitant valuations for companies which can be potentially acquired by FB since FB is in a desperate race to hold on it's place in social media. Start-ups which fail to get acquired by FB are likely to face hard fall to earth whereas industries which are outside of Social Media will continue to face saner valuations, saner business models and relatively lesser 'rags-to-riches' stories. 

 - "We are in the wrong business." 
Like most Valley Engineers, an executive at my work place (I work in Silicon Valley with a tech start-up) had this exasperated first reaction. There are so many capable engineers and employees at so many different Valley companies undertaking some breath taking technology work; but they are unlikely to see the kind of wind-fall which came on those 50+ lucky employees at WhatsApp. But in general, Valley and the fine executive I quoted above - learn to live by these out-sized gains to some minority. Only 'ting of envy' for a while but not much, not for long for sure. 

- FB has Billion plus users now. With WhatsApp and other potential acquisitions, it might even reach 2 Billion Mark of distinct users in next 2 to 4 years. Beyond that what? The barrier of language? Or barrier of lack of basic telecommunication in different parts of the globe? Or final barrier of political stability (though FB is actively and extensively used in unstable Middle Eastern Countries like Egypt, Iran and so on)? When would Wild West chase of FB like Social Media companies would mature - when it reaches 50% population of globe's 7.1 Billion or 80% of it? Expectation is once Emerging countries to like India are fully connected (China could be already considered as 'wired'); we might hit a plateau in terms of how fast 'user base' of these Social Media platforms would expand. Essentially there will not be any virgin markets left for these Internet based Social Media enterprises. Every one knows Social Media will mature, question is when? After the end of 'wild fire rate' (some predicting to end by 2014), even if you give a reasonable growth rate for few more years; we are talking possibly by 2020 all these Market Valuation calculations based on 'user adoption count' to end. 

- "The WhatsApp Guy Applied to Work at Facebook in 2009. They Rejected Him." 

- You are talking each employee of WhatsApp getting the windfall of $300+ Million. What Tax Policy would avoid such a skewed distribution of 'wealth' in Capitalism? I believe none. Except for ensuring that substantial compensation is linked to future stock value, not much seems feasible and reasonable. That is some humbling to 'warriors of inequality' in USA.

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