Facebook's purchase of WhatsApp is the latest, but likely not the last, major transaction in the evolution of the social networking.
The first big social network, Friendster, launched in 2002 and attracted 3 million users in a matter of months. The owners turned down a $30 million offer from Google in 2003. Its American membership peaked by 2006, but it remained popular in Asia. It was sold for $26 million in 2009 to a Malaysian company, which relaunched it as a social gaming site in 2011.
What ate Friendster was MySpace. MySpace was introduced in 2003 and was a huge hit, initially among college students and then other groups. By 2006, MySpace had 100 million accounts and Rupert Murdoch bought it for $560 million. Membership peaked the next year and then began to drop. Murdoch sold MySpace in 2011 for $35 million.
What ate MySpace was Facebook. It overtook MySpace in membership by 2008, refusing buyout offers of as much as $1 billion along the way. By 2012, Facebook had 1 billion users. That same year it went public in an offering priced at $38 a share, suggesting a market value of $104 billion. Facebook now trades at over $67 a share.
Facebook didn't want to be eaten by WhatsApp, which has 450 million members and the potential for many more. Social networking users have been migrating for several years from computers to cellphones. While Facebook has struggled to create a relevant cellphone experience, WhatsApp has succeeded. WhatsApp presented an existential threat to Facebook.
Investors seem to believe that one day there will be a single enormous social networking platform dominating the world market and functioning like a public utility, rather like AT&T before its breakup or like Google today. Facebook seems now to be that platform, but it cannot afford to ignore the upstarts -- Snapchat, WhatsApp -- that are nipping at its heels.
$19 BBBBillion with little revenue, no earnings. Hard to fathom. My sense is that Facebook knows what happened to all its forerunners and is determined not to let that happen to them. I wonder if they can buy everyone of these upstarts to keep them from falling into Google's hands.
ReplyDeleteIt could be argued that the price is squishy because it depends so much on the value of Facebook stock, particularly the $3 billion in stock rights to be paid out over four years. Facebook is understood to be losing ground with the youth market, and so its stock value may not hold up over the coming years.
ReplyDeleteBut still.
It is clear that social networking company valuations are not determined by any traditional method. Internet companies have so much cash and investors are so interested in buying into the industry that prices essentially are set by what very rich buyers are willing to pay. And there is competition. Google tried and failed to acquire WhatsApp earlier, which no doubt raised the price to Facebook.