Four Numbers That Explain Why Facebook Acquired WhatsApp

Jim Goetz, writing on behalf of WhatsApp investor Sequoia Capital:

Jan keeps a note from Brian taped to his desk that reads “No Ads! No Games! No Gimmicks!” It serves as a daily reminder of their commitment to stay focused on building a pure messaging experience.

This discipline is reflected in WhatsApp’s unconventional approach to business. After one year of free use, the service costs $1 per year — with no SMS charges. This can save users trapped in expensive data plans up to $150 per year.

It’s easy to take this novel model for granted. When we first partnered with WhatsApp in January 2011, it had more than a dozen direct competitors, and all were supported by advertising. (In Botswana alone there were 16 social messaging apps). Jan and Brian ignored conventional wisdom. Rather than target users with ads — an approach they had grown to dislike during their time at Yahoo — they chose the opposite tack and charged a dollar for a product that is based on knowing as little about you as possible. WhatsApp does not collect personal information like your name, gender, address, or age. Registration is authenticated using a phone number, a significant innovation that eliminates the frustration of remembering a username and password. Once delivered, messages are deleted from WhatsApp’s servers.

The company only has 32 engineers on staff. So they have roughly 14 million active users per engineer, and the company’s acquisition price works out to $500 million per engineer. That’s simply astounding.

The article doesn’t make clear whether WhatsApp was running in the black, or what percent of those 450 million active users have signed up for the $1/year subscription. But it sounds like they’ve built a service that can profitably scale to serve everyone for just $1 per year, with no ads — through solid engineering, staying lean and mean staffing-wise, and focusing on simply making users happy through simplicity and reliability.

I don’t know if Facebook was smart to pay $16 billion for them, but bravo to the WhatsApp team for building something amazing, and cutting against the grain of the Valley’s conventional wisdom.

★ Wednesday, 19 February 2014