Facebook, WhatsApp and the price of messaging

In its largest-ever acquisition, Facebook's $19bn deal is about growth, but it could be at the expense of conventional telcos.

Inside the Enterprise: It is a big deal by any standards, and the stuff Hollywood movies or at least, those about internet entrepreneurs are made of.

Facebook has agreed to pay up to $19 billion (11.2 billion) to buy WhatsApp, the smartphone messaging service. The deal is for $4 billion in cash, $12 billion in Facebook shares, and a further, deferred payout to WhatsApp's founders and staff worth $3 billion.

Perhaps CIOs should ask any teenagers in their households for a quick WhatsApp demo.

The sums involved dwarf Facebook's last large acquisition: photo messaging site Instagram cost a mere $1 billion; they are also more than Facebook raised in its own flotation.

So what is Facebook paying for? The idea behind WhatsApp is simple enough. The company makes an app, for all the main mobile phone platforms, which replaces SMS, or text messaging, with a private messaging service.

This runs over the phone's IP connection, so as long as the subscriber has an inclusive data bundle, sending or receiving messages via WhatsApp is free; it is free too via Wi-Fi. WhatsApp makes no charges itself in the first year, then charges a nominal $1 a year fee after that.

Part of the appeal of WhatsApp is that it is truly cross platform: the company has an app for iOS and Android, but also Windows Phone, BlackBerry, and Nokia's S40 and legacy Symbian platforms. This has helped underscore the service's popularity in emerging markets, where "feature" rather than smartphones dominate, and non-Windows Nokias are still very popular.

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