An unprecedented deal, years in the making was finalized recently. Facebook purchased WhatsApp for a whopping $19 billion. WhatsApp is a cross-platform mobile messaging app for smart phone users. It enables consumers to send messages across the internet without having to spend money on service fees and long-distance charges. This benefit is critical for overseas markets such as China and India where messaging is less dependent on systems comparable to those in North America.
However, negotiations to purchase WhatsApp weren’t without their barriers. WhatsApp prides themselves on being fiercely independent since their creation. They ignored offers of investment, despite having their inboxes constantly pounded by those who wanted a piece. In mid-2013, Google, a powerhouse in the industry, attempted to work out a deal with the company. WhatsApp Founder and Co-Founder, Jan Koum and Brian Acton declined the offer. However, Google still requested to be notified of any potential negotiations that were to come on the table for WhatsApp, a move that cost Google upwards of $1 million. The was a large expense just to be kept in the loop, obviously Google valued WhatsApp. So, if Google couldn’t make them budge from independence, how did Zuckerberg’s message get through?
Once you get past the sheer “sticker-shock” of a $19 million acquisition, Zuckerberg actually believed it was worth far more. Zuckerberg has long term strategy in mind with the acquisition, stating that he wants Facebook to be the new “Facebook”. Forbes writer, Parmy Olson calls the relationship formed between Zuckerberg and Koum a “courtship” which developed over a time span slightly under two years.
Zuckerberg set himself apart from competing investors in many ways. First of all, he was able to understand the deeper inner works and needs of his potential business partner, by becoming friends with him. Zuckerberg and Koum first met in early 2012 on Valentine’s Day, in a German bakery for coffee in Los Altos California. Soon after, the two became friends, frequently meeting for dinner and hikes. Their meetings face-to-face were essential to creating a strong bond.
As the relationship progressed, talks became more serious. Their meetings would be at Mark’s house for dinner, taking negotiations out of boardrooms and offices. A more relaxed environment supported the flow of new ideas and communication processes.
Through their relationships and rapport building, Zuckerberg found out what was important to Koum. “While Facebook’s deal comes with a board seat for WhatsApp founder, Google’s offer did not.” (Neil Hughes, Apple Insider) Throughout their time spent together, Mark Zuckerberg knew that Koum was not one to sit back and let someone else take their work from them. He knew that one of the ways to incentivize the deal would be to offer a large participatory role in the organization.
On top of that, Mark understood that WhatsApp held strongly on to their independent and their values. Instead of buying the company and changing it to fit exactly the needs of Facebook, Zuckerberg is allowing the app to continue to run under its original leadership as well as not requiring changes such as advertisements in order improve ROI for Facebook. The short-term priority with the deal was not to make profit. Zuckerberg stated that they are giving the app a long period of time before they expect any sorts of return.
Zuckerberg may have been a successful negotiator in this sense, but was it a valid strategy? Is it worth it? Arguments can be made for either direction.
Food for thought: Facebook recently purchased a messaging app for $19 billion, compared to Comcast which purchased a majority share of the media conglomerate, NBC Universal, in 20009 for about $14 billion. The idea that an app is worth 35% more than an entire media company is thought provoking. Additionally, in terms of age, WhatsApp was created 2009, while NBC was started in 1926.
Information from Bloomberg and Southern China Morning Post