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WhatsApp Explained: Why Facebook Paid $16 Billion for it

WhatsApp has more than 450 million users worldwide

Facebook blew up the internet Wednesday afternoon when it announced it had paid $16 billion for WhatsApp, a messaging service used by almost half a billion people, in a stock and cash deal.

Facebook could pay as much as $19 billion once stock payouts are factored in, which makes this the biggest “internet” deal since AOL bought Time Warner in 2000 and the biggest deal for a venture-backed company in history.

So, what is WhatsApp and why is it worth so much?

Also read: Facebook Pays $16 Billion for WhatsApp

WhatsApp is a messaging service that lets you send an unlimited number of messages using your phone for just 99 cents a year. You log-in, you add friends and associates to your contacts and you start sending messages, videos, photos and more – to as many different people as you want.

It’s not a pretty app. It’s not a particularly well-designed app. Yet there are three key words in all this: mobile, messaging and international.

Facebook has spent the past year and a half re-engineering itself as a mobile-first company, making that the focus of its products and advertising teams. There was a time when CEO Mark Zuckerberg would not meet with you unless the meeting began with a discussion of mobile. The result? In the past quarter, Facebook generated more than half of its revenue from mobile, to the tune of $1.37 billion.

Facebook also wants to keep growing overseas, and WhatsApp is one of the most popular means of communication for people in other countries.

Also read: Facebook CEO Mark Zuckerberg Gets Visionary With Wall Street After Strong Earnings Report

Finally (and perhaps most important), Facebook recognizes the power, popularity and threat of messaging. Facebook bought Instagram in part because it was really popular for sharing photos – a core part of Facebook. Messaging is another core part of Facebook, and there are a gaggle of competitors out there — some of which have already been gobbled up. Japan-based Rakuten recently paid $900 million for an app called Viber while Line, another Japanese company, is valued at as much as $10 billion. It is expected to go public soon.

Facebook already tried to buy another popular messaging app, SnapChat, for several billion dollars. WhatsApp is worth even more than SnapChat because it has already lured more than 450 million users in five years. It has more than 300 million daily active users — far bigger than Twitter, SnapChat and several other popular apps. WhatsApp is even more popular on mobile devices than Facebook’s own messaging service on every continent, according to this chart.

How does Zuckerberg view WhatsApp’s remarkable growth?

“No one in the history of the world has done that before,” he said on a call after the deal was announced Wednesday.

WhatsApp says making money is not a priority yet, but with a price tag of $16 billion, you can bet it will be in the future.

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