Facebook To Buy WhatsApp Message Service

Facebook is buying an instant messaging service called WhatsApp for an eye-popping $19 billion. It's the latest salvo in an arms race by Silicon Valley giants to stockpile mobile technology.

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It's MORNING EDITION from NPR News. I'm Steve Inskeep.

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I'm Renee Montagne. And Steve, a lot of people this morning might be asking what's up with that? Facebook is paying $19 billion for a messaging service called Whats-app. This dwarfs the one billion Facebook paid for the photo sharing app Instagram and it may be signaling an arms race among tech companies for mobile technology. NPR's Laura Sydell joins us now to explain why Facebook is paying so much for what is basically an app. Good morning.

LAURA SYDELL, BYLINE: Good morning.

MONTAGNE: Well, what exactly is it, Whats-app?

SYDELL: Right. Whats-app. So as the name suggests, it's an app, now worth $19 billion. You can download it to your mobile phone for free and it taps into your phone book and lets you easily text message with your friends on the app. And by doing this you can avoid facing data cap plans for your cell phone, from your cell phone company, or international charges if you're texting with somebody who's outside the country.

MONTAGNE: Is it worth it, $19 billion?

(LAUGHTER)

SYDELL: Ah. Well, Facebook obviously thinks so. The app is not that well known in the U.S. but it is growing very fast in Europe, India and Latin America - currently it has 450 million users. That's twice as many users as Twitter and it's growing by more than one million new accounts a day. Now, in a conference call, Facebook CEO Mark Zuckerberg noted that it is the only app that has grown faster than Facebook ever did.

And key to that growth is the coveted youth demographic which has been losing interest in Facebook, so this is a way to get them back. And Whats-app has a lot of people outside of the U.S. - in Europe, India and Latin America - and Facebook needs to grow there because its growth is slowing in the United States.

Facebook is also putting a big push into the world of mobile and this app acquisition is part of its effort to improve its mobile services.

MONTAGNE: Well, a lot of people, though, Laura, do seem to think Facebook is paying way too much.

SYDELL: Yeah. I actually had an analyst wonder what kind of drugs they were taking at Facebook. But anyway, Facebook is basically paying about 10 percent of its value for this company. And among the reasons people question the price is that it's basically an instant messaging app and people don't have to invest a lot of time signing up for an instant messaging app like you do when you sign up for Facebook and you put in information and pictures.

So it's just as easy to sign up as it is to drop it. Facebook also uses an advertising model and the founders of Whats-app have really stayed away from that model. In fact, the co-founder is a Ukrainian immigrant named Jan Koum who, fled anti-Semitism and anti-authoritarian government in the Ukraine with his mom when he was 16.

He came from a small town and he actually has a distaste for advertising. So Whats-app has a $1 a year subscription model and there could be some cultural disconnect between the two companies down the line.

MONTAGNE: So is Facebook likely to change Whats-app?

SYDELL: Well, for now Facebook says it's not going to change anything. The emphasis here is on growth, not revenue, getting more and more people to sign up. So users aren't likely to notice a shift at this time.

MONTAGNE: And Laura, finally, do you think this is - this price tag does suggest an arms race in the tech world?

SYDELL: Well, sort of an arms race. What we don't know for sure is whether other companies were bidding on Whats-app, but I think we can guess that they probably were. So there was a bidding war going on. And one of the things that you see happening is there are a lot of startups in the tech world right now and companies like Facebook and Google want world domination, essentially.

So it bids up the price, if they see something that's really vibrant. And as for whether or not this is a good or bad purchase, remember when Google purchased YouTube for $1.6 billion, everybody thought they'd overpaid because YouTube wasn't making any money. But look what's happened. YouTube is wildly profitable. So someday we may say that Mark Zuckerberg was a visionary by buying Whats-app.

MONTAGNE: Laura, thanks very much.

SYDELL: You're welcome.

MONTAGNE: NPR's Laura Sydell.

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