Why Whatsapp is 19 times more valuable than Instagram

A shockwave was sent around the social business community this week, with Facebook announcing it was buying popular messaging app Whatsapp for $19bn in cash and stock. Considering Instagram was purchased last year for $1bn, the steep price paid for Whatsapp has left many analysts wondering why the company is worth that much and how Facebook is going to turn it into a profitable purchase.

Whatsapp founder Jan Koum has been vocal in his opposition to Whatsapp serving ads with the app opting for a 1USD yearly fee after a one year free trial. Jan even wrote a blog post entitled “Why we don’t sell ads” on the company blog. With Facebook announcing that Whatsapp will remain mostly independent, the chance of them offering advertising to business is unlikely. However with 450 million active users, Whatsapp has the potential to generate significant revenue from its current customer base.

But is it enough to validate a $19bn valuation? It seems there may be more to this deal than meets the eye.

Facebook has a history of innovation by acquisition – and arguably acquisition to control competitors. If we consider the $1bn purchase of Instagram in April 2012, Facebook not only took control of its image sharing competitor but also a potential revenue stream from the community it has created.

And yet the Whatsapp community is even greater: the app has a highly engaged fan base three times the size of Instagram, and a messaging volume approaching the entire volume of global telecom SMS. By purchasing Whatsapp, Facebook could be aiming to recapture its dwindling youth market (remember when it tried to buy Snapchat?) and also potentially integrate Whatsapp into the Facebook platform. It’s an attractive target for the social media giant, provided it can leverage it in a way that won’t alienate Whatsapp users.

In the wider business community, there has been limited use of the app as a B2C tool. Absolut Vodka executed the first ever campaign for the launch of their Limited Edition Absolut Unique collection, generating over 1000 unique images, videos, and audio messages from users hoping win tickets to the launch – all sent to Absolut’s fictional bouncer ‘Sven’.

Whatsapp presents some real opportunities for brands to connect directly with customers through the private sharing of images and videos. Despite its relative simplicity, it offers new and effective customer service options and relationship building channels. As a marketing tool, it enables business to connect with consumers more directly than other social media platforms and email. The channel could potentially be used to share deals, campaigns and brand communications to opt-in customers.

Whatsapp is the wave of disruption the telecommunications industry has been fearing; one they have refused to capitalise on. The app has allegedly cost global telecommunication providers billions in lost revenue.

And it looks like they’re set to lose more: along with iMessaging capabilities on Apple products, the growth and success of Whatsapp marks a significant shift in the way we communicate. As users opt to send data supported texts, images and videos to contacts they leave behind what is now considered a rather traditional medium: SMS.

Facebook’s purchase of the app has shown the telecomm giants that the audience is changing – and we’re not keen to return to old habits.