Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Facebook's Purchase of WhatsApp Is for Terrible for BlackBerry

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

BlackBerry (NASDAQ: BBRY  ) shares have risen more than 10% since Facebook (NASDAQ: FB  ) announced it would buy WhatsApp for $19 billion last week. Other factors have contributed to the rally, but BlackBerry's recent share appreciation seems (at least partially) attributable to speculation over BlackBerry Messenger's (BBM) valuation.

If Facebook is willing to pay $19 billion for WhatsApp, then BBM could be significantly undervalued. Indeed, BlackBerry's CEO John Chen said he would be more than willing to sell BBM for the right price.

The problem is that, as a competitor, Facebook's acquisition of WhatsApp is terrible for BlackBerry: As a platform business, the economics do not favor multiple, co-existing firms. With Facebook's backing, WhatsApp could rise to dominate the space, while its competitors are pushed out of the market.

Mark Zuckerberg knows a platform when he sees it
Numerous commentators have criticized Facebook's purchase of WhatsApp, some going so far as to declare it the defining sign of another tech bubble. Certainly, $19 billion for a company that's only five years old with just 55 employees seems like a great deal of money, but Zuckerberg is intimately familiar with the economics of platform businesses.

WhatsApp, and Facebook itself, depend entirely on network effects -- a Facebook or WhatsApp account is only as valuable as the number of people that use the service. The more people using Facebook or WhatsApp, the more valuable they become.

Ultimately, this results in a natural monopoly -- at this point, Facebook has virtually no real competitors. Other social networks exist, but none fill the same niche as Facebook -- Instagram, Pinterest, and Twitter are used in fundamentally different ways.

All of Facebook's original competitors (Friendster, MySpace) are long gone -- unrecognizable shells of their former selves. Facebook had the same effect as it expanded globally, putting almost all of its regional competitors under.

One example is Hyves, a dutch social networking website that, at one point, was used by as much as two-thirds of the Netherlands. But as Facebook expanded into Europe, it completely displaced Hyves, pushing it out of the space entirely. Today, Hyves lives on as a gaming platform.

WhatsApp could become the one app
The same could one day be true for WhatsApp. With the backing of Facebook, WhatsApp could expand its user base significantly in the coming quarters, rising to completely dominate the messaging app space.

While BlackBerry's BBM and WhatsApp don't offer identical functionality, they are largely substitutes -- that is to say, if you use WhatsApp, and everyone you wish to chat with also uses WhatsApp, there's no reason for you to ever use BBM.

From this, it's no surprise that messaging apps dominate different regions -- rather than having an equal market share across the globe, certain countries are almost completely controlled by one messaging service. WhatsApp, for example, has more than 70% of the market in Mexico and South Africa according to Jana, and more than 60% and 50% in Brazil and India, respectively. Another competitor, Line, controls the Japanese market, while WeChat is dominant in China.

A zero-sum game
It's possible the messaging market could remain forever fragmented, with different services controlling different countries and regions. But, as the regional fragmentation demonstrates, both Blackberry and now Facebook are operating winner-take-all businesses: If WhatsApp becomes more popular, BlackBerry's BBM naturally becomes less valuable.

Now with the support of Facebook, WhatsApp could be about to undergo a massive expansion, pushing BlackBerry's BBM and other competitors out of the space entirely. Far from making BBM more valuable, Facebook's purchase has made WhatsApp an even bigger threat.

A better investment than BlackBerry? Get our top stock pick for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2014, at 2:10 PM, jelp2 wrote:

    Ummmm,, You're title of this article is Terrible.

  • Report this Comment On March 01, 2014, at 4:52 PM, Chippy55 wrote:

    Obama uses a Blackberry, the Secret Service (not the drunk johns who were soliciting hookers in South America) and from what we've read FB, Microsoft and basically any other American company are in bed with the Government. Meaning you're data isn't safe. Or why does the Prez use a Canadian company?

  • Report this Comment On March 03, 2014, at 2:52 PM, chcharron wrote:

    Not necessarily. BBM is like the LinkedIn of the social medias. While Facebook and Whatsapp are built to share informations, BBM is built to keep privacy. It is part of the security suite of BlackBerry. So BBM and Whatsapp satisfied different needs. BBM is for business people who worry about security while Whatsapp is for everybody who want to share informations with friends and family.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2858784, ~/Articles/ArticleHandler.aspx, 9/4/2015 9:14:58 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

Today's Market

updated Moments ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 3:59 PM
BBRY $7.28 Down -0.18 -2.41%
BlackBerry CAPS Rating: *
FB $88.26 Up +0.11 +0.12%
Facebook CAPS Rating: ***
TWTR $28.15 Down -0.15 -0.53%
Twitter CAPS Rating: ***