The Biggest Threat to Facebook's $19 Billion WhatsApp Buy

Will smaller, more intimate communication networks like WhatsApp start pulling people away from sprawling ones like Facebook?

Jun 5, 2014 at 10:00AM

In the video below, Motley Fool tech analyst Eric Bleeker and Max Macaluso discuss the future of messaging apps versus social networks, as well as investment-trend predictor Mary Meeker's latest slide deck, which shows the vastly different ways Facebook (NASDAQ:FB) and Whatsapp users communicate.

David Sacks, founder/CEO of Yammer and COO/chief of product of PayPal, tweeted this back in February:

Basically, with Facebook, you're communicating with a large number of people, perhaps somewhat infrequently; with these messaging apps, you're communicating with a smaller but likely more intimate number of people on a more regular basis. 

Eric and Max discuss how well this observation helps explain Facebook's $19 billion buy of WhatsApp. However, another problem that arises is that while Facebook users are fairly locked in to the service, companies like WhatsApp that use a phone book for finding friends and contacts have few switching costs. That could make monetizing users in the space very difficult as they flee to new platforms when ads or other revenue opportunities are introduced. That's a significant risk that will be tested in the years ahead, as Facebook begins increasing WhatsApp monetization, which was close to non-existent when it purchased the company.  

To see the full discussion, watch the video below. 

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Eric Bleeker, CFA, owns shares of Facebook. Max Macaluso, Ph.D., owns shares of Facebook. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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