Facebook buys WhatsApp: the $16 billion quest to conquer messaging

WhatsApp just announced that its messaging app is now used by 500 million people around the world. And those are all described as “regular, active” users, another sign of the company’s soaring growth — and the loyalty of its community. When Facebook announced plans to acquire WhatsApp in February, the service had already crossed 450 million active users, so it’s quickly jumped by tens of millions since then. The fastest recent growth has occurred in Brazil, India, Mexico, and Russia, according to WhatsApp.

The milestone is significant since it’s halfway to the “goal” that Mark Zuckerberg mentioned when announcing the massive buyout. “WhatsApp is on a path to connect 1 billion people,” Zuckerberg said in mid-February. “WhatsApp is the only app we’ve ever seen with higher engagement than Facebook itself.” The speedy and steady growth that WhatsApp has enjoyed since launch is seen as a major factor in Facebook’s decision to spend billions in cash and stock for the company.

Facebook’s $16 billion buyout of WhatsApp last month was quickly followed by speculation about privacy for the app’s more than 450 million users, given Facebook’s own checkered history with privacy. Co-founder Jan Koum wrote on the WhatsApp blog today to “set the record straight,” describing speculation about the acquisition undermining how the company treats user data as not only “baseless” but “irresponsible.”

Koum writes that WhatsApp was built “around the goal of knowing as little about you as possible.” Working under that philosophy, the app doesn’t collect personal data like email addresses, birthdays, or locations — which Facebook already has access to, ironically — and Koum says the company has no plans to change that. In addition, the company has previously stated that it has no plans to share data with Facebook, and will remain completely autonomous. “If partnering with Facebook meant that we had to change our values, we wouldn’t have done it,” he writes. “Speculation to the contrary isn’t just baseless and unfounded, it’s irresponsible.”

Announced on February 19th, Facebook’s $19 billion acquisition of WhatsApp was a deal sealed between the two company CEOs a few days earlier, though it took years of amicable courtship to reach the accord. Forbes has taken a look at the relationship between WhatsApp’s Jan Koum and Facebook’s Mark Zuckerberg in the buildup to their momentous agreement. It all started with an email from Zuckerberg in the spring of 2012 and culminated with an accepted takeover offer on the Facebook boss’ couch a day after Valentine’s Day. The two CEOs reportedly celebrated by opening up a bottle of Johnnie Walker Blue Label and hugging one another.

If the story sounds familiar, that’s because Zuckerberg used the same approach to woo Kevin Systrom — he and Systrom agreed the price at which Facebook would buy Instagram over a weekend at Zuckerberg’s home. So the strategic approach remains the same, even if the numbers involved have ballooned.

Plenty have been wondering what’s next for WhatsApp after the popular messaging service was purchased by Facebook for $16 billion last week, and now we have the answer: voice calls. According to TechCrunch, WhatsApp announced during a Mobile World Congress event today that it would be adding voice services to iOS and Android during the second quarter of the year. The feature will reportedly head to Nokia devices and BlackBerrys sometime after that.

WhatsApp also provided an update on its active user count: it now has 465 million monthly active users and 330 million daily users, according to TechCrunch. That’s 15 million more monthly users than Facebook detailed just last week when reporting the purchase. WhatsApp has already risen to an impressive popularity on basic messaging features alone, and the addition of voice calls should only enhance that further when they begin to roll out later this year. The app has done well by offering inexpensive messaging services where messaging is traditionally quite expensive, and doing the same for phone calls would likely be a boon for growth. WhatsApp is reportedly optimizing the amount of data its voice calls use, which should help in keeping users’ expenses down as well.

While unlikely to become a movie, WhatsApp’s $16 billion-plus sale to Facebook yesterday marks one of the biggest tech deals ever, and one that bears some resemblance to the working class success stories told by Horatio Alger. A new feature story in Forbes chronicles how co-founders Jan Koum and Brian Acton managed to do it all while squeaking by in WhatsApp’s early days, and for Koum long before that. The short version: it wasn’t easy.

Before WhatsApp was founded, Koum briefly lived with help from welfare after immigrating to the states with his mother. And not too long ago, employees “wore blankets for warmth and worked off cheap Ikea tables” in a nondescript office building, Forbes recounts. WhatsApp also went through a period where all the expenses were running out of Koum’s bank account, which eventually ran dry, something that was later solved with outside funding and incredible growth. When the paperwork was finalized yesterday, Acton and Koum signed the deal at a nearby social services office where Koum used to pick up food stamps. He now stands to make billions from the deal.

When Mark Zuckerberg says he wants to “connect the world’s people,” it’s not some gentle, humanist statement. Zuckerberg intends to own the communications layer of the world we live in — if today’s $16-plus billion acquisition of messaging service WhatsApp is any indication. Facebook grew up inventing the world’s leading social network for sharing with everyone you know, and it now owns what could be called the world’s largest private social network. Between the two companies, about 1 billion photos and 30 billion messages are sent per day.

While Facebook slaved away creating a utility used by 1.25 billion people, WhatsApp has replaced an essential utility for many, SMS. WhatsApp is used by over 450 million people every month, and often in places Facebook and its Messenger app had little success reaching, like Spain and Switzerland. By filling in the gaps with WhatsApp, Facebook’s communication pipes are thicker and spread far wider than ever before. The company commands an enormous portion of the world’s messages and photos sent per day. And don’t forget that WhatsApp users send a whopping 200 million voice messages per day. For many, WhatsApp has likely replaced voice calls as well.

News broke earlier today that Facebook was buying popular messaging app WhatsApp for $16 billion, and while the social media giant ingesting yet another company is certainly news unto itself, the deal marks what could be one of the most successful venture capital investment deals of all time. Sequoia Capital reportedly invested a mere $8 million in WhatsApp back in 2011 — and while startups commonly raise subsequent rounds of funding amongst several investors, WhatsApp never announced any additional funding. Simply sticking with that initial investor would be striking, but it’s even more arresting in light of the payoff.

The percentage of WhatsApp owned by Sequoia has been kept under wraps, but sources tell us it lands somewhere between 10 and 20 percent — meaning Sequoia could be reaping as much as $3.2 billion in cash and stock for that initial investment. It’s a huge win for the firm, and makes other recent deals — Instagram reportedly closed a $50 million round of funding right before Facebook acquired it for $1 billion, for example — look puny in comparison.

Facebook has entered into an agreement to purchase WhatsApp, the massively popular messaging client, for $16 billion in cash and stock. A document filed with the SEC today confirms the huge purchase. As was the case with Instagram, the company says WhatsApp will continue to operate independently after the acquisition — separate from Facebook Messenger — but claims the deal “accelerates Facebook’s ability to bring connectivity and utility to the world.” Facebook is also throwing in an extra $3 billion in restricted stock units that will go to WhatsApp’s employees; those will vest over a period of four years after the acquisition is finalized.

In a press release announcing the monumental buyout, CEO Mark Zuckerberg said, “WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable.” He also shared news of the deal on his personal Facebook page, saying, “WhatsApp will complement our existing chat and messaging services to provide new tools for our community.” Over 450 million people use WhatsApp each month, according to statistics in the press release, with 70 percent of those users active on a given day. WhatsApp co-founder and CEO Jan Koum will join Facebook’s board of directors as part of the deal, but his team will remain stationed in Mountain View, California.