Contact: Scott Denne
Facebook has a challenge in mobile that it didn’t face with PCs: niche competition. When the company grew up in the PC era, it could fend off rivals through product design and virality. Its $19bn purchase of messaging app WhatsApp shows that mobile is a different game. It’s not the first time Facebook has paid an obscene amount – at least by traditional M&A measures like revenue or EBITDA multiples – and it won’t be the last time.
Think of Facebook as a network (in the television sense). In the days of broadcast (PC), it was OK for networks to have a single channel, but the emergence of cable TV (mobile) brought a slew of niche players that eroded broadcasters’ audiences. So networks added – and bought – other channels. The game was straightforward with the PC: whoever builds the most viral product wins. Mobile is more competitive, in part because of the low cost of launching an app, and because there’s a smaller screen, there’s more desire for straightforward, single-function apps.
Scale is everything in advertising, and Facebook will pay what it needs to pay to own anything that threatens its audience in mobile, especially as mobile now makes up more than half of its ad revenue. Even though it won’t be plastering ads on WhatsApp anytime soon, it keeps a massive audience intact. It’s the same logic that led to its $1bn purchase of Instagram when the photo-sharing app threatened one of Facebook’s core functions, and that same strategy is likely to lead to another eye-popping deal when a new category of mobile networking apps emerges.
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