Friday, 21 February 2014

WhatsApp Deal Shows Facebook Chasing Dominance, Not Relevance

WhatsApp Deal Shows Facebook Chasing Dominance, Not Relevance
Feb 21st 2014, 15:05, by Gavin Megaw
"What on earth is WhatsApp?" the middle-aged businesswoman asked her fellow commuter on the 6.53am train to Waterloo this morning. Reading aloud from her daily Financial Times newspaper, she expressed surprise that a company providing text messages could be valued so highly by the usually business savvy Facebook. "Maybe Mark Zuckerberg has lost his edge?" she added.

Her surprise won't be unique. Across the globe, many people have woken up and asked themselves the same thing. What is this and why is it so valuable? And then, in a lot of cases, they will have downloaded the app and signed up to WhatsApp themselves.

The fact that a company with a mere 32 engineers in its workforce can be valued at $19bn - more than Twitter when it went public - is extraordinary. But it is a clear guide to the power that digital media tools hold.

Facebook will see this as an essential and timely diversification.
We all know that Facebook, Twitter and a plethora of other channels allow us to broadcast and interact, though rarely in a private manner. WhatsApp thus provides an opportunity for Facebook to diversify; free private and direct chat with people or groups of people we know well.

While both approaches are not mutually exclusive, they do highlight the tensions within the world of social media; broadcast or engage, centralise or liberalise? A lot of the tensions can be found in the way that social media companies monetise their offering. With advertising comes centralisation, and while it may look like engagement to some, in simplistic terms, it is broadcasting.

Facebook will see this as an essential and timely diversification of their business model. And one that guarantees a return. Not only will it provide access to the much vaunted Chinese market - where WhatsApp have millions of users - but it should in the long term also bring a significant surge in mobile advertising. In the last Quarter of 2013, mobile advertising revenue represented 53% of all advertising revenue for Facebook. While WhatsApp have always said they will remain ad free, it is likely that this deal, coupled with the 2012 Instagram purchase, builds a huge and potentially lucrative audience to advertise to - whatever way that's done.

The move by Mark Zuckerberg is shrewd. He is attempting to ensure that Facebook can continue to be all things to all men - chasing dominance, but not necessarily relevance with the next trend. In doing so, Zuckerburg has cemented a position at the heart of the big powerful 'new' media.

Being as big as Facebook now is brings continuing headaches, most notably on privacy and remaining on trend. However, his vision, and that of the likes of Twitter and others has eclipsed the monetary value of traditional media to an extent that is nothing short of miraculous. After all, the Financial Times read by the businesswomen on the 6.53am train this morning, and with 2,000 employees across the globe, is in itself valued by Wall Street analysts at $1bn, a mammoth $18bn less than the tiny WhatsApp.

Zuckerburg and every start up on the West Coast, and across the globe, knows only too well that the world of media has changed, and social media is itself changing. The fight for dominance and relevance will continue. It's all very well being big, but can you also be cool? One thing is for sure though, as Tom Standage of the Economist notes in his book "Writing on the wall", social media is not going away. It's not a fad, it's here to stay - albeit in a continually changing way.

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