Strategic Goals and the Reasons for the WhatsApp Purchase - Case Study Example

Introduction During the of business growth and development, firms are faced with a number of choices with regard to how they will seek to engage the consumer and growth within their respective marketplaces. As the need to grow and expand is a fundamental component for the way in which this process takes place, it comes as no surprise that firms are desperate to find potential for opportunity in growth and expansion into new spheres of the marketplace. This particular analysis will seek to engage the reader with a deeper understanding of Facebook’s 19 billion dollar acquisition of the messaging application “WhatsApp” in terms of decision making, competitive advantage, diversification, entry into new markets, and whether or not the purchase price of “WhatsApp” fell within the strategic goals for how Facebook should have engaged this purchase.1 Through such an analysis, it is the hope of this researcher that the reader will be able to gain a more informed understanding for the mechanisms and metrics that lay behind Facebook’s decision to buyout “WhatsApp” and whether or not this decision will likely be beneficial for the firm in the long run or whether it will be viewed by analysts as a detrimental mistake. The assumption that will be provided within the analysis is that the decision to purchase “WhatsApp” was ultimately an insightful one; regardless of the extremely high cost that it portended for Facebook.2 The limitation in such an assertion is naturally the fact that the future is unknowable and the likelihood of “WhatsApp” becoming obsolete with the introduction of a newer technology is actually quite high; however, the forthcoming discussion can only consider the knowable and current knowledge that has helped to inform the approach and understanding alluded to above. Case study summary Since being founded in 2004, Facebook has experienced a meteoric rise to prominence and profitability over the past decade. After launching an IPO in early 2012, the firm netted billions of dollars in revenue as investors flocked to purchase shares of the social media giant. Yet, as with any established and successful firm, Facebook recognized that the need it faced as a function of remaining relevant was the incessant drive towards providing new products to the consumer and seeking to expand into markets that it had previously not integrated with.3 As a direct function of this primal need, Facebook placed a bid that was eventually negotiated between the social networking site and the largest mobile messaging service; “WhatsApp”. The 19 billion dollar deal meant that Facebook would now have a turnkey market presence in the realm of mobile messaging; an industry that the founder, Mark Zuckerberg, saw as an essential keystone to the way in which the business environment would be defined in the coming years.4 Findings and Discussion Strategic Goals and the Reasons for the WhatsApp Purchase The strategic goals of Facebook can be counted as the need to stay relevant, represent new products and/or services to its customers, and evolve into new markets. As such, the WhatsApp acquisition, although exorbitantly expensive, accomplishes all three of these. Firstly, with respect to the need to stay relevant, Facebook has accomplished a full decade of stunning growth which has allowed it to become the multibillion dollar company it is today. Yet, the reality of the fact is that since the IPO, Facebook has been rather static. Analysts point to the fact that the investor can no longer expect the firm to turn the types of profits and the percentage gains it did only a few brief years ago; mainly due to the fact that the firm has matured and further quick profits are unlikely to take place within the current course of business operations and development. Seeing this as a fundamental shortcoming, Zuckerberg and other decision makers within Facebook have concluded that a policy of acquisition would be best suited to providing the firm with new outlets and means by which it can capitalize on emerging markets.5 Furthermore, the rate at which Facebook could continue to engender profitability in social media networking alone as come to be questioned by many analysts of late; due in part to the fact that for the first time in its history, more users are leaving the social networking site as compared to new ones that are signing up. Although Facebook is not in an immediate threat of losing relevance within the marketplace, the fear that Zuckerberg and others have is that the firm might become stagnant in the near future if it does not seek to expand into new markets and differentiate the offerings that it provides the consumer. The need to continue life within the BCG growth matrix as a either a “star” or a “cash cow” drove Zuckerberg and the board to seek out new technology as a means of creating a more diversified product/service offering for the end consumer. Another core motivation for the purchase of WhatsApp has to do with the fact that industry analysis depicts that traditional SMS and MMS data, as transmitted by individual telecommunication providers are decreasing rapidly. Part of this has to do with the fact that internet enabled tablets, PCs , and mobile phones have come to dominate the way in which communication takes place. Moreover, as the industry evolves and changes, Facebook recognized that a new industry trend was emerging; one that could have long lasting negative repercussions should Facebook choose to ignore it. A further consideration that should be made is with respect to the decision that Facebook faced over whether it should buy or build such a messaging service. For many firms, either of these options is out of the question due to expense, the number of dedicated employees required, and the time that it might take.6 However, in the case of Facebook, both alternatives were within the reach of the firm. The ultimate decision was of course to purchase WhatsApp; instead of develop a native Facebook application that could easily accomplish the same tasks. The underlying rationale behind this has to do with the understanding that the market is changing at such a rapid pace and individuals are integrating with and becoming accustomed to new technology in such a rapid manner that if Facebook were to develop a native application to accomplish the same task, it was unlikely ever to experience the same degree of success that WhatsApp had already engendered within the market. 7 For this very reason, Facebook opted to purchase the app in the hope that they would gain the majority of the market for mobile messaging apps in the process. The decision itself was invariably one that was made in a more democratic form of decision making; as compared to the way in which decisions prior to the IPO of Facebook in 2012 had taken place. The underlying reason for this was that after the initial public offering in 2012, Facebook was culpable to its investors and had a board of directors that must be satisfied concerning the financial decisions that were made.8 Furthermore, the “gamble” of WhatsApp was one that Zuckerberg might have made himself; yet it was one that the board of directors and ultimately the investors themselves had to feel comfortable with as the firm sought to stay relevant and grow into new markets that it had previously not been represented within. A further element that must be discussed with respect to the decision to purchase WhatsApp is predicated upon the information released to the press by Facebook representatives themselves. Time and again, these sources referenced the fact that Facebook was a successful and profitable firm that wanted to be represented in this new and emerging market.9 However, beyond merely this, a further understanding that was represented was the fact that the culture of Facebook required that further growth and diversification should take place in the future.10 Even after a 19 billion dollar purchase, the understanding amongst industry analysts and experts within the company was that this was only the first of several acquisitions that Facebook will be making in the coming years as a means of ensuring that the values and interests of the company are continually represented as the market shifts and changes come to impact upon the way in which business is engaged.11 Evaluation: A Solid Business Decision From the preceding information, it is the determination of this author that the decision to purchase WhatsApp was ultimately within the best strategic interests and long term goals of Facebook.12 Even though individuals and industry analysts oftentimes view the overall purchase price alone when making a determination of whether or not a particular decision was in the best interests of a firm or not, this factor alone is not necessarily the most important metric in seeking to determine whether or not the WhatsApp acquisition was in the best interests of Facebook.13 Ultimately, Facebook is facing a situation in which further growth and development within the realm of social networking is likely to be rather static in the coming years.14 As such, taking the required time to develop a native messaging environment that does not have the prestige and “first mover” recognition that WhatsApp has/had is a massive gamble that would have proven to be far more dangerous to the firm than was spending the 19 billion dollars to purchase WhatsApp.15 In such manner, even though the overall purchase price is staggering from any angle, the ability of the firm to potentially benefit from the increased breadth of its offerings, to include WhatsApp, Facebook, and Instagram, allow for the firm to engage with an order of magnitude more potential customers; at least as compared to what would be evidenced with the social networking component alone. 16 Naturally, the greatest shortcoming in seeking to define the strength of the strategy of acquisition and the purchase of WhatsApp is contingent upon the fact that this analyst, nor indeed any other analyst, can accurately predict the changes that may be upcoming within the next few years. In much the same way that WhatsApp has revolutionized the way in which people communicate on mobile devices, it is likely and indeed quite possible that another technological shift can take place in the next few years and reduce the importance of WhatsApp.17 Such a potential creates a level of uncertainty with respect to whether or not the purchase of this mobile messaging platform was ultimately worth the 19 billion dollars paid.18 However, one way in which Facebook can seek to mitigate these challenges/risks is to plan a rapid deployment for the way in which it seeks to make WhatsApp a profitable component of its business plan. Interestingly, Zuckerberg himself has not expressed interest in gaining immediate profitability from the mobile messaging platform; stating instead that he would like to see the mobile messaging application in use by at least 1 billion people prior to such plans for profitability being engaged. Conclusion: From the information that has been discussed, the analyst has provided an overview and discussion of whether or not the acquisition of WhatsApp represents a best practice for Facebook or whether it is an overpriced and fleeting opportunity that will decrease the potential of Facebook to retain relevance within the future business world.19 Even though it is impossible to determine an answer for this question absolutely, from the information that has been discussed, it is the strong belief of this particular student that the acquisition strategy, specifically the purchase of WhatsApp is essential for Facebook to retain relevance within existing markets and evolve into new product offerings that can continue to allow the firm, and its investors, to experience additional growth in the future.20 Ultimately, the decision to purchase WhatsApp, and by extension the acquisition strategy that Facebook has engaged with regard to other interests, is one that is specifically designed to allow the firm to engage with new consumers and offer products and services outside the relatively stagnant realm of social networking alone. 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