Why Facebook Acquired Whatsapp - Essay Example

 Why Facebook Acquired Whatsapp Abstract This course work discusses the reasons as to why Facebook acquired Whatsapp. The study explains the key reasons and motives that pushed Facebook to acquire and merge with Whatsap in order to have control of its resources and market power. The study further explains the threats posed by Whatsapp to Facebook and other social media platforms that use the same technology and targets the same market segments. The business model canvas adopted by both Facebook and Whatsapp are part of the study as we try to find out the main reasons and benefits that will be accrued because of acquiring Whatsapp. Introduction Facebook and whatsapp are among the leading social media platforms in the modern world. The two social Medias have a significant number of users that each pose a threat to another as far as the social media business is concerned. In comparison to other social Medias that have been in existence before the invention of whatsapp, facebook was dominating the market with the highest number of users. With the coming of whatsapp in the social media market, it intensified the completion to a point where facebook opted to acquire it. Discussion Apart from the excessive competition in the social media market brought about by Whatsapp application, there are many other ways to justify the acquisition of Whatsapp by Facebook. Just like in other forms of business, one business my either merge with another or fully acquire it depending on the business environment they both face. According to studies by Ireland, Hoskisson and Hitt (2012 p, 133), one business may acquire another in order to increase its growth, gain market power, manage risks and reduce costs. In relation to such acquisition reasons, Facebook owners made the move to acquire Whatsapp in order to increase its growth in the social media market. Acquiring Whatsapp, which is a strong competitor, would also help Facebook manage the risk of elimination from business and cut costs of operation such as advertising. Management of such factors would subsequently lead to an increase in the market power by Facebook. In studies conducted by Frankel (2011 p.22), he notes that, among the main reasons why one business may acquire another include customers and market share. One business may want to take over the customers of a competing business and successively take over the market share. In relation to the above studies, Facebook will take over the customers of whatsapp and subsequently its market share. This is possible because Whatsapp has the ability to attract many users than facebook. Studies indicate that the acquisition of Whatsapp, which is one of the leading social Medias today, will help Facebook acquire diversity of experience. Frankel (2011 p.24) further indicate that, acquisition of one company by another will facilitate the takeover of technology and product expertise. In the case of Facebook and Whatsapp, Facebook will be in a position to incorporate the latest technology from Whatsapp that enables it to dominate the social media platform. A key reason that may provide a justification for Whatsapp acquisition is the ability of Whatsapp to replace quickly the old messaging style where users were required to pay money to send messages over the mobile phones. Whatsapp enables users to send millions of text messages, pictures and voice messages over the internet per day. Kelly (2014) reveals that although there are many other messaging applications with a significant number of users, Whatsapp stands out among the many due to its ability to provide engagement with its users. Kelly further explains that, Facebook’s decision to acquire Whatsapp was to prevent anyone else from buying it. In relation to other competing applications in the social media market, none of them can match Whatsapp numbers in various parts of the world. Facebook and Whatsapp organisations have many similarities in the business models because they operate under the same market. However, each organisation may adopt the business canvases differently to reach its target groups in the social media market. The organisational structure and business canvases adopted by any of the organisations will be effective if it has the greatest potential of expanding the organisational niche (Zammuto, 1982 p.108). It is through this ability of the business canvases to expand the niche that an organisation operating in any form of market can satisfy changing preferences and increase the adaptability of the organisation. The business canvas adopted by Whatsapp is market oriented aiming at simplifying the service delivery mode while utilizing the best and more efficient technology. Among the key activities incorporated in Whatsapp business canvases, include improvement in performance in comparison to its competitors, customization and designing of an attractive product that can draw users from all folks in the society, convenience and risk reduction. These entire value propositions are a key indicator to the success of Whatsapp that led to facebook’s management desire to acquire it. In terms of resource utilization and cost structure, Whatsapp organisation is successful in cutting down the amount of resource in the production of its services and subsequently reduces operation cost. This efficient organisation structure and business canvas is beneficial to the organisation as it can set the pace and define the business environment. According to Hamilton (1999 p.106), a suitable organisation structure that clearly stipulates the business canvases is necessary in order to avoid the collapse of internal economies due to conflicting objectives. Creativity in designing of the application attribute to the success and wide acceptance of Whatsapp. Kelly (2014) in his article indicates that, Whatsapp is a clear leader in most parts of the world. The organisation utilizes various channels to create awareness, make evaluation, or offer after sale services. The model canvas stipulates clear ways to create awareness in ways such as collaborating with handset manufacture to incorporate the application in the mobile software. This does not only help to create awareness to handset buyers but also increase the number of users. The organisation adopts mass-market customer segmentation canvas. This is an appropriate strategy because the organisation operates in the social media market therefore targeting all people around the globe. In analyzing the business model canvas for Whatsapp organisation, we find a justification as to why Facebook made a move to acquire it. The appropriate model canvas by Whatsapp describes the rationale of how the organisation has managed to create, deliver and capture value. Research by Alsos, Eide and Madsen (2014 p.218), points out the necessity of utilizing the basic nine principles in business model canvas. An appropriate business canvas such as the one for Whatsapp should bear in mind the four main areas of business such as, customers, offerings, infrastructure and financial viability. The customer needs must be satisfied from the value propositions. Studies indicate that, suitable value propositions are obtained from customers’ needs, taste-and-preferences and market trends. In Whatsapp business canvas model, revenues streams always result from value propositions offered in a successful way to its users. There are many similarities in the business model canvases adopted by both Whatsapp and Facebook. Among the similarities, include market segmentation where both organisations undertake mass marketing. Both organisations operate under the social media platform where the aims of the social media providers are to capture as many users as possible. It is most likely to find that the value propositions of the two organisations are also the same. These value propositions enable all participants in the social media market to enhance their brands acceptability, performance and risk reduction. Alsos, Eide and Madsen (2014 p.218) emphasize this fact by pointing out that business model canvases result from four basic objectives of any organisation. These objectives all relate to the user or customer in one way or another. The aim of these objectives is to bring new technologies, products or services. Although there is great similarity in the business model between the two organisations, Whatsapp segments its market by providing users with a more friendly, cheap and convenient messaging process. It is more appealing than the traditional messaging process or facebook, which does not provide more engagement with its users. In contrast to Whatsapp business model, Facebook’s channels of distribution targets a certain category of people who are literate. Facebook requires an individual to have some knowledge of how to access the internet in order to interact with other people. In contrast to this, Whatsapp only requires a smart mobile phone with internet access and easily connects a person with others through their mobile phone numbers. Combination of the two organisations business model canvas would result in a more sophisticated model that aims to improve service delivery by both organisations. In this Facebook organisation will succeed in eliminating the competition earlier posed by Whatsapp by merging and become one. Trautwein (1990 p.283-295) notes that, merging and developing a single business model canvas will lead to efficiency gains, low operational costs and subsequently enables the merging organisation to have monopoly power over the markets they operate. Integrating the key activities, resources, channels and customer segmentation will most likely result in a better model that will create more value to the users. In this case, Facebook will be in a position to incorporate Whatsapp in its platform and create a more user-friendly environment. Facebook can also be a distribution channel for whatsapp through creating awareness to its users. Merging will further increase the revenue streams that can be used for expanding the niche; improve technology and more variety of services to users of both social platforms. This merger will facilitate a keen observation of the value propositions from both organisations and design a unique and attractive service package for users of the two platforms. In relation to studies by Trautwein (1990 p. 283-295), merging and developing a single strong model canvas will be crucial in attaining the desired market power. The market power will result from the combination of resources including financial ability and technological expertise. This will enable the merging organisations to eliminate competition and expand the market niche. Conclusion It is a wise move by Facebook organisation to acquire Whatsapp. This decision will result to many benefits as a result of the ability of Whatsapp to attract many users than other social networks. The numbers of Whatsapp users rise and spread to many parts of the world than any other social network we have today. Merging the social network with facebook, which also commands a significant number of users, is a wise move due to the many benefits that will accrue because of combined power. The combined business model canvas will create market power and improvement in service delivery. References Ireland, R.D, Hoskinson, R & Hitt, M 2012, Understanding Business Strategy: Concepts and Cases. Cengage Learning, Mason, OH. Frankel, M.S. 2011, Mergers and Acquisition Basics: The Key Steps of Acquisition, Divestitures and Invest, John Wiley and Sons,Inc, New Jersey Zammuto, R.F 1982. Assesing Organisational Effectiveness: Systems change, Adaptation and Strategy, State University of New York Press, New York Hamilton, M 1999, Software Development: Building Reliable Systems. Pearson Education Company, New York. Alsos, A.G, Eide, D & Madson, E.L. 2014, Handbook of Research on Innovation in Tourism Industries, Edward Elger Publishing Limited, Northampton Kelly, G. 20th Feb 2014. Forbes.(online). Forbes.com LLCtm. Available. http://www.forbes.com/sites/gordonkelly/2014/02/20/5-key-reasons-whatsapp-is-worth-19bn-to-facebook/. 25-03-2014. Trautwein, F. 1990, “Merger motives and merger prescriptions." Strategic Management Journal. Vol.11,No.4. pp.283-295. Read More