Once you dig into the astonishing numbers for WhatsApp, you can kind of see why Facebook paid $19 billion for the company. Kind of.
Facebook was forced to pay such a high price for WhatsApp because of the communications app's ridiculous growth numbers and devoted users, 75 percent of whom used it every day and logged on to the app several times per day.
Huge, Impressive Numbers
WhatsApp, which is more well known in International circles than it is in the United States, is a sort of Skype on steroids. It could be one of the scaleable, fastest growing, lowest-latency messaging services ever built, with 450 million users sending 50 billion messages a day. Every day, about a million people download it.
Yes, the $19 billion is staggering and sets a new high-water mark for price paid per employee. Just take a look at this:
- 2006: Youtube, $24 million per employee
- 2012: Instagram, $70 million per employee
- 2014: WhatsApp, $290 million per employee
This engineering-driven company, based in Mountain View, Calif., was militantly focused on the best product ever. The message here is a slavish devotion to customers. As Sequoia partner Jim Goetz -- one of WhatsApp's investors, writes in his blog post, "Jan and Brian [WhatsApp founders] remained devoted to a clean, lightning fast communications service that works flawlessly."
Jan and Brian's Excellent Adventure
WhatsApp founders Jan Koum and Brian Acton not only built a great company: They forged their own Horatio Alger-like story of camaraderie -- Koum was a poor Ukrainian immigrant whose mother immigrated with him to California when he was 16 -- as told by this riveting Forbes piece. Acton befriended him after both his parents died.
The two founders met while working at Yahoo. In baking the DNA for WhatsApp, they were laser-focused on a mission: providing the best possible service, without any distraction. This came from Koum's past frustration in working with ads at Yahoo, finding the task uninspiring and not helpful to the customers. "Dealing with ads is depressing,” he told Forbes. “You don’t make anyone’s life better by making advertisements work better.”
Koum posted Acton's handwritten note, which said "No Ads! No Games! No Gimmicks!" to his desk. Facebook, which will take over the service, says it will remain true to WhatsApp's ad-free mission.
The company spent zero money on marketing, so where did it find 450 million customers? It built the best possible product. It focused on the most efficient, clean communications app.
After one year of free use, the service costs $1 per year — with no SMS charges. At $1 a year, it seems pointless, but when you are approaching 500 million users the money starts to add up. About 72 percent of WhatsApp users log in every single day. The industry average for app use is less than 50 percent.
Facebook, no doubt, is already thinking about ways to expand the service. I can see room for plenty of premium add-on features, a la the Skype model.
The takeaway is that the customer rules. If you build a product so perfect, with the best possible customer experience, it will be hard to resist. Monetization? Who cares. As WhatsApp proven, once you've perfected your product, you can always cash in later.