Update: TheInformation is reporting that Google was willing to beat Facebook’s $19 billion offer. More behind a paywall here.
Google tried to buy messaging service WhatsApp for $10B prior to Facebook’s successful $19B bid, according to two separate sources cited by Fortune. It has also been reported that Google had earlier offered WhatsApp “millions of dollars” simply for the right to be informed if WhatsApp received an offer from anyone else, an offer the messaging company turned down.
The size of the offers seem almost incredible given that the app is free and has no ads. Its entire revenue stream depends on users signing up to a 99c annual subscription after their first year, giving it – at present – a revenue ceiling of $450M a year.
But it’s likely that WhatsApp’s real appeal was it provides access to a core market for the future: mobile-first users in developing markets …
While the app has many users in the U.S. and Europe, its key appeal has been in regions like Africa and Asia, where a mobile connection is, for many, their primary or only form of Internet access. WhatsApp’s popularity is because it effectively provides users with the equivalent of text messaging for a far lower cost, using only tiny amounts of data per message.
Both Google and Facebook know that these markets are the key to future growth, hence their willingness to pay what seems like well over the odds for a simple messaging service.
Facebook paid $4B in cash, $12B in Facebook stock and a further $3B in restricted stock to the WhatsApp staff (stock that cannot be sold until a later date).