Facebook's Acquisition of WhatsApp Will Face Legal Hurdles
To invoke a phrase sure to be used often during the upcoming March Madness basketball tournament in the United States, Facebook's $19 billion acquisition of WhatsApp isn't exactly a "slam dunk" at this point.
Earlier this week, privacy advocates petitioned the U.S. Federal Trade Commission to halt the progress of the deal until Facebook makes clear how it plans to use the personal data of more than 450 million users of WhatsApp, which was founded in 2009 and based in Santa Clara, Calif.
One of the biggest areas of privacy concern are all those telephone numbers WhatsApp has collected merely by being a messaging application. Facebook, designed as a desktop app 10 years ago with little emphasis on messaging, doesn't have that kind of direct window into the mobile market, even though it has gained traction during the last 18 months with its mobile apps for iOS, Android and Windows phones.
For the record: WhatsApp Messenger is a cross-platform mobile messaging app that allows users to exchange messages without having to pay separately for Short Message Services (SMS). The freemium WhatsApp Messenger is available for iPhone (free for first year, $1 annually thereafter), Android, BlackBerry and Nokia phones.
WhatsApp: Unlimited Sending of Messages, Images, Video, Audio
In addition to basic messaging, iPhone, Android and BlackBerry WhatsApp Messenger users can send each other unlimited images, video and audio media messages. Facebook's on-site messaging app has never been one of its most used features.
WhatsApp, which has about 50 employees, has grown extremely fast since its launch in 2009 and started dominating its market segment in Europe three years ago. As of January 2014, the company claimed 430 million users and is now reportedly up to 450 million.
The service says it serves about 220 million active monthly users, 10 billion messages sent and 17 billion received in a single day. In 2013, its users sent 18 billion messages and received 36 billion in return, three times the previous year’s metrics.
Facebook Promises That WhatsApp Won't Change
Facebook has promised WhatsApps users that it will maintain the messaging app's brand identity and service levels as an independent subsidiary.
Why are privacy proponents concerned about the deal? Facebook already has a checkered history when it comes to user privacy policies, for one thing.
The Menlo Park, Calif.-based social network has had to deal with a number of lawsuits involving the storage and handling of personal information, including class-action litigation alleging $15 billion in damages for privacy violations tied to the tracking of Web users. The case, still pending, stemmed from accusations made in 2011 that Facebook tracks user activity even after people have left the site.
Secondly, two of WhatsApp's key value-adds are its ad-free service and high standard of keeping user information private. Thus, privacy folks are concerned that Facebook, as the new owner, will loosen the kimono in various ways on this valuable new user contact information with its advertising and marketing partners.
WhatsApp's primary markets are the pre-teen and teenage groups in Europe. Not surprisingly, European Union operatives representing all 27 EU member nations are keeping a close watch on this acquisition. The central concern: Exactly how Facebook plans to use WhatsApp's huge user data bank, and how that will impact its users.
Was WhatsApp Really Worth $19B?
With the $19 billion deal, Facebook is paying about $42 per head for WhatsApp's 450 million users. Intelligent use of those personal phone numbers and the ability to get messages in front of so many potential product customers on a 24/7 basis globally is worth a lot more than $42 over time.
"The reality is, if you are the trusted brand in front of the user, you can take a margin off all their commerce, all their communication, all their dating—all their everything," former Google executive Gil Elbaz, whose data-centric startup, Factual, is getting traction in the market, told eWEEK.
"I'd argue that there's hundreds to thousands of dollars per user per year that companies like Facebook, Google and Apple are believing are available. At some point in the future, when everything is done through technology, the ultimate consumer winner is going to be capturing a lot of value that's much larger than $42."
Facebook hasn't yet commented publicly about these concerns, but it's only a matter of time before it does.
It's safe to say that we'll be reading a lot more about this deal in the weeks and months to come.