A Final Word on Facebook / WhatsApp and What it Really Says about Mobile-Social

By now we’re all familiar with the numbers – $19B total consideration ($12B stock, $4B cash, $3B RSUs) implying a price of $42 per user or a staggering $594M per WhatsApp engineer. We’ve heard the rationale – Facebook NEEDED to do this to maintain its share of engagement and activity in the mobile ecosystem. What were they to do? Stand by with their flat-lining Facebook Messenger product as private messaging becomes more valuable and core to the mobile computing experience or go out and buy the leader in the market? WhatsApp, after all, has a rich mobile conversation and sees over 500M photos shared daily – more than Snapchat, Instagram and Facebook.

Ultimately, the most interesting implication of this deal is that it marks an important point in time as the shift towards the mobile computing paradigm accelerates. Only now are we starting to wrap our heads around the differences in designing for mobile vs. native Web. There has been a lot of carnage – A LOT – both by entrepreneurs and investors who have failed to appreciate the scope and scale of just how different our interaction with applications on-the-go is than that same interaction behind our desks.

Whereas native Web apps favor rich, feature-loaded products, mobile trends tend to favor single-purpose, specialized apps. Designing for the Web, a good app is one such that time-on-site is maximized, whereas the opposite is true for mobile: I want to create an app that is incredibly efficient at getting the user exactly what he/she needs – whether that’s a posting or viewing a photo, sending a message, or reserving a car ride. We see this with winners: Instagram, WhatsApp, Uber, etc. The experience is incredibly straight-forward – only a few clicks get me the action I seek. Whereas the losers (or those struggling now), are those companies who have built beautiful, feature-loaded experiences but are still struggling to identify what they really are to their users and growth is decelerating in kind (see: Path, Foursquare, Color Labs).

This creates an ecosystem that is highly distributed – as what Ben Evans of Andreessen Horowitz refers to as a “systemic plurality of options” – and not dominated by a handful of applications or portals like on the Web. The most profound implication, then, is that the winner-takes-all dynamics of social on the desktop do not appear to apply on mobile, and if there are winner-takes-all dynamics for mobile social it’s not yet clear what they are.

The reason for this, at least in large part, is because the phone, in and of itself, is the unifying social fabric. The smartphone, featuring our address book, our photos and voice capabilities, is the that most closely ties us in with our actual social networks – it’s the most pure facilitator of social interactions.

The desktop never could replicate this experience that’s why social networks not only filled the gap on the native Web but also became so powerful and valuable. Now, however, with mobile computing we can take our social graphs, photo albums and messages with us wherever we go and access them whenever we want. App developers don’t need to re-invent the social wheel for mobile – instead they just piggy-back off the phones inherent functionality. The smartphone itself is the social platform and all sorts of different ideas can leverage that, where on the desktop they’d have needed to leverage Facebook, Twitter, Skype, etc.

So if the network effects on mobile are dramatically weaker – if they exist at all – than on native Web, then how could Facebook ever rationalize paying $19B for 450M fickle users? Ben Evans and John Lilly, VC with Greylock, purport an interesting theory. Their thesis – which I agree with – is that we are in the very early days of the mobile computing revolution. Effectively, where we are with the mobile Web today is where we were with the Internet before Larry Page and Sergey Brin successfully developed their PageRank algorithm and commercialized it through Google. Before Google began indexing the Internet, the Web was fragmented with data and content siloed. That is exactly what we have today in mobile: most of content, services and connections are locked up and data is more fragmented. So we got apps, and daily/hourly engagement with billions of people, but we still haven’t figured out how to sort it. The critical issue is that mobile discovery and acquisition is broken and social will inevitably a big part of the solution.

The bet, then, that Facebook and others are making is that apps with hundreds of millions of users – like WhatsApp – will help build the network hubs and spoke system that will help us make sense of the mobile Web, much like Google was able to accomplish with PageRank. I think we’re a ways from seeing this, but the underlying thesis and rationale of this argument – the one that that makes apps like WhatsApp so valuable – makes implicit sense to me.