What in the World ?!?

I gave a talk, titled “What in the World?”, almost exactly 2 years ago to this day at Bloomberg LP’s headquarters in NYC as part of Social Media Week.  You can view the full presentation here.  I overviewed  demographic and economic trends globally and outlined the opportunity for technology companies to access growth in the emerging markets.

In the past week, Rakuten, a Japanese e-commerce company, bought Viber, a mobile messaging video app, for $900M; and Facebook bought WhatsApp, a mobile messaging app with 450M active monthly users globally (almost entirely outside of the US), for a deal that could be worth $19B after earnouts.

What in the World?!?   Why this acquisition? Why now?

Relevance: In 2011 (mentioned on page 18 if you view the presentation), Facebook only had 11% of the world’s internet users on on its platform – the figure was at 50% in North America.  At the time I noted that this created opportunity for other platforms to become more globally dominant, particularly as countries in the emerging markets leapfrogged wireline networks to ever faster mobile networks.  While Facebook’s  numbers have grown, internet usage (now mostly mobile even in developed markets) continues to evolve in a pace that rivals innovation in the past.  Facebook  is no longer the innovative, nimble startup it once was, and needs to acquire to stay relevant – see the post on Google’s recent acquisition of Nest.

Connectivity: The very human need for connectivity is a powerful one.  Facebook showed that with its platform, and WhatsApp applied that need in a different, and even more very pragmatic way, using…

Simplicity:  WhatsApp has a simple value proposition:  provide free/low cost ($1/year after the free first year) messaging between smartphones using mobile broadband networks – instead of telecom networks that charge fees for each text message sent.  In an era where so much is possible, WhatsApp focused on its core value proposition.  I’ve invested in emerging markets for close to 20 years – there are rarely bells and whistles associated with businesses that have very limited resources: to survive, they need to get to their core value proposition quickly.  While WhatsApp had the benefit of a deep-pocketed investor (latest reports cite $60M in total funding from Sequoia Capital), I’d argue that the app itself stayed true to the needs of its user base.

“International” Redefined:  I stopped using the word “international” to denote activity outside of the US many years ago.  Many investors and entrepreneurs in the US still have a US-centric view of the world.  I’ve sat on boards when entrepreneurs have outlined growth in countries out of the US — and investors have balked at exploring that growth further.  If this acquisition, as the largest venture backed exit ever, doesn’t change that view, I’m not sure what will.  Jan Koum, one of WhatsApp’s founders, immigrated to the US from Communist Ukraine as a teenager.  He worked at Yahoo, where he met his co-founder. They later started a company based in Silicon Valley that became one of the fastest growing companies ever, with almost all of its growth coming from outside the US.  There’s another post on immigration reform in the US here but I won’t digress.

Global Scale has Arrived:  While WhatsApp has significant usage in Europe, it also dominates India (on track to take over China in terms of total population –  and even more notably, with a growing middle class and significant population under 30).  While many early movers have retreated from India due to low price points, the attractiveness of this user base (and engagement of that user base) is undeniable at this point.  This is also the first year that smartphone sales overtook feature phone sales globally – driven by sales in India.  This gives WhatsApp – a smartphone app – even more upside.