MGT 3830 - WhatsApp and Facebook Case
The better off test in the Instagram transaction:
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The ownership test in the Instagram transaction:
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Apply the Core Competence - Market Matrix to analyze the logic of the pattern of acquisitions in this case (Instagram, Oculus, Whats App, and LiveRail).
EE: Leverage existing core competence to improve current market position. EN: Redeploy and recombine existing core competence to compete in future markets. Find linkages. NE: Build new core competence to protect and extend current market. NN: Build new core competence to create and compete in markets of future. Facebook is moving from a social network to a company with many different businesses in portfolio. They are monetizing apps across various devices. All these acquisitions gives Facebook more data, which they plan to utilize in order to improve prices and the types of products offered to users in platforms. Facebook now has to manage 5 platforms.
Why did Facebook buy Instagram? In your opinion, was Instagram a "must have" acquisition for FB? Discuss the key steps/details at each stage of the acquisition. What are the pros and cons?
FB bought Instagram because it sought to expand its user growth. The logic was that Instagram's born mobile app brought growth, relevance and youth to Facebook. I believe the two work because of their relatedness. Yes, I think smart move. Pushed Facebook global. Got each others followers. Made bet on future and it paid off. The key steps: Instagram operated independently, then in 2013 Facebook began to monetize the acquisition and Instagram revealed it would be launching advertisements.
Describe the Business Model- How does Facebook make money?
Facebook makes money through the use of advertisements and games played on Facebook. In the Business Model, it is a multi-sided platform that has to reconcile with the different interests (advertisers and users) This includes: network effects, no literal switching costs, fierce competition with other mobile players, a competitive landscape, and have substitutes. more users -> more advertisements -> more money
b. What do advertisers want? What are they WTP for?
Marketers want to be where the people are to drive up mobile advertising results with engagements through the user's News Feed where it encourages user's to 'like' their brand. The end goal is to drive up their revenue.
Was it worth it for FB to pay 22 billion to acquire Whats App? Would FB be able to keep Whats App as a successfully independent run operation? What would be the best approach to monetize the acquisition in the future?
No. I think yes, but then again it would be hard to continue to grow due to the differences in the values and being unable to monetize Whats App, in contrast to Instagram. The approach is already shown to find money in the idea of payments after the user uses the app for a year, they continue to pay $.99.
Discuss the challenges to future growth. What are the primary risks/threats? Is there a need for strategic renewal at FB?
The challenges to future growth are slow user engagement, mobile conversion, and privacy concerns. The primary risks/threats are: 1. User retention, growth, and engagement. 2. Advertisement Fatigue 3. Privacy and Security 4. Competition and disruption 5. Change in demographics and the consumer base. As the environment continues to change, there is a need for strategic renewal at Facebook.
c. What do developers want?
Their focus is to create the mobile products, that allow users to share any type of content with any group of people they wanted, a goal that tied into making the world more connected.
a. What do users want? What does "WTP" mean for the free user?
Users want engagement across a social spectrum. WTP for the user is where they still use Facebook frequently despite the fact that there is no literal switching costs. Therefore, users can use Facebook as well as other free applications such as SnapChat. (a psychological dependence)
Analyze Zuckerburg as an entrepreneur and CEO.
Zuckerberg led a successful venture with the creation of Facebook back in 2004 while he was still a student at Harvard. It was said that he was more dedicated to Facebook's mission to connect the world than to make money. He is quick to make decisions. Does not involve lawyers or any other things when acquiring Facebook and Whats App. No investment bank or lawyers. Met the people to come up with the deal and closed quickly to try to acquire before other rivals can. Zuckerberg does commit to the other companies by letting them be independent and staying what they are stood for. Knows how to turn company around before Instagram ended up like Snap Chat. Zuckerberg knew Instagram would help Facebook launch its mobile app more successfully.
Why did Facebook buy Whats App? Why did they pay such a high price? Was Whats App a "must have" for FB? Discuss key details at each stage of the process and the pro/cons.
Zuckerberg was attracted to the simplicity, speed, and reliability. As well as the 'no nonsense approach was that Whats App used a minimal amount of data to only send and receive messages, and not serve any ads or games that is secured and a cross-platform. They paid such a high price because they believed that Whats App appealed to the younger generation and had potential to revitalize Facebook engagement. Also because it is only the widely-used app that Facebook has seen that has more engagements daily than Facebook itself. No, Whats App was not a 'must have'. FB has to respect the values and since FB makes money through advertising on its site and on Instagram, they can't advertise through Whats App for privacy reasons, so why buy it. The pros: Daily active users, continue to financial growth and development, enter new markets, mobile born, can hedge against uncertainty, organization learning, get the talent, preempt rivals, global born, and born mobile capability. The cons: too expensive?, difficult to monetize privacy, opportunity cost - what to do with 19 billion?, FB already has Messenger, texting is an unattractive industry, business model conflicts - privacy/advertising, cultural conflict, leadership question - advertising interfering with product development?
