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Facebook announced on Wednesday that it is purchasing the instant messaging company WhatsApp for an estimated $16 billion. WhatsApp’s service allows users to publish and exchange texts, images and videos over their smartphones and is very popular in hot markets like India, Brazil, South Africa and Indonesia.
In the current deal, Facebook has agreed to pay $4 billion in cash and $12 billion in Facebook shares. As a part of the deal WhatsApp employees and founders will receive restricted stock amounting to an additional $3 billion. Jan Koum, the founder of WhatsApp will join Facebook’s board of directors.
Experts believe the acquisition of WhatsApp would greatly expand the global reach of Facebook into markets with high numbers of users. Currently, WhatsApp has a user base that exceeds 450 million.
Mark Zuckerberg, the founder and chief executive of Facebook said, “WhatsApp is on a path to connect 1 billion people … The services that reach that milestone are all incredibly valuable.”
The purchase of WhatsApp is in line with Facebook’s business statistics that saw greater revenue last year from outside the United States than from the domestic US market. Most of the international revenue came from Western Europe, Brazil, Australia and Canada.
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For the first time Facebook had found the US market contributing 46 percent of the company’s revenue compared to 51 percent from other international markets – and the company realigned its strategies. It explained the change as “due to a faster growth rate of international users and to the expansion of international sales offices and payment methods” in its 2012 annual filing.
As a result, rather than trying to outcompete other complementary players in the international market – a strategy where ROI remains a gamble – Facebook is set to expand through acquisition, as it did in the case of Instagram.
Facebook’s own instant messaging service, Facebook Messenger is popular in the U.S., but in other markets, it lags behind services like WhatsApp. In Japan, an app called the Line is most popular, while in China, the most popular IM app is WeChat.
