This game of Whac-a-Mole began in earnest in 2012 when Instagram poked its head up, displacing Facebook as the photo-sharing app du jour. Zuckerberg swatted it with $1 billion. Last year it was Snapchat that came from nowhere to steal young people’s attention. Zuckerberg swung with $3 billion and missed. Fortunately for him, that particular rodent appears to have ducked its head back underground for the time being. Last week the tech world shuddered as Facebook took its heaviest swing yet—an unprecedented $19 billion in cash and stock for WhatsApp, a mobile messaging service that had managed to avoid the spotlight while making inroads in some of the world’s largest markets. Zuckerberg got his mark, but it cost him dearly: two years’ worth of Facebook profits, plus up to $15 billion in equity, for an add-on business with no clear path to serious monetization.
As the power play reverberated through the valley and beyond, the question everywhere was how a company that made just $20 million last year could possibly be worth $19 billion—reportedly the most anyone has ever paid for a Silicon Valley tech company. The answer is that WhatsApp’s value to Facebook has very little to do with its value as an independent business.
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