ANALYSIS: Facebook reviews options for $19 billion WhatsApp

14 November 2014 | Kavit Majithia

Facebook swiftly moved to close its $19 billion acquisition of WhatsApp last month after gaining final approval from the European Commission.

The merger – which will combine WhatsApp with Facebook’s messaging service – is viewed by analysts as prime to emerge as a pioneer for the evolution of person to person (P2P) payments over a mobile platform.

It is looking increasingly likely that Facebook will now look to leverage WhatsApp’s global messaging platform, with approximately 600 million active users, as a money transfer service.

After missing a Q2 2014 deadline to launch VoIP services on the application, market watchers predict that Facebook will also launch a voice offering on WhatsApp.

“For the foreseeable future, WhatsApp will remain primarily a communications platform,” said Pamela Clark-Dickson, senior analyst, consumer services at Ovum. “It is, however, entirely possible that Facebook could add a payments capability to WhatsApp, so that users could purchase add-on bundles of messages (or VoIP minutes) for contacting non-WhatsApp users, for example.”

After paying such a hefty price for the instant messaging application, the tech community will take an active interest in how Facebook plans to recoup its considerable investment.

WhatsApp charges $1 a year in subscription in countries that have carrier billing capabilities, and this small fee contributes to approximately $20 million in annual revenue. However, its annual revenue does not go far towards justifying the amount it has been valued at.

Earlier this year, the company appointed former PayPal CEO David Marcus as head of Facebook’s Messaging Products business, in a bid to strengthen its growing portfolio of money transfer services.

It has also reportedly implemented a payment infrastructure within its own Facebook Messenger application in the Apple’s iOS8 platform.

The acquisition, which values WhatsApp higher than Iceland’s entire GDP, was under scrutiny by the European Commission, after getting approval from US regulators over six months ago.

The EC took the unusual step of seeking feedback from operators in the region over the deal, before concluding that the deal is unlikely to stifle competition.

In recent months, WhatsApp has also looked into new ways in which it can work with a range of different mobile operators in Europe.

This includes an experiment with German operator E-Plus (recently acquired by Telefónica) in April 2014, with the two companies partnering to launch a WhatsApp prepaid SIM Card.

If WhatsApp will can indeed be utilised in this way, it provides Facebook with the option of using its latest acquisition as an MVNO player.

“With 60 billion messages going through its application every day, WhatsApp has a lot to offer potential operator partners as an MVNO – assuming its partnership with E-Plus is successful,” adds Clark-Dickson.