This little company is worth some big money
The $19 billion that Facebook Inc. is paying for a smartphone application made jaws drop, even in Silicon Valley.
But analysts say the purchase of WhatsApp could pay off for Facebook as it takes on Google Inc. and other technology giants in the escalating arms race to be the next big thing in mobile.
The battle for mobile
Technology giants are fighting for their future as consumers switch their allegiances from personal computers to mobile devices. By 2015, 5 billion people are expected to be carrying around the tiny computers in their pockets.
As a result, nimble start-ups that have outpaced their grown-up rivals in building popular mobile services have become takeover targets.
Just last year Facebook offered $3 billion for Venice Beach messaging company Snapchat, but was rebuffed. WhatsApp, a tiny California company, was a far bigger prize.
With 450 million users, WhatsApp is the market leader in mobile messaging. Chief Executive Jan Koum says his company's goal from the start was "to be on every single smartphone in the world."
Facebook is betting WhatsApp can help it leapfrog competitors in messaging, the new communication medium of choice.
Survival at stake
The stakes could not be higher for Facebook. More people are communicating on their mobile devices rather than blasting information to hundreds of friends on social networks. Its very survival depends on its ability to latch onto the new ways people are connecting and sharing.
By that logic, the price Facebook is paying for WhatsApp isn't so bubbly, said David Wessels, a finance professor at the University of Pennsylvania.
"As a stand-alone company, WhatsApp is clearly not worth $19 billion, period," Wessels said. "But by no means would I consider this irrational. Would you give away 10% of your company to extend the life of your company?"
Vocabulary Focus
allegiance n.
support for a leader, country, group or belief
nimble adj.
quick and clever, acute in planning, devising or understanding
outpaced v.
to increase, move or grow faster than another thing
rebuff v.
suggestion, a request for help or an offer to help, often in an unfriendly way
leapfrog v.
to improve your position by moving quickly past or over something that blocks your way
latch onto (something) (phr v)
to become interested in an idea, sotry or activity, and to start to use it
irrational adj.
not based on reason or clear thinking; not reasonable
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