Case Notes/Answers
Case Solutions for $19B 4 txt app WhatsApp...omg! by
David J. Collis, Ashley Hartman
Discussion Questions:
Poll
Do you think that Facebook’s purchase of WhatsApp for $22 billion is either:
a) The most outrageous waste of shareholder funds? or
b) The deal of the century?
Assignment
While many companies can grow a core business for an extended period of time, all are
challenged by the need to respond to changing external circumstances, develop new businesses, and
enter adjacent markets. One of the ways to do this is through M&A. Here we study one of the most
contentious recent examples—Facebook’s $22b acquisition of WhatsApp—to understand if the
messaging app company has a sufficiently strong and sustainable market position to justify the price
when its current revenues are less than $10 million.
1) Do you agree with Facebook’s $22b purchase of WhatsApp? Why? Why not?
2) What analyses support your position? What are the underlying assumptions you
are making?
3) Would you have accepted the $22b offer?
, 5 - 7 1 6 - 47 2
JUNE 3, 2016
T E AC H I N G N O T E
$19B 4 txt app WhatsApp...omg!
Synopsis
This public sources case describes the acquisition by Facebook of the messaging service company
WhatsApp in 2014. There is enormous debate over whether Facebook should be sued for wasting
shareholder money since it ultimately paid about $22 billion for a company that had $10 million in
revenue and employed about 50 people and lost $130-140 million, or whether it got a bargain since
WhatsApp has grown faster than any other internet company to reach 500 million monthly average
users (MAU) in less than five years.
The case describes Facebook’s strategy and concerns that its core social media business is perhaps
losing its appeal to the youngest generation while it is struggling to generate revenue from its mobile
platform, which is recognized to be the future for the site. It also describes WhatsApp’s entry into the
messaging service business, its early success in the U.S. with a very clean and simple interface that
has no advertising or external links to a broader ecosystem. The size of the company is described, as
are comparables for other recent acquisitions in the space, and Facebook’s prior experience with the
successful acquisition of Instagram in 2012 for $1 billion. Finally, competitors in the messaging
service business around the world are described to show how other firms, notably WeChat, have a
huge lead in many, particularly Asian, markets with a broader based, ecosystem strategy.
Students are asked to decide whether the acquisition price was sensible or an egregious waste of
money!
Note that there is a version of the case available with the title “. . . wtf?” Teachers may use this
version if they are comfortable with the acronym!
Teaching Purpose
The case allows students to analyze a recent controversial acquisition in the internet space and to
structure the analysis of a major strategic decision. The specific learning objective, other than to
provide a lively classroom discussion, is to illustrate the difference between direct and indirect
network effects and to demonstrate that there must be switching costs and constraints on the ability
to multi-home in addition to network effects to create a sustainable advantage for a first mover in an
, 716-472 Teaching Note—$19B 4 txt app WhatsApp...omg!
industry where there are “network effects.” The essence of the debate about the value of WhatsApp,
is whether or not it is able to create and exploit network effects with its current business model.
The material is intended both for an executive and an MBA level audience. When taught to
executives it is expected that the material will support an open-ended discussion and further insight
into network effects. For executives, putting more structure on the discussion and spending more
time on the basics of network effects might be more appropriate.
The plan below is designed for MBAs. You might preface the class with the observation that there
are two types of case—ex-post rationalization and ex-ante decision. It is the difference between the
practice court where you have the Xs and Os on the chart and you just run the play over and over
again; and the actual game where you throw in the ball and let the teams at it. This is a “game day”
where you have the opportunity to apply some of the tools and frameworks we have been looking at
in the course to date.
It should be noted that it is not obvious whether the acquisition makes sense or not. The
ambiguity is intentional as it forces an exhaustive discussion of the strategic dilemma. The discussion
also offers the opportunity for students to talk about their own M&A related experiences and these
should be encouraged.
Assignment Questions
Poll
Do you think that Facebook’s purchase of WhatsApp for $22 billion is either:
a) The most outrageous waste of shareholder funds? or
b) The deal of the century?
Assignment
While many companies can grow a core business for an extended period of time, all are
challenged by the need to respond to changing external circumstances, develop new businesses, and
enter adjacent markets. One of the ways to do this is through M&A. Here we study one of the most
contentious recent examples—Facebook’s $22b acquisition of WhatsApp—to understand if the
messaging app company has a sufficiently strong and sustainable market position to justify the price
when its current revenues are less than $10 million.
1) Do you agree with Facebook’s $22b purchase of WhatsApp? Why? Why not?
2) What analyses support your position? What are the underlying assumptions you
are making?
3) Would you have accepted the $22b offer?
Teaching Plan
I begin by getting a sense of the class as to whether or not they think the Facebook acquisition of
WhatsApp made sense at the $22 billion final price, which was the 12th largest acquisition in the
world in 2014! To get the class animated for the opening, I typically overstate the case by noting that
2
Case Solutions for $19B 4 txt app WhatsApp...omg! by
David J. Collis, Ashley Hartman
Discussion Questions:
Poll
Do you think that Facebook’s purchase of WhatsApp for $22 billion is either:
a) The most outrageous waste of shareholder funds? or
b) The deal of the century?
Assignment
While many companies can grow a core business for an extended period of time, all are
challenged by the need to respond to changing external circumstances, develop new businesses, and
enter adjacent markets. One of the ways to do this is through M&A. Here we study one of the most
contentious recent examples—Facebook’s $22b acquisition of WhatsApp—to understand if the
messaging app company has a sufficiently strong and sustainable market position to justify the price
when its current revenues are less than $10 million.
1) Do you agree with Facebook’s $22b purchase of WhatsApp? Why? Why not?
2) What analyses support your position? What are the underlying assumptions you
are making?
3) Would you have accepted the $22b offer?
, 5 - 7 1 6 - 47 2
JUNE 3, 2016
T E AC H I N G N O T E
$19B 4 txt app WhatsApp...omg!
Synopsis
This public sources case describes the acquisition by Facebook of the messaging service company
WhatsApp in 2014. There is enormous debate over whether Facebook should be sued for wasting
shareholder money since it ultimately paid about $22 billion for a company that had $10 million in
revenue and employed about 50 people and lost $130-140 million, or whether it got a bargain since
WhatsApp has grown faster than any other internet company to reach 500 million monthly average
users (MAU) in less than five years.
The case describes Facebook’s strategy and concerns that its core social media business is perhaps
losing its appeal to the youngest generation while it is struggling to generate revenue from its mobile
platform, which is recognized to be the future for the site. It also describes WhatsApp’s entry into the
messaging service business, its early success in the U.S. with a very clean and simple interface that
has no advertising or external links to a broader ecosystem. The size of the company is described, as
are comparables for other recent acquisitions in the space, and Facebook’s prior experience with the
successful acquisition of Instagram in 2012 for $1 billion. Finally, competitors in the messaging
service business around the world are described to show how other firms, notably WeChat, have a
huge lead in many, particularly Asian, markets with a broader based, ecosystem strategy.
Students are asked to decide whether the acquisition price was sensible or an egregious waste of
money!
Note that there is a version of the case available with the title “. . . wtf?” Teachers may use this
version if they are comfortable with the acronym!
Teaching Purpose
The case allows students to analyze a recent controversial acquisition in the internet space and to
structure the analysis of a major strategic decision. The specific learning objective, other than to
provide a lively classroom discussion, is to illustrate the difference between direct and indirect
network effects and to demonstrate that there must be switching costs and constraints on the ability
to multi-home in addition to network effects to create a sustainable advantage for a first mover in an
, 716-472 Teaching Note—$19B 4 txt app WhatsApp...omg!
industry where there are “network effects.” The essence of the debate about the value of WhatsApp,
is whether or not it is able to create and exploit network effects with its current business model.
The material is intended both for an executive and an MBA level audience. When taught to
executives it is expected that the material will support an open-ended discussion and further insight
into network effects. For executives, putting more structure on the discussion and spending more
time on the basics of network effects might be more appropriate.
The plan below is designed for MBAs. You might preface the class with the observation that there
are two types of case—ex-post rationalization and ex-ante decision. It is the difference between the
practice court where you have the Xs and Os on the chart and you just run the play over and over
again; and the actual game where you throw in the ball and let the teams at it. This is a “game day”
where you have the opportunity to apply some of the tools and frameworks we have been looking at
in the course to date.
It should be noted that it is not obvious whether the acquisition makes sense or not. The
ambiguity is intentional as it forces an exhaustive discussion of the strategic dilemma. The discussion
also offers the opportunity for students to talk about their own M&A related experiences and these
should be encouraged.
Assignment Questions
Poll
Do you think that Facebook’s purchase of WhatsApp for $22 billion is either:
a) The most outrageous waste of shareholder funds? or
b) The deal of the century?
Assignment
While many companies can grow a core business for an extended period of time, all are
challenged by the need to respond to changing external circumstances, develop new businesses, and
enter adjacent markets. One of the ways to do this is through M&A. Here we study one of the most
contentious recent examples—Facebook’s $22b acquisition of WhatsApp—to understand if the
messaging app company has a sufficiently strong and sustainable market position to justify the price
when its current revenues are less than $10 million.
1) Do you agree with Facebook’s $22b purchase of WhatsApp? Why? Why not?
2) What analyses support your position? What are the underlying assumptions you
are making?
3) Would you have accepted the $22b offer?
Teaching Plan
I begin by getting a sense of the class as to whether or not they think the Facebook acquisition of
WhatsApp made sense at the $22 billion final price, which was the 12th largest acquisition in the
world in 2014! To get the class animated for the opening, I typically overstate the case by noting that
2
