In what is being termed as the biggest internet acquisition in more than a decade, Facebook Inc. (FB), the world’s largest social network, has agreed to buy the fast-growing mobile-messaging startup WhatsApp for as much as $19 billion in cash and stock.
Founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley startup fairy tale, rocketing to 450 million users in five years and adding another million daily.
“No one in the history of the world has ever done something like this,” Facebook Chief Executive Mark Zuckerberg said on a conference call on Wednesday.
WhatsApp, which is popular in Europe, lets users send messages through its service on mobile devices based on different operating systems including Apple Inc. (AAPL)’s iOS, Google Inc.’s Android, Microsoft Corp. (MSFT)’s Windows Phone and BlackBerry Ltd.’s software.
Zuckerberg, who famously closed a $1 billion deal to buy photo-sharing service Instagram over a weekend in mid-2012, revealed on Wednesday that he proposed the tie-up over dinner with CEO Koum just 10 days earlier, on the night of February 9.
The deal provides Facebook entree to new users, including teens who eschew the mainstream social networks but prefer WhatsApp and rivals, which have exploded in size as private messaging takes off.
How the service will pay for itself is not yet clear.
Unlike traditional text messages, which consumers pay for through their mobile-phone plans, WhatsApp is free for the first year, and costs 99 cents a year after that. It also competes with Tencent Holdings Ltd. (700)’s WeChat in China, KakaoTalk in Korea and Line in Japan, as well as Facebook’s own application, Facebook Messenger.
Zuckerberg and Koum on the conference call did not say how the company would make money beyond a $1 annual fee, which is not charged for the first year. “The right strategy is to continue to focus on growth and product,” Zuckerberg said.
Zuckerberg and Koum said that WhatsApp will continue to operate independently, and promised to continue its policy of no advertising.
Facebook, which held an initial public offering at $38 per share on May 17, 2012, is now worth $173 billion. The social network said it had $11.4 billion in cash and investments at the end of 2013. If the deal isn’t completed, Facebook will pay WhatsApp $1 billion in cash and $1 billion in stock, according to the statement.