Facebook Buys WhatsApp

From Sky News
Facebook has agreed to buy the mobile messaging company WhatsApp for $19bn (£11.4bn), the social network has announced.

The company said in a statement that it would pay $4bn (£2.4bn) in cash and $15bn (£9bn) in Facebook shares as part of the deal.

The app's founders and employees will get $3bn (£1.8bn) of the shares as restricted stock that will vest over four years after the deal closes.

The purchase marks the largest single acquisition in Facebook's 10-year history.

WhatsApp is a real-time mobile messaging service with more than 450 million monthly users. The app has more than one million new registered users each day.
The thing with online social networks is that the value isn't so much in the site but in the network of users.
So, what Facebook are always nervous about is any new competitor that gains a bit of ground because it might be that everyone switches from Facebook to that new network. When a new network gets to the sort of "hundreds of millions of users" level, they have to get in there and buy them up so they don't threaten Facebook.
There are two downsides to this.
1. It's very expensive. You can't keep on giving away 5% of the company and a couple of year's profits to buy companies with little revenue stream.
2. It just incentivises more competitors to create build-to-flip social networking companies that Facebook is going to have to buy, making things worse. And the thing is, social networking really isn't a very hard problem for software developers.
Fundamentally, I think social networking is just not a sound business. It's built on venture capitalist money, and what those venture capitalists do is to get a great site developed that bleeds money while raising the customer base in the hope that a bigger company or mug shareholders will come along and buy it. Then the investors are stuck with a site that's not making money, so they start sticking ads on the site to try and make some, but the result is that this then annoys users (who won't pay the full value of their site) who go and find the next non-annoying social networking site. Rinse. Repeat.