Google (GOOG) and WhatsApp have reportedly been locked in negotiations about an acquisition for more than a month — and WhatsApp is pushing for nearly $1 billion valuation, Digital Trends recently reported. This sounds like a huge number, but even though WhatsApp has not released its user base estimate, it is widely assumed to be more than 300 million. This past New Year’s Eve, WhatsApp processed more than 11 billion outbound messages. The company has started counting outbound and inbound messages separately due to the popularity of its group chat feature that has been one of the cornerstones of its franchise. WhatsApp has become a massively popular service on all continents, but it is particularly big in Europe and Latin America where its market penetration among smartphone users tops 80% in countries including Brazil, Spain, Portugal, the Netherlands and Germany.
However, there is one recent trend that explains why WhatsApp might be considering selling out right now: several rival messaging services have managed to gain apparent locks on major Asian markets such as China (WeChat), Korea (KakaoTalk) and Japan (LINE). Attempting to challenge any of these giants could require really deep pockets and major investments in areas like social gaming and location-based services, which are quickly becoming hugely popular add-ons for Asian messaging champions. As mighty as WhatsApp seems in Europe, Latin America and the United States, there is a small chance that the Asian challengers could leverage their gaming expertise to undermine it in coming years.
For both Google and Facebook (FB), essentially missing the messaging app revolution of 2010-2013 is a huge embarrassment. Google, of course, debuted the enormously popular Gmail service more than a half a decade ago and went on to vanquish the once formidable Hotmail service. Facebook’s messaging feature has also been very popular for years. Perhaps the very success of these two platforms blinded Google and Facebook to the necessity of creating separate mobile messaging apps.
Facebook is now trying to fix its neglect in the messaging app space by binding text-messaging and photo-messaging tightly to Facebook messaging and placing the whole package smack in the center of its new Home service for Android phones. It would be a bitter blow for Facebook if Google could trumpet the acquisition of WhatsApp just when Facebook is trying to catch up in the messaging wars.
WhatsApp has a reputation for fierce independence and an ironclad anti-advertising philosophy. Selling out to a mobile ad champ like Google would be completely at odds with the company image — but a billion dollars have been known to turn a head or two. It would remain to be seen how WhatsApp fans would react to a Google takeover and how big the backlash over privacy issues would be. It is 100% certain that such a backlash would follow an acquisition.
For Google, the purchase would suddenly open delicious opportunities not only in the messaging app market, but also in the mobile game industry. Google could try to quickly revamp WhatsApp into a social game platform and thus copy the highly successful formula that Line and KakaoTalk have used to morph their messaging apps into lucrative mobile game marketing machines. This combined with the Facebook Home program might actually be the two triggers for the negotiations.
The acquisition would definitely give Apple (AAPL) some food for thought. The closed messaging system on the iPhone and iPad already runs the risk of getting left behind due to its proprietary nature.