Why Facebook Acquired Whatsapp - Essay Example

Affiliation: This work discusses the reasons as to why Facebook acquired Whatsapp. The study explains the key reasons and motives that pushed Facebook to acquire and merge with Whatsap in order to have control of its resources and market power. The study further explains the threats posed by Whatsapp to Facebook and other social media platforms that use the same technology and targets the same market segments. The business model canvas adopted by both Facebook and Whatsapp are part of the study as we try to find out the main reasons and benefits that will be accrued because of acquiring Whatsapp. Introduction Facebook and Whatsapp Organizations Facebook and whatsapp are among the leading social media platforms we have in the modern world. The two social Medias have significant number of users that each pose a threat to another as far as the social media business is concerned. In comparison to other social Medias that have been in existence before the invention of whatsapp, facebook was dominating the market with the highest number of users. With the coming of whatsapp in the social media market, it intensified the completion to a point where facebook opted to acquire it. Discussion Justification for Acquisition of Whatsapp Apart from the excessive competition in the social media market brought about by Whatsapp application, there are many other ways to justify the acquisition of Whatsapp by Facebook. Just like in other forms of business, one business my either merge with another or fully acquire it depending on the business environment they both face. According to studies by Ireland, Hoskisson and Hitt (2012 pp.133), one business may acquire another in order to increase its growth, gain market power, manage risks and reduce costs. In relation to such acquisition reasons, Facebook owners made the move to acquire Whatsapp in order to increase its growth in the social media market. Acquiring Whatsapp, which is a strong competitor, would also help Facebook manage the risk of elimination from business and cut costs of operation such as advertising. Management of such factors would subsequently lead to an increase in the market power by Facebook. In studies conducted by Frankel (2011 pp.22), he notes that, among the main reasons why one business may acquire another include customers and market share. One business may want to take over the customers of a competing business and successively take over the market share. In relation to the above studies, Facebook will take over the users of whatsapp and subsequently its market share. This is possible because Whatsapp has the ability to attract many users than facebook. Studies indicate that the acquisition of Whatsapp, which is one of the leading social Medias today, will help Facebook acquire diversity of experience. Frankel (2011 pp.24) further indicates that, acquisition of one company by another will facilitate the takeover of technology and product expertise. In the case of Facebook and Whatsapp, Facebook will be in a position to incorporate the latest technology from Whatsapp that enables it to dominate the social media platform. A key reason that may provide a justification for Whatsapp acquisition is the ability of Whatsapp to replace the old messaging style where users were required to pay money to send messages over the mobile phones. Whatsapp enables users to send millions of text messages, pictures, and voice messages over the internet per day. An article by Kelly (2014) reveals that although there are many other messaging applications with significant number of users, Whatsapp stands out among the many due to its ability to provide engagement with its users. Kelly further explains that, Facebook’s decision to acquire Whatsapp was to prevent anyone else from buying it. In relation to other competing applications in the social media market, none of them can match Whatsapp numbers in various parts of the world. Justification by Analysis of the two organization’s Business model canvas Facebook and Whatsapp organizations have many similarities in their business model canvas because they operate under the same market. However, each organization may adopt a business canvas that is suitable to reach its target group in the social media platform. The organizational structure and business canvases adopted by any of the organizations will be effective if it has the greatest potential of expanding the organizational niche (Zammuto, 1982 p.108). It is through this ability of the business canvases to expand the niche that an organization operating in any form of market can satisfy changing preferences and increase the adaptability of the organization. The business canvas adopted by Whatsapp is market oriented aiming at simplifying the service delivery mode while utilizing the best and more efficient technology. Among the key activities incorporated in Whatsapp business canvas, include improvement in performance in comparison to its competitors, customization, and designing of an attractive product that can draw users from all folks in the society, convenience and risk reduction. The key activities in both Facebook and Whatsapp business model canvases involve production of the most attractive packages that are suitable for the target groups. Under the value propositions as a model canvas in both organizations, there is high desire and determination to improve performance of the products, create newness in order to stay relevant in the market and subsequently cut the cost of operation. These value propositions are a key indicator to the success of both Whatsapp and facebook. Customer relationship is a necessary tool in the model canvases of both organizations. The two organizations operate in a competitive market that requires innovation and creation of enabling environment for both users and providers of services. Due to the nature of the services offered, both Facebook and Whatsapp adopt an efficient automated customer relation service to handle the queries of its users. This efficient organization structure and business canvas is beneficial to the organizations as it can set the pace and define the business environment. According to Hamilton, (1999 pp.106), A suitable organization structure that clearly stipulates the business canvases is necessary in order to avoid the collapse of internal economies due to conflicting objectives. Among the key resources for the organizations is a creative workforce that is responsible for designing of products that satisfy the needs of the users. Kelly (2014) in his article explains this as the major reason as to why Whatsapp is a clear leader in most parts of the world. Both Facebook and Whatsapp utilize various channels from their business model canvases. These channels aim to create awareness, make evaluation, or offer after sale services. The model canvases stipulate clear ways to create awareness in ways such as collaborating with handset manufacture to incorporate organizations’ applications in the mobiles’ software’s. This does not only help to create awareness to handset buyers but also increase the number of users. The organizations adopt mass-market customer segmentation canvases. This is an appropriate strategy because the organizations operate in the social media market therefore targeting all people around the globe. Business model canvases for Facebook and Whatsapp prior to the Acquisition Whatsapp business model Canvas In analyzing the business model canvas for Whatsapp organization, we find a justification as to why Facebook made a move to acquire it. The appropriate model canvas by Whatsapp describes the rationale of how the organization has managed to create, deliver and capture value. Research by Alsos, Eide and Madsen (2014 pp. 218), point out the necessity of utilizing the basic nine principles in business model canvases. An appropriate business canvas such as the one for Whatsapp bears in mind the four main areas of business such as, customers, offerings, infrastructure, and financial viability. The customer needs must are satisfied from the value propositions. Studies indicate that, suitable value propositions for Whatsapp are obtained from customers’ needs, taste-and-preferences, and market trends. In Whatsapp business canvases model, revenues streams always result from value propositions offered in a successful way to its users. Facebook Business model Canvas There are many similarities in the business model canvases adopted by both Whatsapp and Facebook. Among the similarities, include market segmentation where both organizations undertake mass marketing. A slight difference exists in Facebook’s model canvas in such a way that it is easy for Facebook users to interact with many people compared to Whatsapp. This is because in Whatsapp users must have the mobile phone numbers of fellow users. The value propositions for Facebook tend to focus more on accessibility and status. Being one of the leading social media platforms, the model canvas tend to emphasize on the need to maintain a strong and recognizable status in the market. These value propositions enable all participants in the social media market to enhance their brands acceptability, performance and risk reduction. Alsos, Eide and Madsen (2014 pp.218) emphasize this fact by pointing out that business model canvases result from four basic objectives of any organization. These objectives are all related to the user or customer in one way or another. The aim of these objectives is to bring new technologies, products or services. Although there is great similarity in the business model between the two organizations, Facebook segments its market by providing users with a more friendly, cheap and convenient media platform. In contrast to Whatsapp business model, Facebook’s channels of distribution targets a certain category of people who are literate. Facebook requires an individual to have some knowledge of how to access the internet in order to interact with other people. Combined Business model Canvas for Facebook and Whatsapp Combination of the two organizations business model canvas would result in a more sophisticated model that aims to improve service delivery by both organizations. In this, Facebook organization will succeed in eliminating the competition earlier posed by Whatsapp by merging and become one. Trautwein (1990 pp.283-295) notes that, merging and developing a single business model canvas will lead to efficiency gains, low operational costs and subsequently enables the merging organization to have monopoly power over the markets they operate. Integrating the key activities, resources, channels and customer segmentation will most likely result in a better model that will create more value to the users. In this case, Facebook will be in a position to incorporate Whatsapp in its platform and create a more user-friendly environment. Facebook can also be a distribution channel for whatsapp through creating awareness to its users. Merging will further increase the revenue streams that can be used for expanding the niche; improve technology and more variety of services to users of both social platforms. This merger will facilitate a keen observation of the value propositions from both organizations and design a unique and attractive service package for users of the two platforms. In relation to studies by Trautwein (1990 pp.283-295), merging and developing a single strong model canvas will be crucial in attaining the desired market power. The market power will result from combination of resources including financial ability and technological expertise. This will enable the merging organizations to eliminate competition and expand the market niche. Conclusion It is a wise move by Facebook organization to acquire Whatsapp. This decision will result to many benefits as a result of the ability of Whatsapp to attract many users than other social networks. The numbers of Whatsapp users rise and spread to many parts of the world than any other social network we have today. Merging the social network with facebook, which also commands a significant number of users, is a wise move due to the many benefits that will accrue because of combined power. The combined business model canvas will create market power and improvement in service delivery. Appedix 1; Canvas model KEY PARTNERS -Mobile phone users -Advertising companies - sequoia capital KEY ACTIVITIES -Proper customer relationships -Compatibility VALUE PREPOSITIONS -simplicity -compatibility across range of mobile phones -support CUSTOMER RELATIONSHIPS -Fair use of social media -honesty (blog posts) -App notifications -media appearance CUSTOMER SEGMENTS -Whatsup targets all smart phone users worldwide KEY RESOURCES -Team of competent ICT experts - Team of Engineering experts -marketing experts Investors CHANNELS Research on customer demands and segmentation of customers in order to determine which channels to follow. COST STRUCTURE -Startup costs, fixed costs, -Furniture costs , licensing fees, -variable costs such as travelling -recurring costs, for example, salaries, -utilities, costs of licensing software, and server use REVENUE STREAMS -Investors Advertising companies -partners programs such as whatsup gold References Ireland, R.D, Hoskinson, R & Hitt, M 2012, Understanding Business Strategy: Concepts and Cases. Cengage Learning, Mason, OH. Frankel, M.S. 2011, Mergers and Acquisition Basics: The Key Steps of Acquisition, Divestitures and Invest, John Wiley and Sons,Inc, New Jersey Zammuto, R.F 1982. Assesing Organisational Effectiveness: Systems change, Adaptation and Strategy, State University of New York Press, New York Hamilton, M 1999, Software Development: Building Reliable Systems. Pearson Education Company, New York. Alsos, A.G, Eide, D & Madson, E.L. 2014, Handbook of Research on Innovation in Tourism Industries, Edward Elger Publishing Limited, Northampton Kelly, G. 20th Feb 2014. Forbes.(online). Forbes.com LLCtm. Available. http://www.forbes.com/sites/gordonkelly/2014/02/20/5-key-reasons-whatsapp-is-worth-19bn-to-facebook/. 25-03-2014. Trautwein, F. 1990, “Merger motives and merger prescriptions." Strategic Management Journal. Vol.11,No.4. pp.283-295. Read More