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Facebook deal for $19b app no shock to tech execs

There was some skepticism about whether the steep trajectory of tech prices is sustainable.David W Cerny /REUTERS

Facebook’s $19 billion acquisition of the mobile messaging startup WhatsApp was widely labeled a stunner, but the news seemed to surprise no one in local tech circles Thursday.

Even the price tag — higher than the stock market value of corporate giants like American Airlines Group and Tyson Foods Inc. — was generally viewed as reasonable for a company with a rapidly expanding user base that already totals 450 million people.

“It was probably worth it to them to block another giant from getting that kind of social reach,” said Katie Rae, the managing director of Techstars Boston, a business accelerator program.


Some went so far as to suggest that Facebook might have gotten a bargain.

“If you do the back-of-the-napkin math on WhatsApp’s current user base, they’re buying each user for about $43,” said Ryan Traeger, chief executive of a Boston app maker, Achvr. “If you look at the research done on the lifetime value of a Facebook user, it’s around three to four times that amount, so it seems like a great play on paper.”

The shrugs are consistent with the almost casual manner in which the deal came together.

Facebook’s chief executive, Mark Zuckerberg, said he and WhatsApp CEO Jan Koum agreed on basic terms in one sitting, over dinner just 10 days before the public announcement.

The tech community’s calm reaction also represents the cool confidence of an industry in which the value of promising companies appears to be skyrocketing.

Facebook paid $1 billion for the photo-sharing service Instagram in 2012, and Yahoo spent roughly the same amount on the microblogging platform Tumblr last year.

Facebook was rebuffed last year when it offered $3 billion for Snapchat, which allows users to share pictures that disappear in a matter of seconds.

“All of them are high enough to give anyone pause,” said Robin Johnson, chief executive of the Boston app maker Storytime Studios.


But, he noted, “a thriving user community centered on social interaction and creative story-sharing continues to be insanely valuable.”

But there was some skepticism about whether the steep trajectory of tech prices is sustainable.

Justin Borgman, chief executive of the Cambridge big-data startup Hadapt, said he was not shocked to see WhatsApp fetch $19 billion, but he doubts that acquisition costs will keep climbing.

“I think the valuations in consumer Internet are too high at the moment, and they’ll come down,” he said.

If WhatsApp’s popularity levels off, Facebook’s expenditure will prove too high, said Akhil Nigam, president of the MassChallenge startup accelerator. The company is full of promise, but showing that it is worth the big check will be a tall order.

“Whether this deal is a good one or not in five years is all dependent on whether WhatsApp can continue the user growth that it has right now and hang on to those users,” Nigam said.

WhatsApp was launched in 2009 as a mobile version of the Facebook status update. Users could post notes like “at the gym” or “free to talk” to let people on their contact lists know what they are up to and whether they are available.

‘Terrific news,’ says potential competitor Meredith Flynn-Ripley of the deal.Wendy Maeda/ Globe Staff

But the young company, based in Mountain View, Calif., quickly discovered that people were using the app for conversations.

Koum, a San Diego State University dropout, shifted gears and turned WhatsApp into a service for instant messaging.


It is essentially a cheap alternative to texting, available for no charge the first year and an annual fee of 99 cents after that. But both the sender and the recipient must download the app for messaging to work.

Cambridge-based HeyWire, a much smaller competitor to WhatsApp, said that it is encouraged to see such a huge dollar figure attached to a company with a similar product.

A key difference between their apps, however, is that HeyWire offers users a new phone number — much like Skype or Google Voice — that can be used to text for free.

The real phone number allows HeyWire users to send messages to anyone — not only other people who have the app.

With that kind of advantage over WhatsApp, what might HeyWire be worth?

Chief executive Meredith Flynn-Ripley chuckled at the question and said the company’s focus is not on an exit but rather on its expansion into business messaging.

But, she added, the WhatsApp acquisition “is a very public validation of the power and the value of text messaging and mobile messaging.”

Callum Borchers
can be reached at Follow him on Twitter @callumborchers.