Facebook's Horizontal Integration: Buys WhatsApp for $19 Billion

So by now, a lot of you probably know about Facebook's announcement to acquire WhatsApp, a cross platform messaging application, for $19 Billion. This has been one of many acquisitions by Facebook since its initial IPO in 2012 as the social networking giant is attempting to diversify amongst social networking platforms as a whole. 

So the question is... How does WhatsApp add value to Facebook?

Coming from a Finance perspective, the only 2 reasons to acquire another company is 1) to restructure it and sell it at a HIGHER price, or 2) because the company offers synergy, which is defined as the added value of having business units working together. 

For Facebook, it is clear that the motivation is based off of the latter. This acquisition is known as horizontal integration, which is the process in which a company acquires related companies on the same level, ie: messaging services. 


Summarizing the Financial Post, the main motivations are as followed:

1. WhatsApp has more than 450 million monthly average users, 70% of which are active on a given day.
2. WhatsApp now handles more than 19 billion messages per day, a figure that is approaching the text message (SMS) volume of the worldwide telecom industry, which is a US$100-billion market.
3. WhatsApp uses internet connectivity rather than a phone network to offer low-cost messaging, costs just $1 (after the first free year) and the company has spent nothing on user acquisition to date.
4. WhatsApp can Facebook strengthen its footprint in international markets and with teens. 

With this acquisition, Facebook believes it now has a significant opportunity to be the leading global communications utility along with its already popular Messaging Services.