The start of Iain’s post on WhatsApp back in the first week of January now seems eerily insightful:
‘When people talk of ‘the next Facebook’, then the name at the front of most technology people’s minds is WhatsApp Messenger.‘
We now know those people included Mark Zuckerberg! So what does this remarkable $19billion valuation of a smartphone app created and managed by a small team of 50 people, tell us about the mobile apps industry?
The opportunity to create valuable companies is enormous
Xerox, American Airlines and Sony – to mention a small number of the multinational companies, employing thousands of staff, grown over many decades, with leading multinational brands – that are all valued at less than the $19billion that Facebook has agreed to pay for WhatsApp.
Not only is this value creation remarkable, it was created in only 5 years (including a pivot in the first year to the messenger product).
So, the scale of what you may achieve, is really only limited by your ambition and good fortune.
That’s just stupid, Facebook must have overpaid
There are a number of reasons why this is unlikely to prove to be the case, which we outlined in the post ‘Did Facebook overpay for WhatsApp‘ earlier this week.
A subscription business model won’t necessarily reduce your company’s value
The strongest argument that Facebook has overpaid, is that WhatsApp has always been strongly against advertising as a business model. Instead, WhatsApp initially came as a paid download (remember those!) costing $2.99, before switching a couple of years ago, to a ‘Free for the first year, $0.99 a year subscription there after model’.
The switch when implemented did not affect those (such as myself) who had already installed the app and paid $2.99 – we were promised free use for life. Furthermore, anecdotally the $0.99 subscription does not seem to have been strictly enforced, with friends reporting that their use has been continued, even where they did not subscribe.
Nor does it appear to have generated much revenue for the company – with WhatsApp having only made $20million last year – a lot less then, than a $1 a user.
Furthermore, Facebook makes significantly more per user through advertising payments than a $1. In 2013, it made $1.52 per user in advertising on a worldwide level, with worldwide revenue over $2billion for the year – more than 100 times WhatsApp’s.
Engagement is the new download
In the early days of mobile, people were fixated on the number of downloads an app obtained. Whilst these remain an important metric, the market has matured and it’s now understood that an impressive download number, is not as valuable as an impressive active daily or monthly user base.
This is why user experience is so critical to the development of your own app idea – create a great and original user experience, an experience that motivates a user to frequently open and use your app, and you’ll create a product of real value.
In doing so, you’ll also improve your marketing – if your initial user base loves your app, they’ll be more likely to mention and recommend it to their friends – sparking viral growth.
Social products grow faster by their very nature
The most valuable products built on mobile to date, have all had an explicit social communication purpose. Instagram is a photograph centric social platform, Snapchat is a ephemeral photograph centred private communication channel, WhatsApp, Line, WeChat, BBM are all text centric private communication channels – these are all some of the most valuable companies built for mobile so far.
Indeed, the importance of social can also be seen with the recent, unprecedented success of Flappy Bird. The jury is out on how Nguyen started to move the downloads of his game, but what is without question is that it became such a hit, because people took to their social media accounts to moan about how hard it was, how frustrated they were and their confusion as to these emotions.
People rarely openly talk about being bad at something, nor do we often express strong emotions in public – the unusual naturally arouses our curiosity, in this case encouraging people to check out the game by downloading it themselves. This created a virtuous circle so strong, that in the removal of the original game from the app stores, others’ copies have nevertheless been able to feed and succeed off it.
Your market is Global
One thing that was unusual about the WhatsApp deal, is that for a Silicon Valley based company, it was actually little known or used in the United States. The other companies Facebook have bought or stalked – Instagram and Snapchat – both had their principal user base in the United States.
Whatsapp though is bigger in Europe than the United States, and for the last 12 months has seen much of its growth being led out of India. Ironically, this may have made it more attractive to Facebook for the reasons of internet.org (Zuckerberg’s initiative to bring the whole world’s population online)
Mobile will be the way much of the world’s population will connect with the internet for the first time – much of that connection will happen in the next 5 years – building products that will help and assist them in their daily lives remains a huge opportunity.
So, a good idea, well executed and five years later a $19 billion company – it’s these opportunities that prompted us to create our Course teaching non-technical people how to go about turning their app ideas into an app. To learn how to make an app with your own idea, then start on a free trial with the first Course tutorial today.