Monday, February 24, 2014

Peter Schiff on Whatsapp acquisition

Facebook paid $19 billion for a company with just 55 employees, little name recognition, negligible revenues, and little prospects to earn much in the future. Given the size and extravagance of the Facebook deal, it may go down as one of those transactions that define an era. 

For the same money the company could have bought American Airlines and Dunkin' Donuts, and still have had $2 billion left over for R&D. Alternatively they could have used the money to lock in more than $1 billion in annual revenue through an acquisition of any one of the numerous large cap oil producing partnerships. Instead they chose a company that is in the business of giving away a valuable service for free. 

WhatsApp gained its users by giving away a service (text messaging) for which cellular carriers charge up to $10 or $20 per month. It's very easy to get customers when you don't charge them, it's much harder to keep them when you do.

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