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On the 19th February, 2014 it was announced that Facebook Inc. had purchased WhatsApp Inc. for $19 billion. WhatsApp is a chat ‘app’ that aims to compete with mobile phone companies messaging services, by offering an opportunity for its users to pay a flat fee, $1 a year, to use its services.  Users are able to send messages, videos and other media without being charged any additional fees and they also facilitate group chats.  The business model works on providing a chat service via the internet.  It is argued that WhatsApp completely changed the messaging services sector in the same way that Skype affected international phone calls from landlines.  With mobile companies charging significantly high fees to its users for sending messages internationally, WhatsApp, enables it users to send as many messages they want to other users where ever they are in the world within their flat fee.

 

The big question being discussed at the moment is why would Facebook Inc invest $19 billion on a service when its future is uncertain. This is also change to Facebook’s current business model of offering all of its services for free, gaining revenue through online advertising.  WhatsApp will be Facebook’s first fee paying service. Although investment techniques were discussed in chapter 15 and we examined many projects with considerable cash inflows and outflows you must remember that investments are sometimes more strategically important than financially.  Of course Facebook Inc will want to monetarise this company further (although they have stated for the time being they will not change the business model of WhatsApp and they do not intend to place online adverts of the service), but one of the main reasons behind this investment is to protect itself from competition, buying the competition reduces this risk they pose in the future.

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