02/21/2014 03:36 pm ET Updated Dec 06, 2017

The Real Reason Facebook Bought WhatsApp

Like a line from The Social Network, Facebook is acquiring WhatsApp for $16 billion or so (you wanna know what's cool?). You may have seen the news bit.

Let's put it in some perspective. I've analyzed M&A since 1994, every major Internet deal, IPO and more. Some are guppy and some are whale. When whales mate there's an unmistakeable bumping sound that even the Kazakhstan Navy picks up, a slap of thunder.

Remember Woodstock? Well, maybe not because most of us were not born or were wee toddlers back then. But you know what it is, right? If not here's the history: It was the 3-day love fest in upper New York state where throngs gathered to see each other naked while listening to Jimi Hendrix experiment with guitar and chemistry (that's my edited Wikipedia version of it anyway).

Well, think of Facebook as the place, the farm near Woodstock. A place. Why go there?


WhatsApp is a band, like Crosby, Stills, Nash & Young.

Because Facebook's biggest hole, biggest weakness (even for a company generating billions in revenue) is a reason to use it.

Imagine Woodstock without the music. No naked bodies and no dreams of peace and love. Just an echo of farm animals (animal farm?).

This will continue to be Facebook's weakness. Why use it? It's one reason with my new stealth mode venture HAPN (sign up for beta we focus 100% on the "why use it" factor. The core center value proposition has to be there.

Connecting friends is great but not enough. That idea played well in 2005-2010 or so.

So Facebook is smart to branch out via these acquisitions, acquire diversity of experience. Especially with its stock trading high, the currency is there to knock down these deals.

And yes, we've seen these movies before. Yahoo made many mistakes along the way but NOT acquiring companies when it traded in the $150 BILLION market capitalization range. Facebook is not making that mistake. So far.

In terms of valuation, Facebook is paying what looks like 30x revenue for WhatsApp, more like 15x two years out. Three years out looks even better, maybe 8x or so. Everyone laughed when Google bought YouTube in what was then an "absurd" price. But now YouTube is the place where most teens go for video, music, TV and more.

So Zuckerberg is smart. First Instagram and now WhatsApp. What's next? I bet more. Lots of acts (small and large) must fill the stage called Facebook for it to be a success longer term. Peace, love, web and roll.