Is WhatsApp really worth $19 billion dollars?

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I was shocked to learn that Facebook purchased WhatsApp for a total of 19 billion.   My knee jerk reaction was that Facebook overpaid, especially as I contemplated that currently WhatsApp is charging $1 per user per year, and have 450 million users.   450 million dollars in revenue in quite negligible to Facebook’s overall bottom line.    Thinking back to Mergers and Acquisitions class, our professor kept pounding on finding the synergies in a deal… 1+1 = 3 in order for a merger or acquisition to work.  So, searching for those synergies, I think there are some ways where this acquisition will be justify the purchase price and ultimately generate more revenue that was used to purchase it:

  • Recurring Revenue and increasing the user base – The management team at WhatsApp believes that they can increase their current install base from 450 million to about 2 billion.   And although the subscription price is just $1 per year, this is recurring revenue and the subscription based model of revenue generation is a gold mine.   If WhatsApp can generation 2 billion dollars of revenue a year, they will be well on their way to becoming a solid acquisition.  And that’s before Facebook introduces their advertising platform into the program.  I realize that Mark Zuckerberg is on record saying he doesn’t believe in advertising in messaging platforms, but I expect that to change in a few years as the firm matures and looks for for revenue channels to increase shareholder value.  But monetizing isn’t the big question today.  The big question is:  How will they get to 2 billion users?
  • Reach into emerging markets – WhatsApp is signing a whopping 1 million users each day.  Think about that for a minute.  Entire cities of people are signing up to use WhatsApp every single day.   It appears the vast majority of those users are in emerging markets, markets that Facebook does not have as deep a reach in.  This acquisition gives Facebook access to those markets.

  • User Engagement – Facebook’s active daily engagement is 61%, WhatsApp’s is 70%.   What’s more is that WhatsApp has become the de facto way to communicate and share pictures in the emerging markets, where it more likely that a person will have a smart phone than a computer.   Facebook’s late entry into the mobile space hurt them here, and although they have been making strides, WhatsApp was too far ahead.  I couldn’t find any data which discussed how long a person stayed, but I imagine that it’s a significant amount of time.  The longer an application has eyeballs on it, the more ads it can see and the more potential for revenue generation occurs.

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Essentially the folks at Facebook believe that they will make way more money than the 19 billion to be paid.   Will they reach that?  Only time will tell.   Another point that my professors kept making was that 70-80% of mergers and acquisitions fail.  There are definite hurdles for WhatsApp/Facebook deal to overcome.  We wont know for a few years as to how successful it is.

I’m sure the folks at SnapChat are very happy, as the valuation of their product went through the roof after this announcement.

Casetext

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Yesterday, Clippership announced the close of another venture investment.  The company is Casetext, founded by Jake Heller.   This investment is particularly close to my heart, as it is attempting to disrupt the legal technology market.  I’ve had the pleasure of working with attorney’s through my previous company Simplegrid, and one of the biggest pain points for these attorneys (especially the smaller law firms) was the exorbitant costs of legal research websites.  Pricing can range up to thousands of dollars per attorney per year.   This data often times became stale, and essentially led a law firm to pay for research that they may not even use in their cases.

Casetext aims to change this by providing case annotations for free to everyone, that will stay up to date and analysis to help one understand judicial opinions.   Think Wikipedia/Quora for legal research.  They are working While you will be take in L-arginine from certain of the foods that you deeprootsmag.org cialis canada eat on a day-to-day basis, often you won’t get concentrated adequate levels to see real benefits happening. Natural supplements for thyroid Here are some natural supplements that when incorporated in meals will help get rid of erectile dysfunction and generally keep your body healthy and fit, people pay a lot order viagra overnight of money. A gap of 24 hours is compulsory between 2 generic viagra generic doses and consumption of below that period can give an unhealthy reason of inviting health ill effects. Driver prescription order viagra without education classes also teach learners about traffic rules as per the requirements of their state. with top professors and law firms to annotate cases and otherwise showcase their work.   They are already seeing tremendous traction on their site and they only launched six weeks ago.      

Casetext is truly coming at the right time.  We’ve seen the success that Wikipedia and Quora have experienced, thus lending credence to the open source format of sharing knowledge.   We believe that as the knowledge economy grows, we’ll see more of these industry specific knowledge sharing sites grow.  I wouldn’t be surprised to see something similar to happen within health care that would make understanding diseases, prescription medication and their interactions much easier to understand than it is today.

It’ll be very exciting to see how Casetext matures; if early results are any indication, attorneys will be changing the way they perform and share legal research in the near future.

Simplegrid Technology, Inc.

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Today, I am excited to announce the sale of some of the assets of Simplegrid Technology, Inc.    Simplegrid started off as a dream for me; when I first started the company, I knew I was a good consultant, and I thought that is all it would take to run an IT consultancy.  Boy was I wrong!  It took a lot of hard work, perseverance and failures to help mold me into a business man that can actually build and sell a company.     It’s a bit bittersweet, as we are selling off a portion of something that we created from scratch, with our own blood, sweat and tears, but at the same time I am very proud of the efforts and accomplishments that my team and I have put together to get us to this day.

IT Firms in NYCYou may be asking what an asset sale is.   When I had first started contemplating the sale of Simplegrid, I just assumed that I would sell off the entire business – all of our client contracts, the Simplegrid brand, and our employees and management team would then work for the acquiring company.  As we were negotiating with potential suitors, I quickly realized that a complete company sale wasn’t in the best interests of myself our employees.   Instead, we chose to sell off some of our assets – in this scenario, our Managed Services division.  I’ll get into details about the valuation of the company and other factors to consider when selling a company in later blog posts, but in short, we found the highest value in selling off our Managed Services contracts, as both Simplegrid and our acquirer were able to quantifiably value the worth of those contracts. 

As for the future, I’m very excited.  In the short term, I will be a consultant for the new company as I assist them with the transition, and some of our team will be joining them as well.  In the long term, the sale of these assets will allow me to free up more time to work on Clippership International, LLC, our seed investment fund.  It will also allow me to dedicate more time to the non-profit organizations I work with.  Lastly, graduating from the Kellogg School of Management in May also makes a great transition point into new opportunities.  The future looks bright, and I am thankful for the opportunities in front of me.

Before signing off, I realize that there is no way I could’ve done this alone.   The sum is always greater than it’s individual parts, and that cannot be truer for the Simplegrid team.  I couldn’t have done this without them and the appreciation I feel for all of their efforts knows no bounds.  We started off as professional contacts, but we quickly grew into close friends, and then into family.  Thank you. 

And lastly, thank you to my family.  My wife and children have been very patient with me over these past four years, as I worked late hours, traveled almost every week for both work and school.  I missed many dinners, and  cancelled last minute on many of our family events.  To my lovely wife Naveen – not once did you complain (ok, well maybe once or twice).  But believe me that your patience and understanding didn’t go unnoticed.  My success is your success.   I couldn’t have done it without you.

 

Key Takeaways:

  • Sometimes selling your entire business isn’t the best option.
  • Your team plays a critical role in the success of your business.
  • Having a strong, supportive family is tantamount to your career goals.

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The Lean Startup Methodology will change how Enterprises build products

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In this hyper-competitive age, enterprises are not only dealing with stiff competition from their peer enterprises, but also dealing with competition from startups that are trying to disrupt the market that those enterprises dominate.   It is for this reason that Enterprises need to get better at building products. And they need to be able to build them faster, and at the same time, fail faster in the event that a product doesn’t work out.  This is especially critical as most startups are very nimble and can pivot quickly to build a better product.  Enterprises have difficulty doing anything quickly.  In fact, it is so difficult that this according to this Harvard Business Review article, 75% of consumer packaged goods and retail products fail to earn $7.5 million in their first year!

We have many examples of failed products right in front of us (see: Microsoft Vista or Blackberry Playbook).  So, how can enterprises become better at this?

Enter the Lean Startup Methodology.   Although this methodology was primarily created for helping startups build a product quickly, it is beginning to be adapted to work in different industries. .  As such, enterprise are beginning to adopt the Lean Method to help them build successful products faster.

James Donnelan has an excellent blog post which explains what the Lean Startup Model is all about.  He writes:

…the lean startup model, when you boil it down, simply says that when you launch any new business or product you do so based on validated learning, experimentation and frequent releases which allow you to measure and gain valuable customer feedback. In other words – build fast, release often, measure, learn and repeat.

The ability to “build fast, release often, measure, learn and repeat” is the core principle to the Lean methodology, and is a critical element that many large corporations are missing today.   James goes on to list the principles of the Lean Startup Methodology:

    • “Use a continuous delivery model to release new features quickly with the least amount of friction.
    • A/B test different versions of the same feature on different user segments to identify which is more valuable.
    • Act on metrics – if you can’t measure it you can’t act on it to ensure that you are always improving the product.”

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We’ve already seen some companies adopt this methodology.  Facebook and their release of code 2x a day being a very popular example of how this methodology is working in the enterprise.   But companies like Facebook and Google are quite innovative and therefore not the best example of your common enterprise.  The typical company will need assistance in learning how to implement LSM and will need access to tools that will keep them committed to this methodology.

I strongly believe that most companies will have to adopt this methodology, in order to succeed in today’s competitive market, and that is why I’m thrilled to announce Clippership’s investment in a company that is at the forefront of this movement.   Along with Upfront Ventures and others, we are proud to be investing in  Lean Startup Machine.   Trevor Owens, the founder and CEO of Lean Startup Machine has been a thought leader in this area, and the company is already offering hundreds of Lean Startup workshops over the world.  Trevor and his co-founder/CTO Obie Fernandez have also written a book about how the LSM can be implemented in the enterprise.  It is a must read for all those that are looking to get a head start on learning this methodology.

Key Takeaways:

  • Enterprises are facing stiff competition not only from their peers, but also from startups that are trying to disrupt markets.
  • Enterprises will need to get better at creating/updating products quickly.
  • The Lean Startup Methodology will be the new de factor methodology that enterprises will use to create and deliver successful products.