Facebook to acquire mobile messaging service WhatsApp

Feb 19, 2014

FORTUNE -- Remember back in 2012 when a billion dollars seemed like a lot of money to pay for a fast-growing photosharing app called Instagram? Turns out, that’s nothing. Facebook (fb) has just announced plans to purchase mobile messaging service WhatsApp for at least 16 times that. The company will pay an additional $3 billion in restricted stock units to be granted to WhatsApp employees and founders, bringing Facebook’s total cost to $19 billion.

As part of the deal, WhatsApp co-founder and CEO Jan Koum will join Facebook's board of directors. And just as with Instagram, WhatsApp will continue to operate independently under its own brand.

Facebook’s strong interest in the service likely has to do with the fast clip at which WhatsApp is growing, as well as its deep user engagement. The service boasts 450 million active users, a number that has more than doubled over the past nine months. What’s more, more than 70% of them log on every single day. And WhatsApp is particularly popular with international users.

MORE: Facebook-WhatsApp: The other numbers

A major winner in this deal will be Sequoia, the venture capital firm that invested $8 million in the company -- the only venture funding raised -- back in 2011. In a blog post, Sequoia partner Jim Goetz, who led the investment and sits on the board, describes a disciplined company culture in which Koum and co-founder Brian Acton eschew ads (“Jan keeps a note from Brian taped to his desk that reads ‘No Ads! No Games! No Gimmicks!’” writes Goetz) and instead focus on a simple messaging experience that is free for the first year and then costs just a dollar a year. He points out that WhatsApp’s growth has been entirely viral; the company hasn’t spent a cent on marketing.

Goetz says Facebook has assured Aaron and Koum that WhatsApp can remain ad-free and they will not have to compromise their business principles. Koum’s board seat will likely help him insure this.

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