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WhatsApp bought for $19 billion, what do its employees get?

Facebook has just acquired the mobile messenger service WhatsApp for US$19 billion. Launched in 2009 by two former Yahoo…

Facebook’s message: what’s up? janpersiel, CC BY-SA

Facebook has just acquired the mobile messenger service WhatsApp for US$19 billion. Launched in 2009 by two former Yahoo employees, in just over four years WhatsApp has grown to 420m monthly users.

Why is it so popular? Founder Jan Koum told the New York Times in 2012, “We are providing a richness of experience and an intimacy of communication that e-mail and phone calls simply can’t compare with.”

Facebook has been pushing its own messenger service to its users, but without much success. Markos Zachariadis at Warwick Business School, said, “Facebook’s purchase of WhatsApp is in many ways an admission of defeat.”

The explosion in the number of smartphones in recent years has also seen a boom in instant messaging services. Popular services such as WeChat, Line and Viber each have more than 100m users. WhatsApp tops that chart in not just number of users but also engagement. With the per-day volume at 19 billion messages sent and 34 billion received, the messaging service will soon trump the total global SMS volume.

According to Sotirios Paroutis, also at Warwick Business School, Mark Zuckerberg is out to make Facebook a truly mobile company with Instagram and WhatsApp. “In the past WhatsApp founders have been vocal in their objection to be acquired by a larger firm. So beyond their own reward package, the promise to keep WhatsApp as an independent service seems to have helped bring the two parties together,” he said.

Show me the money

With only 55 employees, WhatsApp’s $19-billion valuation could, in an alternate universe where each employee was given an equal share, fetch US$350m per employee. This is nearly five times what employees of Instagram would have got when that company was bought out for US$1 billion in 2012.

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While founders take away big chunks of the proceeds from such deals, with so few employees the windfall can still make many others rich. But in some cases, like that of Skype’s acquisition by Microsoft, the unequal distribution can leave employees with nothing. Worse still, Felix Salmon at Reuters points out that because of the way these deals are structured, employees can do little to fight back.

Join the conversation

2 Comments sorted by

  1. Jack McCadden

    Analyst

    This premise of this article is ridiculous. The employees are not owners therefore why should they be entitled to anything?

    In many of these start-ups employees often work for below market rates and are offered equity in return. In that case they would benefit, and fair enough. They've taken some risk along with the founders of the company.

    Other than that, why should an employee benefit from the dumb luck of being employed by a company which gets taken over, when they don't undertake any of the risk of a projcet failing!?!?

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    1. Grendelus Malleolus

      Senior Nerd

      In reply to Jack McCadden

      In most businesses incentives for productivity and ensuring the performance of the corporation as a financial entity are quite common. In this case where the company is small each employee is critical in ensuring the success of the organisation, and in fact making it an attractive takeover target. Employees carry the risk of failure albeit to a lesser extent than the owner - this does not mean they should be exluded from consideration. In particular, if, as is the case with many startup, shares in the company were issued as incentives then they would, and should benefit from the sale.

      As for dumb luck - doubtful, both the application to be employed and the selection of employees would have been more closely managed than "dumb luck" suggests.

      You words come across as mean spirited - hopefully they are not meant that way. As it happens the founders and employees of Whats App will share $3b in restricted Facebook shares in addition to the purchase price for the company.

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