Strategy Analysis
Introduction
Mergers and acquisitions can be viewed as the methods that enable companies to develop new capabilities and eventually strengthen their competitive position (Christensen, 2011). This paper is aimed at discussing the purchase of such a company as WhatsApp by Facebook; this deal was announced in 2014 (Kelly, 2014). In this case, the re-invention of the business model is expected to be achieved through the acquisition of the disruptive technology that changes the way in which people use text messages. In this way, Facebook will be able to expand the range of services that it provides to customers. Furthermore, the organization can become more attractive to advertisers. Nevertheless, the senior management should avoid some of the main problems that often accompany various mergers and acquisitions. These are the main issues that should be discussed in greater detail.
The nature of disruptive technology developed by WhatsApp
Much attention should be paid to the product developed by WhatsApp. This organization created the smartphone software which enables users to send messages via Internet. In other words, they are able to avoid the traditional fees which are paid to mobile operators. The users are only required to pay the annual subscription fee which equals 1 $. Therefore, this company offers more affordable services to clients. Apart from that, the interface of this software is much more convenient than a traditional email.
This is one of the reasons why the number of WhatsApp subscribers increases at a very rapid rate. At present, there are 600 million active users of this service (Kelly, 2014). These people can be living in North America, Europe, Asia, and other regions of the world (Kelly, 2014). This is one of the reasons why this company attracted the attention of many IT corporations, including Facebook. This corporation paid $19 billion to purchase this company (Kelly, 2014). In turn, it is important to show how Facebook can derive benefits from this deal. This event has attracted the attention of many journalists, business analysts, and investors.
The transformation of the business model
Overall, by acquiring this company, Facebook can get access to a more affordable product which enjoys enormous demand in the market. Additionally, the company will better able to target teenagers who are currently the major users of WhatsApp. The senior management expects that this corporation will acquire the disruptive technology that will eventually substitute conventional services such as SMS (Kelly, 2014). This is one of the details that can be identified.
To a great extent, the software developed by WhatsApp will be complementary to Facebook that helps people communicate with one another. In this case, Facebook will be able to change several elements of its business model. In particular, this corporation will expand its customer value proposition. They will offer products and services that can make users’ communication much more convenient and affordable. Additionally, Facebook may change its profit formula. In other words, the revenues of this corporation will not be derived only from its social networking website; it is also possible to speak about the subscription fees that are a paid by the users of WhatsApp.
More importantly, the company will increase the cash flows by integrating advertisements into the applications designed by WhatsApp. Apart from that, Facebook will be able to expand its resources; much attention should be paid to technologies developed by WhatsApp. By integrating this software into their social networking website, this corporation will strengthen its competitive position. Therefore, in the long-term, this investment can improve the financial performance of this corporation.
To a great extent, this corporation will turn into a conglomerate that provides a wide range of services facilitating the communication between Internet and mobile phone users. One should keep in mind that in 2012, the company acquired such a service as Instagram which is necessary for the exchange of visual images (Kelly, 2014). In turn, this acquisition adds another element in the portfolio of Facebook. Thus, this corporation intends to become the main actor in the social media industry. These are some of the main goals that the management tries to attain.
The main limitations
Certainly, there are some limitations that should be taken into account WhatsApp is a service that does not include advertisements. This is one of the reasons why the services of this organization have become very popular. In contrast, Facebook strongly relies on commercials. Therefore, it is critical to find a way of reconciling these differences. Apart from that, one should take into account that the market in which WhatsApp operate is very competitive. For example, one can speak about such products and services as Skype, Line, Kik Messanger, and so forth. In the future, they can provide similar services.
Furthermore, mobile operators may decide to change their pricing policies regarding SMS. In particular, they may decide to charge only annual subscription fees in effort to attract more clients. Therefore, it is possible to say that the competitive advantage of WhatsApp cannot be easily retained. On the whole, at the present, one cannot easily determine when and to what extent the $ 19 billion will be justified. One should take into account that in the past, there have been many mergers and acquisitions that appeared to be very promising, at least at first glance (Christensen, 2011). Nevertheless, they proved to be complete failures because the acquiring companies could not make the best use of resources that they purchased.
This is one of the pitfalls that Facebook should avoid in order to live up to the expectations of the shareholders. At present, these people want to see clear rationales for purchasing WhatsApp. Currently, the task of the management is to show how this investment can improve the financial results of a company, at least in the long-term. Apart from that, one should focus on the needs of advertisers. These stakeholders need to know if their commercials can be integrated into the software developed by WhatsApp. The interactions with these businesses will be vital for the improved financial performance of Facebook. These are the main elements that can be distinguished.
Conclusion
On the whole, these examples show that acquisitions can be useful for changing the business model of a company. This approach can be helpful for improving the financial performance of the company. The acquisition of WhatsApp will enable Facebook the company to generate additional revenues and attract new users as well as advertisers. Nevertheless, the management of this organization should make sure the acquisition can effectively meet the needs of an enterprise. Much attention should be paid to the expectations of shareholders who want the investments of a company to be effective. Thus, Facebook should find a ways of integrating new resources in the most efficient manner. These are the main arguments that can be put forward.
Reference List
Christensen, C. (2011). The New M&A Playbook. Harvard Business Review, 3(5), 50-57.
Kelly, G. (2014). 5 Key Reasons WhatsApp Is Worth $19 Billion — To Facebook. Web.