My Indian Grandmother convinced me to download an app that just sold for $19 Billion

posted by on 2014.02.20, under Entrepreneurship

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I wake up every morning around 4am, if only for a few minutes, because of this app I recently downloaded. I live in Kentucky and keep odd hours compared to most, but the app is no alarm clock, it is a messaging service that is called WhatsApp and the reason it goes off at 4am is because my family in India begin group messaging each other around that time. The timing isn’t ideal, but I haven’t turned off the notifications because

1) I am lazy (I think I am still using the original OS for my iPhone 4)

2) I miss my family.

My experience with understanding advancements in phone technologies have usually revolved around the ease and affordability of keeping in touch with these relatives. As a kid I remember we had to call an operator to connect us, and once connected we would speak really fast to each other and pass the phone to the next. Sometimes my relatives would have to walk down to a phone booth with a sign saying “STD” which I never really understood. We eventually moved over to calling cards, then to calling card services that didn’t even require a card. As a teenager we started experimenting with internet phone services, which which sometimes worked, but usually took more time than it seemed to be worthwhile. Of course, there was AIM, which I pleaded my cousins to join when I visiting them, but it never really took off. They created yahoo messenger and hotmail accounts for me, which I rarely logged on to use. Skype was exciting, but again, the connection was spotty. Last Thanksgiving things seemed to really improve, allowing for  a 3 continent simultaneous musical jam session over skype and facetime using several ipads.

And then my Grandmother, who lives in a small village in Goa, India, demanded over the phone that I download this app that she just got for her new smartphone. I obeyed, and entered a world of unlimited communication at no expense. This world was available to us before, but had never been made to be so simple and so instant. My father, who has refused to adopt a cell phone was the only person left out of the conversation, but he would join in at times through my mothers phone and crack jokes and keep up with our banter. It may have been the only time he’s truly desired to have his own cell phone, but he is yet to cave in.

When I heard that this app sold for $19 Billion last night, I thought my VC friend who posted the news was making a joke. And then my laugh turned into panic. I’ve been paranoid about overvaluations of startups since I left California 3 years ago. This is perhaps the biggest case of it, and as an aspiring educator of entrepreneurship, I am frightened.

WhatsApp was a great service that leveraged mobile data plans and wifi services to make international communications feel like they are free. They boast 50 billion texts per day sent over the app, 450 million active users (with fastest user acquisition in history), only 32 engineers supporting 14 million of us users each, and zero dollars spent on marketing. The service is free of advertising, and costs $1/year after a free year of service. The valuation of $19B is similar to how a drug would be priced in M&A transaction. The article states:

“Only 35 U.S.-based publicly traded companies have a price-sales ratio of 19 or higher, according to data compiled by Bloomberg based on analysts’ estimates for three years from now. All are in the biotechnology or pharmaceutical industry, including companies such as Puma Biotechnology Inc., which has an experimental breast-cancer treatment, the data show.”

When people didn’t understand why Snapchat turned down the $3B offer from Facebook, I quietly gave a sigh of relief, realizing that the relief was very temporary. It’s not that I don’t like seeing entrepreneurs getting rich. I am just having a tough time understanding the prices. And while the strategic motivation for Facebook to seek to acquire these startup apps that have quickly grown a younger, international user base, I just don’t believe that they can invent business models to bring a return to these investments to bring value to their shareholders in the long run. I hope I am wrong.

WhatsApp has written a new narrative of the overnight success appeal of entrepreneurship. No one is talking about how this technology piggybacks on many other companies that have invested many more dollars on infrastructure that allows the technology to work. Surely the expense of sending 50 billion daily text messages will find its way back to the customer one way or the other, whether through slower internet speeds or higher priced data plans. Wasn’t it less than a month ago that people were up in arms about net neutrality?

That aside, the part I dread about this story is the attention entrepreneurs and investors are going to give to trying to get in on the next WhatsApp deal, or play in the game of Zuck-opoly  There are far too many real problems in the world that need the attention and ingenuity of our society. These problems (renewable energy, poverty alleviation, water, health etc) can still make entrepreneurs very rich, but I worry they will be harder to see when those with the deep pockets who missed out on this deal use lenses of hindsight for evaluating future  opportunities.

I am thankful to the founders of WhatsApp for their stories – one being the immigrant story of wanting to avoid  government monitoring of communications while staying in touch with family in Russia and the Ukrain, and other other being a story about a his mentor, an entrepreneur snubbed by Silicon Valley who got the last laugh. It will be a great movie. They put me in better contact with family, and that is a tough luxury to value. But it is a luxury, and one that is probably not going to remain free for much longer. A handful of people made a fortune on this deal, and I just hope they use some of those profits to invest in innovation that will bring long-term, sustainable value to this world.

But I will be texting a link to this article to my grandmother via WhatsApp, and sharing the link over Facebook. So, I guess I am as bad as the next.

 

 

 

 

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