Why the WhatsApp Acquisition Changes Everything

From zero to $19B of business value in five years; WhatsApp's sale to Facebook is an important moment in the history of the consumer web. The deal proves distribution, reach and large user bases aren't the competitive moats they once were. Apple's App Store and Google Play have leveled the playing field to such an extent that a startup can command 10% of the market cap from a $200B company.

To reach scale in the search-driven world of the web meant waiting 90 days to appear in the Google search rankings, maximizing inbound links, optimizing anchor text. In those web days, a startup couldn't dream of appearing as the first search result on their launch day. It was an impossibility.

But in mobile, this happens all the time. Startups launch and on their first day in the iTunes store, the app hits the top of the charts, # 1. This possibility allows the world to turn on its head very quickly, for Instagram to create a $1B company in 18 months with 30M users and for Whatsapp to amass a rabidly engaged mobile user base larger than Facebook's.

Mobile app store rankings don't value historical relationships the way web search does. What have you done for your users lately, they ask? These near-instant feedback loops challenge incumbents to continue to earn the attention of their user bases with better products than rivals' applications. As a result, Clay Christensen's innovator's dilemma surfaces not every decade, like the stories of steel mini-mills or hard drive makers, but every 18 months.

Because the mobile user base is 10x larger than the PC world, because the older competitive moats don't work, because the disruption cycles are so fast, competition in the consumer web has never been fiercer. Ergo, massive acquisitions.

There will be a litany of cascading effects from this massive acquisition. I suspect consumer pre-money valuations will surge, founders will redouble their efforts to build strategically important services and innovation will accelerate. For incumbents, the race is on to save their businesses. For startups, the opportunity to disrupt has never been more accessible.

23 February 2014

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