(Comments due by Oct. 5, 2014)
Productivity and profits are growing, but jobs and wages are not, creating an unsustainable economy
If you ever wonder what's fueling America's staggering inequality, ponder Facebook's acquisition of the mobile
messaging company WhatsApp.
messaging company WhatsApp.
Facebook is buying WhatsApp for $19 billion. That's the highest price paid for a startup in history. It's $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.
(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)
Given that gargantuan amount, you might think WhatsApp is a big company. You'd be wrong. It has 55 employees, including its two founders, Jan Koum and Brian Acton.
WhatsApp's value doesn't come from making anything. It doesn't need a large organization to distribute its services or implement its strategy. It doesn't require lots of people to assemble anything or sell anything or transport anything.
. It doesn't require lots of people to assemble anything or sell anything or transport anything.
Its value comes instead from two other things that need only a handful of people. First is its technology -- a simple butpowerful app that allows users to send and receive text, image, audio and video messages through the Internet. Second is its network effect: The more that people use it, the more other people want and need to use it in order to be connected. To that extent, it's like Facebook -- driven by connectivity.
app that allows users to send and receive text, image, audio and video messages through the Internet. Second is its network effect: The more that people use it, the more other people want and need to use it in order to be connected. To that extent, it's like Facebook -- driven by connectivity.
WhatsApp's worldwide usage has more than doubled in the past nine months, to 450 million people -- and it's growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)
more popular than Twitter, now valued at about $30 billion.)
How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it's already achieved, even a small fee generates big bucks. And if it gets into advertising, it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world's population.
. After that, customers pay a small fee. At the scale it's already achieved, even a small fee generates big bucks. And if it gets into advertising, it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world's population.
The winners here are truly big winners. WhatsApp's 55 employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.
And the rest of us? We're winners in the sense that we have an even more efficient way to connect with each other.
But we're not getting more jobs, and our wages are stuck.
In the emerging economy, there's no longer any correlation between the size of a customer base and the number of employees necessary to serve them.
In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows. (WhatsApp 55 employees are all what its 55 million customers need).
with huge network effects is pushing the ratio of employees to customers to new lows. (WhatsApp 55 employees are all what its 55 million customers need).
Robert Reich
18 comments:
Facebook is buying WhatsApp, its the highest price paid for a start up ever. They are buying them for $19 billion. What they are going to be doing is having $12 billion of the money will be in forms of shares. $4 billion will be in the form of cash and $3 billion will be restricted stock to the WhatsApp staff.
The value of WhatsApp comes down to two things. Technology and its network. Technology is a simple app that allows users to send and receive texts. And with the network, "more people use it, the more other people want and need to use it in order to be connected".
In the past few months, the usage if WhatsApp has doubled. The first year of use is free than after that you have to pay a small fee.
i agree with Lauren completely, the value of the app comes down to technology and its network. technology aids in making something such as a network useful. it allows people to communicate with each other at a more efficient rate. the usage of this app has increases dramatically however it comes with a cost once it is used to a certain extent
i agree with Lauren completely, the value of the app comes down to technology and its network. technology aids in making something such as a network useful. it allows people to communicate with each other at a more efficient rate. the usage of this app has increases dramatically however it comes with a cost once it is used to a certain extent
The reason why productivity and profits are going up but not wages and jobs, is because people are finding products that are popular, while being cheap and easy to run. If you are able to find a product or service like this, your expenses are minimal and it is easy to maximize your profits. Because technology is rapidly advancing, less people are required to control a product or service ( which decreases jobs) and it makes the jobs easier so less qualified people are able to get these jobs (which results in lower wages). Whatsapp is a perfect example about this theory. A huge product that serves about half a billion people that only takes 55 people to run and only took 2 to create. Salaries are proven to be the most expensive asset in a company. Since they minimized that, it is easy to maximize profits. This move is smart by Facebook. Facebook has a lot of employees, adding a few more would not effect them that much, but the revenue this purchase would bring in will more than compensate them and pay off them buying Whatsapp in a few years.
The idea that Facebook is now in the process of buying whats app now shows that Facebook wants to be the leader in terms of social media. before all other social networks all we had were email and phone calls, then as soon as Facebook was created it became a juggernaut in social media, i believe it intends to stay that way. i think this is a good step on Facebook's part now they own an app that is recently been popular even surpassing twitter at the moment, this in turn will continue to make Facebook a huge competitor in social media without any fear.
Its amazing how much Facebook is taking over in the social media field. I agree with Bobby but in a few years its going to come down to what doesn't Facebook own. With the amount of power and money Facebook has, it can easily turn into monopoly and buy out every single social media app. Because of this many people are trying to create the next best app just to be bought out by Facebook or some other huge company for millions if not billions and live the rich life because the handful of people that it took to create the app reap all the benefits.
Facebook has decided to buy the WhatsApp start up at $19 billion, which would make it the highest price for a company of its kind ever. Based off of the price of the company, one would easily assume that it's a company that requires a large amount of people to help it function for day to day. However, they'd be wrong. The WhatsApp company only has 53 employees, 55 if the two owners are included. This relatively small company and its small group of employees have now been able to gain a significant amount of wealth. I believe that such a small company was able to sell at such a staggering price because its purpose ties in so well with that of Facebooks. As mentioned in this blog post, WhatsApp gives its users another way to connect with one another that quickly turns into one of the main ways for friends to connect. This same ideal is what has made Facebook so infectious and routine is usage for its many users.
The last part of this article really stuck out to me, "the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows. "WhatsApp 55 employees are all what its 55 million customers need"(Reich). I think if we come up with a more expansive approach when it come to dealing with the technology industry we can create more jobs. Personally i don't use WhatsApp, but I find it extremely innovative. Also the fact that it was sold for 19 billion makes it cool too.
With the growth of technology we can expect to see less jobs made. Whatsapp is a perfect example of this by having only 55 employees. Also I do not view Facebook's purchase of Whatsapp as an attempt to be monopolistic in the social media world but rather as their attempt to stay relevant. Facebook messenger is not very popular in places like Europe and South America where Whatsapp is hugely popular. By purchasing Whatsapp they are gaining access to millions more users.
After reading the article discussing facebook purchasing whatsapp, a multi billion dollar industry app, i was rather astonished by something that simply astonishes me every time until i come to the realistic realization. Companies like WhatsApp is generating its revenue from, like the article states, the number of consumers. Its like nuclear fission, it reacts at an exponential rate. The realization i have for instances such as this one, is that entrepreneurship is growing at a rapid pace, and this includes creating apps. Being an entrepreneur takes a startup company and connections to run any business you can imagine. Today, applications are made left and right and are one of the fastest growing industries or sub-industries there is. For example, the creator of flappy birds was generating 50,000 a day and took the game down, a month or so later the exact same formatted game was created but with a fish underwater, rather than a bird, and the company did very well. Creating these apps as well takes not too many people, it can be done with a team of 5 and its happened before. More people are starting to head into that direction of entrepreneurship and creating apps which is why revenue is increasing and jobs are steadily decreasing, causing it to be unstable.
This is just more proof of what our generation is going to have to deal with in order to get a well paying job. The use of technology is replacing more and more workers every year. The sad part is there is nothing we can do about it. Robots and computers produce goods and services more effectively and consistently, and you don't need to pay them a yearly salary. Now, referring to the article , the internet allows you to set something up fairly simple for millions of people to use, and make a ton of money off of it because a big company wants to buy it from you. This small group of people just made billions of dollars just by spending some time on a computer. This is an example of the many ways a small amount of people make so much money, which causes a huge gap between them and those that haven't been as lucky with their inventions.
-Jack Madden
It's funny how a few years ago everyone was talking about how Facebook was "dying". Obviously that doesn't seem to be the case now considering the huge purchase of the WhatsApp they just went through with. It's amazing how Facebook has seemed to dominate all social media for almost the last decade. Usually social medias go out of style after only a few years, Facebook seems to still be going strong despite what some people say.
This article reaffirms the widely accepted concept of innovative business techniques being the way to success, in our economy that is. Technology has revolutionized everything, including business. That is why the most successful, and most well known are all companies that operate as a byproduct of technology and the needs it has created for all of us. Connectivity is what we are craving, and it is almost a mob mentality. Organizations will continue doing this, creating other ways for us to connect, faster ways for us to connect, and even more innovative ways for us to connect. Until the next revolution, the next big idea, comes up.
-Austen V
This acquisition of WhatsApp by Facebook brings to the table a new debate - is there such thing as a social media monopoly? Facebook has already bought Instagram and other companies such as Oculus. If next year it bought Twitter, Tumblr, and Snapchat, would that make Facebook a monopoly? They would have an overwhelming majority of the most popular social networks and have complete control over that specific market. I believe there should be laws to prevent such a thing from happening or else a single company can access all of your personal online information.
Facebook is a very dominant network that obviously sees an ability to expand this WhatsApp to be even more successful than they are. They are purchasing the company for 19 billion dollars. Now, this app is free for the first year but than you pay a small fee. With so many users this fee adds up to a large sum of money. Nevertheless, this company that makes extreme amounts of money is not a company with a lot of employees. In their defense why would they hire more staff than necessary? At the same time without this app that came from technology there would be 55 less people employed. We look at the net income and that is why we think it needs so many more people to run it.
Facebook is one of the more dominant social networks and it has managed to find new ways and bright ideas to stay around unlike other social networks like myspace which was once a popular social network. Although facebook is a larger company and makes a stellar amount of money because of it it doesn't mean that a company must be large to make a solid profit. Whatsapp has found a way to make a premium profit with only 55 people. It shows how technology is a gateway to success but it isn't always plentiful in jobs, which doesn't help unemployment very much.
It's amazing how powerful Facebook has become in the market of social media today. They continue to find new ways to branch out and create more connections for themselves. especially now with buying WhatsApp, this will give them a huge step forward in connections. WhatsApp already has a huge reach on its own, adding that to Facebook will make it even bigger. The idea that more and more people are entering into this form of social media and how it builds an even bigger need for it is also very interesting. The more people use the WhatsApp, the more people will need it in order to be connected to others. It's very different from other companies however, because the WhatsApp company only needs 55 employees to run it when they have millions of customers. This doesn't really help too much with the issue of creating more jobs as the company grows, however it is a very interesting point.
- James Vitale
Technology allows people to be overall more efficient. From day to day activities, to work, and pleasure. The growth of WhatsApp shows the value of technology in today's society. The network continues to grow as people use it in turn making more people want to use it to stay up to date. Technology continues to grow and advance, the doubling of the usage of WhatsApp is a prime example of this.
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