'This Week': Facebook and WhatsApp

The "This Week" panel on Facebook's $19 billion purchase of messaging app WhatsApp.
3:00 | 02/23/14

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Transcript for 'This Week': Facebook and WhatsApp
Now to a blockbuster tech deal. Facebook is expanding its empire. What a deal this is, Facebook is buying whatsapp for $19 billion. The largest acquisition ever. Facebook pays a jaw-dropping $19 billion for an app. An app. Back now with that story that shook up the tech world and had many of us asking, is a tiny text messaging company with no profits and only a few dozen employees really worth a whopping $19 billion? Facebook thinks so. Here's ABC Rebecca Jarvis. Why is Facebook paying them $19 billion to join the social network? Because they created whatsapp, a 5-year-old business with just 55 soon to be very wealthy employees. It allows users to send unlimited text messages anywhere in the world. The app saved consumers nearly $33 billion in texting fees last year alone. What does Facebook get from this deal? It's somewhat mysterious. Super official -- superficially they get 450 million users of whatsapp. They say it's going to be a billion users which is huge. Reporter: At $19 billion, it's the biggest startup buyout of all time. The biggest internet deal since aol bought Time Warner. $18 million more than instagram in 2012. It makes the tiny company more valuable than some of the most established companies in the country, including American airlines, Marriott hotels and Xerox. They don't do advertising. They don't collect user data, how do they make money? Mark Zuckerberg said we don't know yet. Reporter: The deal does give the world's largest social network a dominant mobile communication tool. One that's particularly popular with young and international audiences. Instead of buying them, they need to figure out ways to create them by themselves so they don't have to spend $20 billion on each new one. Zbrr for "This week," Rebecca Jarvis, ABC, New York. Thanks. Back now with the group, including Cory Johnson, author of Bloomberg west from San Francisco. And Cory, Facebook, as we heard, spent $19 billion on this, $20 billion in the last two years to acquire these barely-profitable companies. Explain why they're doing this. Well, look, on some level this is still a mystery. Mark Zuckerberg's addressing the mobile world congress in bars low -- Barcelona, and it's such a big deal, there are so many questions about the valuation we're going to carry it live tomorrow. People wonder why spend this much money on such a nascent application out of nowhere? But Facebook recognizes how rapid changes happen in this world of mobile computering. And whatsapp has great success, while Facebook has only minor successes. Tom Friedman, you wrote a column about startup America and how silicon valley is where ideas come to launch, and Washington, D.C. Is where ideas go to die. What does Washington learn from silicon valley? One of the biggest things you can learn is that in silicon valley, a collaborator is something you're building something great with. In Washington, D.C., it's the French term, someone from the other party you're working with. There's a message there. What we're seeing there, to take it back to Ukraine, the world is going from connected to hyper connected. And that concentrates wealth at the top and distributes power at the bottom and injects transparency everywhere. And what isapp, I came across it two months ago in Saudi Arabia. I'm going to whatsapp you, they said. This is big outside of the United States. There is the Ukraine connection because one of the founders was from Ukraine, and he didn't like the police state atmosphere. He didn't like being followed around. You don't do that on this app, right? Right. They found Facebook, helps, rule of law, helps to have a free and open market. Helps the free capital markets that allowed mark Zuckerberg to pay his own shareholder's money, not government money, for this company. It makes a point, with the contrast in Washington, the common sense point is you want to have fairly free markets. That's the invasion. And there's only about 55 employees. That's one small corner of a factory floor. Let me take this, and back to you. Should we be worried that our bigst biggest growth sector is made up of the elite few, what does it say about jobs? It says that energy and manufacturing should be deregulated and let go free a little more. It's coming from the least-regulated, least-unionized least-focused on Washington, least crony-capital part of the economy. And you wanted to jump in there. The success has to do with cost. They have been able to use technology to find ways around the cellular networks. It can cost 25 cents to send a text message. It's the number one app used for text messaging in Mexico, in Brazil, Indonesia, some of the biggest countries in the world. Not the U.S. But it is growing fantastically. But the reason is they don't charge anything. From a business standpoint, you can look at the success on a social aspect, and a technology aspect and be floored by it. But from a revenue standpoint, because they don't charge, they're successful. Maybe not a great business. When they are spending so much in stock and a great deal of cash to acquire the company, in some ways, it's very much of a defensive effort against something that's free when they want to make money on these things and the inventors have not been able to. Why do we think next year there might be another hot thing -- Exactly. -- On the market and they spent $19 billion. This was faster than Facebook -- go ahead, Tom. That's scary, but what is equally scary is the fact that only 55 people work there. And I think that is part of a larger trend. If you took Twitter, Facebook, even Google and whatsapp, instagram together, you could fit them in the giants stadium. These have huge multiples. That's a trend. Machines and software will be substituting for labor and how we respond to that an increasing challenge going forward. And bill, to the end? I don't have a clue. You know it's not government or taxpayer money, he's taking the risk and his shareholders will pay the price if it isn't a good move.

This transcript has been automatically generated and may not be 100% accurate.

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