Facebook’s $19B Bet on WhatsApp Sends a Message

Feb 20, 2014 8:06am

Morning Money Memo…

Facebook is a making a massive bet on WhatsApp, paying $19 billion in cash and stock for a company with only 55 employees. Since WhatsApp was formed in 2009, hundreds of millions of people have used it, sending photos and videos for free from their smartphones and tablets.

The blowout deal is the latest example of soaring prices paid for hot startups by technology giants that are anxious to protect their market share. This could be a defensive move, sheltering Facebook from the recent switch by teenagers who left the site and took their social networking elsewhere.

The stunning price for WhatsApp may boost valuations of other messaging firms even though many are still figuring out how to make money from their subscribers. WhatsApp offers messaging without the fees that Verizon, AT&T and other carriers often charge. “It is an immensely popular messaging service,” says Dana Wollman of the tech site Engadget. “Globally it has around or over 450 million active users.”

Payments are another potential goldmine for tech firms. Soon you may be able to use your smartphone to tap and pay at retailers across the country. No credit card needed.  “The idea of doing more things with the phone is very compelling to consumers and payment is one of them,” says Mastercard executive James Anderson. His company and Visa have come with cloud-based technology that would make it easier for shoppers to spend money using their phones. “Every transaction requires a consumer to enter a pin number before they actually tap at the terminal.” This is far from the only innovation. Other companies are jumping into the rapidly growing field of payment apps and devices.

The Gap is raising its minimum wage to $9 an hour this year and $10 next year. The clothing retailer says its decision will affect 65,000 workers. In a statement, President Obama praised the Gap for its decision. He’s urging Congress to pass legislation that would gradually increase the minimum wage to $10.10 an hour by the end of his presidency.

The stock market turned lower after yesterday’s release of minutes by the Federal Reserve. At the January meeting several top officials sounded willing to consider raising short-term interest rates sooner than expected. But the Fed Funds rate is still near zero. Stock futures are down this morning. Investors today will be watching WalMart’s earnings announcement closely. Retail sales have been under pressure recently. The world’s largest store chain may report lower quarterly profits.

The University of Maryland is the latest victim of a massive data breach. The school admits more than 300,000 Social Security numbers were stolen from a database containing information on anybody who received a school ID since 1998. “This a bad breach,” says Adam Levin, co-founder of the firm Identity Theft 911. “The problem is when they get your Social Security number they have an option on your life, and the question isn’t if but when they’re going to exercise that option.”

Richard Davies Business Correspondent ABC News Radio abcnews.com Twitter: daviesnow

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