One of my goals in this class is for students to look at decisions companies make and ask, "Is that a good decision?"
On Wednesday, 19 February, Facebook shocked the world by buying What's App for $19 billion (70 billion dirhams). That's enough money to build 12 Burj Khalifas!
The next day the stock of Blackberry went up 8%. Why? Let's look at Blackberry's business model: Blackberry currently generates revenue by:
1. Selling to retail customers (like people in the Emirates that love their Blackberries)
2. Selling to corporate customers (which in the business world this is called "Enterprise" sales or B2B - Business to Business sales)
BlackBerry also gets a tiny amount of revenue from BBM ads... but it is not much. However, after What's App sold for $19 billion some investors wondered if maybe BBM might be worth much more than they previous thought.
What's App has 450 million users. With a sales price of $19 billion that means Facebook purchased What's App for $42 per current user. Think about that. If you have a What's App? account like I do it means FB just paid $42 for your account and all of your friends. How will they ever get $42 worth of revenue from me, you and everyone you know? Advertisements? If they start giving me lots of ads people will switch. Some people have suggested Facebook did it to gather more information about users. I doubt it. While What's App knows who I talk to and what I like to talk about, Facebook knows EVERYTHING about me already.
Anyhow, it seems to me that Facebook paid way, way, WAY too much money. What What's App offers is great but it is very easy to duplicate. If they try to make money (by showing a bunch of ads or charging for the App) we can all just switch to one of the other apps out there.
Related vocabulary:
Business model: How a company gets money coming in. Many companies have a business model of selling stuff. Some companies sell to other companies. Some companies- like Google - make money without much retail sales. Google makes money from you every time you do a search and they can show you an advertisement.
Revenue - Money coming into a company
Expenses - Money going out of a company
Revenue - expenses = operating profit (or loss)
Profit is also called income.
In your accounting classes you will learn about how paying interest on debt and paying taxes affects income. For supply chain we will keep it simple.