[therealarmen]

This is meant do to one thing -- let the founders retain control while allowing for large stock acquisitions. It's possible Google was muscled out of the Whatsapp deal simply because they couldn't pony up the money. $20B is almost half of their cash on hand. Note that the Nest and Waze acquisitions (small in comparison) were paid for almost entirely in cash.

[higherpurpose]

Google wouldn't have paid $20 billion for Whatsapp, and the only reason Facebook did is because their stock is very overvalued, and Zuckerberg knows that, so he's taking advantage of it while he can. Google's stock isn't that overvalued, if at all so they can't buy apps with $20 billion of what is basically "play money".

[declan]

I think this is correct. The WSJ today had a piece offering much the same analysis: that because Facebook's stock is (arguably) overvalued relative to revenue and expected growth, investors are encouraging the company to do these sorts of deals.

It's a perfectly logical outcome if you have high stock valuation and not as much cash on hand.

[Taurenking]

This 100 times

[JumpCrisscross]

I understand why we have dual-class share structures. There are cases in which investors may trust management more than their fellow shareholders.

Yet I am concerned about the structures' dynastic qualities. Larry Page is a competent executive. That may not be the case in 40 years. Tom Perkins's letter to the editor comes to mind [1]. The question of what happens after Page is more troubling. Limiting control to the founders' offspring is concerning. Granted, there are valid counterexamples. Warren Buffett is as old as he is wise. And Samsung seems to be plodding along just fine despite its family's feuds.

But shareholders should have input into these issues. Perhaps the super-voting stock lapses to normal stock after its original recipient's demise. Or maybe non-voting shareholders have one right: the right to call and vote on motions of no-confidence. Such motions, if passed by a super-majority of subordinated voters, would collapse the super-voting stock to normal stock.

Aristocracy runs thick in the veins of European business. It is worrying that we may be sprouting our own contractually-annointed Silicon Valley royalty.

[1] http://online.wsj.com/news/articles/SB1000142405270230454950...

[maxerickson]

I thought the old Class B shares converted on transfer? Did the split change that, or am I misunderstanding that passing the shares to offspring would be a transfer?

[nordsieck]

... or they could just not buy Google.

[moe]

Muscled?

I mean... not to rain on anyone's parade.

Perhaps someone just came to their senses?

19 billion dollars, for a messenger app, is more than just a little bit ridiculous.

It's the kind of ridiculous that will be a runner-up in wikipedia for most idiotic business move ever.

[nostrademons]

People thought the same about YouTube, but that turned out to be a brilliant (and very profitable) move.

Then again, they also thought the same about AOL/TimeWarner, and they were absolutely right then.

It's usually pretty futile to try to predict the future. I can see Zuck's reasoning with the Whatsapp purchase, though, and I don't think he's insane. He and Larry probably understand the structure of the tech industry a lot better than most people.

[enneff]

The way I see it: Facebook's edge is its social graph. WhataApp had independently built a massive social graph, just like Instagram did. Facebook simply cannot afford to not acquire these companies.

[fractalsea]

YT was bought for $1.65bn in shares which is an order of magnitude less.

[declan]

Exactly. And I recall that some of that was held back in case Viacom won the copyright lawsuit.

[mgkimsal]

"He and Larry probably understand the structure of the tech industry a lot better than most people."

They don't need to understand it - they define it.

[halviti]

Google already had a solid youtube competitor. The primary reason for the acquisition was not for the userbase, but rather because youtube was being sued by the entertainment industry, and by google stepping in to take over and fight the legal battle, they managed to preserve the future of online video.

It was definitely the right move, but this situation can't be compared to the WhatsApp acquisition.

[TazeTSchnitzel]

Solid? I'm sorry, I used Google Video at the time. It was far from it.

[tehwebguy]

Right, and there wasn't a community on Google Video, there was (and is) on YouTube.

[TazeTSchnitzel]

Exactly. Google Video was an average video host. YouTube was the community it is today, though it didn't have the ad programme.

[netcan]

Think about it this way: 19 billion dollars for a messenger app doesn't happen without at least two very motivated bidders competing.

[sillysaurus3]

Did FB pay $19B for Whatsapp in order to prevent Google from acquiring their userbase? That is, FB got into a bidding war with Google over Whatsapp?

[nyrina]

It could certainly be a large factor in the massive price.

$19B is a whole lot of money, even (especially?) for a company the size of WhatsApp

[eitland]

Interestingly the size of WhatsApp (the team and the required hardware) compared to its userbase might actually be one of the reasons why the price went so high.

In other words, - they had a very good engineer to end user ratio.

[alandarev]

Oh please, the companies are being bought out not because of some engineering masterpiece, but for already checked and working idea + loyal userbase.

[lallysingh]

I think the parent meant that in terms of a technical cost to user count ratio.

[matthewmacleod]

I don't think so. They'd obviously built a stable platform, but it's not anything that Facebook couldn't have recreated with far less investment.

[jbrooksuk]

Then they probably spent so much to acquire the user base.

[muyuu]

Why would Google be required to pay cash when Facebook wasn't?

[matthewmacleod]

That's the point of this change - Google weren't required to pay cash, but given their limited ability to offer stock deals without dilution of the founders' voting rights, it was probably not possible to offer stock.

[gcb0]

This is nonsense.

If they could have offered x billions in y shares, what change now? Will people accept offers for x billions in 2y shares?

It makes zero sense!

[Jacqued]

The new shares issued here have stricly no voting rights.

So they can offer them in any quantity without having to worry about diluting their voting rights. Whereas offering 19B in voting shares (even though I'd imagine class A shares have less rights than class B) might have been enough to dilute Brin and Page's voting rights significantly.

[gcb0]

makes sense now. thanks.

but then, wouldn't the non-controlling shares be deemed worthless in the long run and it's price plummet in comparison to the controlling shares?

Any other big company did that before?