WhatsApp

On WhatsApp University

Around fifteen days back, a friend of mine from school asked, whether repayment of oil bonds issued during the Congress-UPA regime was responsible for higher petrol and diesel prices. Given that, these bonds had to be repaid, the government had no option, but to charge higher taxes on petrol and diesel.

I said no. He then asked, why are forwards going around on WhatsApp saying so. I wrote a piece explaining why there was no link between repayment of oil bonds and the high prices of petrol and diesel.

This set me thinking and led to the question. Why do people believe things sent on WhatsApp so easily? And here are a few answers that I could come up with.

1) Social media, cyberspace, WhatsApp or whatever else one might want to call it, in a way is an extension of the old village square or simply the park in the housing complex you live in or the little space in front of your building, where you meet your neighbours and friends, and talk and gossip with them. Like was the case earlier, WhatsApp is also a space where people meet, talk, discuss and have views on things they don’t understand, like was and is the case, when they meet physically.

The discussions that happened (or still happen) in a village square kind of space were not recorded anywhere. A version of the discussion existed only in the minds of people who happened to be there. No one remembers their past exactly. We all remember a version of it. And as days went by people forgot about what they had discussed at the village square and moved on.

This is not true about WhatsApp or other forms of social media. If a wrong explanation about a particular issue is offered there is an evidence that it exists. Of course, unlike a village square or a park in the housing complex, WhatsApp is not a physical space. But it is still a space where people meet and interact. So, to that extent things haven’t really changed.

Hence, what was happening earlier is also happening now. Even in the pre-WhatsApp/social media era, people believed in conspiracy theories or offered explanations on topics they had very little idea of and believed in many things without doing some basic research. It’s just that there was no record of such things happening.

But in a digital space, some sort of record of the discussion having happened, remains. Hence, this phenomenon is more obvious now than it was in the past. And to that extent, the fact that most people in general are ignorant about most things, comes out much more clearly now. Of course, their ignorance continues to be directly proportional to their confidence.

2) When I use the word ignorant here, I am not being judgmental, I am only trying to state the obvious. Most of us have extremely limited expertise in extremely limited areas (I suggest that you read another piece titled On Advice that I wrote a while back).

This is primarily because most of us are busy in our own little worlds, trying to make the best of what we have. So, unless something really matters to us, we don’t want to spend time understanding it. This explains why people spend so much time planning holidays but have next to no idea about what the gross domestic product (GDP) of a country really means.

As Thomas Sowell writes in Knowledge and Decisions: 

“To exhort the individual citizen to make investments in knowledge comparable to those of lobbyists and political crusaders (both of whom have much lower costs per unit of personal benefit) is to urge him to behaviour that is irrational, if not physically impossible in a twenty-four hour day.”

Nevertheless, this doesn’t stop us from having views on things that we don’t understand.

This is a weakness, which people with an agenda make use of. Take the case of the high petrol and diesel prices. They are high primarily because corporate tax collections have fallen since September 2019, when the government decided to cut the peak corporate rate from 30% to 22%. In order to make up for this deficit, the central government is charging higher taxes on every litre of petrol and diesel sold, than they did in the past.

This is a politically suicidal explanation when it comes to explaining why petrol prices in many parts of the country have crossed Rs 100 per litre. How can the common man pay more, when the corporates are not paying their fair share of taxes?

Hence, the politicians and many others have come with the story of oil bonds issued by the previous government having to be repaid, as an explanation for high petrol and diesel prices. Of course, a basic Google search can negate this explanation. But once people have read this on WhatsApp their minds are satiated, as an anomaly has been explained away in a way that sounds reasonably true.

Given the fact that people are learning what they are from WhatsApp, it’s even referred to as WhatsApp University in zest. 

3) The question is, why all this possible now, and wasn’t possible earlier. The answer lies in the fact that in the earlier era any large propaganda had to be carried out openly either through newspapers, magazines, TV or radio, for that matter. And given that it came with its own set of limitations.

One, there was a price attached to it. Two, most propaganda came with a face.

So, let’s say petrol prices had crossed Rs 100 per litre in the early 2000s, when smart phones were not around. Anyone writing a piece in a newspaper offering a reason for it, had to do it in his own name. In that situation, it would be very difficult to offer the wrong reasons in the hope of people buying it and the writer getting away with it. Once a piece had been published, others could easily call out the writer’s bluff leaving his or her reputation in tatters.

In today’s era, with a significant proportion of the population owning smartphones and the availability of cheap internet leading to the rise of social media like WhatsApp, such problems no longer exist. Producing fake news is cheap. All it requires is a literate person, who has a mobile phone with an internet connection. This has made things significantly easy for people who want to spread propaganda or run an agenda or just want to have some fun.

Take the case of vaccine deniers. Social media has made their life very easy. They can propagate any nonsense that they want to. This is not to say that this did not happen earlier. It did. It’s just that now it can be done anonymously and probably at a much faster pace. Anyone can author a post and just send it across. And after it has been forwarded a few times, no one has any idea of who has written it. The anonymity that the social media provides is a big reason why fake news is created in the first place.  

4) Also, given that the social media is more or less free, it comes with the capacity of endless repetition. This is what political parties all over the world try to make use of, by feeding content that their supporters like to believe in and creating hatred towards a class or a community or a caste or a religion.

Or simply offering nonsensical reasons for an economic trend like petrol and diesel prices are high because oil bonds need to be repaid. As Abhijit Banerjee and Esther Duflo write in Good Economics for Hard Times: “The problem with echo chambers is not just that we are only exposed to ideas we like; we are also exposed to them again and again and again, endlessly.” So, every time petrol and diesel prices rise, the oil bond angle is whipped out all over again, because there is no cost attached to it. Also, as Sowell writes: “sober analysis seldom has the appeal of ringing rhetoric.”

In fact, the production of fake news is impacting the traditional mainstream media which wants to do good journalism. As Banerjee and Duflo write: 

“Circulation of news on social media is killing the production of reliable news and analysis. Producing fake news is of course very cheap and very rewarding economically since, unconstrained by reality, it is easy to serve to your readership exactly what they want to read. But if you don’t want to make things up, you can also just copy it from elsewhere.”

The larger point here, as Banerjee and Duflo put it, is ‘the economic model that sustained journalism as a location for “public space” (and correct information) is collapsing’. In this scenario, ‘without access to proper facts, it is easier to indulge in nonsense’.

Of course, this is not to say that the mainstream media is all kosher. It is not. But that is another topic for another day.

5) The major issue at play here is, whether you support the current government or not. This has led to a situation where there is a great need among many people to support the government on everything and anything. What George Orwell called groupthink is at work here.

As Christopher Booker writes in Groupthink—A Study in Self Delusion: “A group of people comes to be fixated on some belief or view of the world which seems hugely important to them.” In this case, the view is that the current Narendra Modi government can do no wrong. Hence, if petrol prices are more than Rs 100 per litre in many parts of the country and diesel prices are very high, there must be a genuine reason for it, for which the current government is not responsible.

And this is where the fake story of oil bonds comes in and satiates the minds of such individuals. Social media like WhatsApp just helps achieve this at a fast pace and an almost costless sort of way.

Also, once such people have a reason, they go out of their way to defend it. As Booker writes: “They are convinced that their opinion is so self-evidently right that no sensible person could disagree with it. Most telling of all, this leads them to treat all those who differ from their beliefs with a peculiar kind of contemptuous hostility.”

This explains why many family WhatsApp groups where people used to share good morning and happy birthday messages, have turned into virtual battlefields. But the trouble is, such individuals are not doing their own thinking. They are just believing in whatever they have been told.

As Booker writes: 

“They have not looked seriously at the facts or the evidence. They have simply taken their opinions or beliefs on trust, ready-made, from others. But the very fact that their opinions are not based on any real understanding of why they believe what they do only allows them to believe even more insistently and intolerantly that their views are right.”

They have become victims of groupthink and are likely to continue to be so.

To conclude, as Alan Rusbridger, writes in Breaking News – The Remaking of Journalism and Why It Matters Now: “ Bad information [is] everywhere: good information [is] increasingly for smaller elites. It [is] harder for good information to compete on equal terms with bad.”

Bad news is driving out good news. And WhatsApp, as a medium, is at the heart of it. 

शर्मा जी, वर्मा जी एंड द रिटर्न ऑफ़ कोरोना

सुबह के साढ़े पांच पौने छे बजे थे. सूरज धीरे धीरे निकलने का प्रयत्न कर रहा था. 
वर्मा जी अपने घर के बगान में गरम पानी लेकर कुर्सी पर अभी अभी बैठे थे. गरम पानी मोशन सुधारने के लिए नहीं था. उसमें वर्मा जी ग्रीन टी का एक बैग डुबोने वाले थे. 
twinings ग्रीन टि का बड़ा डब्बा दो दिन पहले छोटी बहु ने अमेज़न से भिजवाया था.
“पापा आपकी तोंद फिर से निकल आयी है,” बड़े प्यार से वो बोली थी. “थोड़ा सुबह उठकर ग्रीन टी पीजिये.” 
इस पर मिसेज वर्मा खिसिया कर बोली: “हाँ, अब तो आप हमारे हाथ की बनी चाय भी नहीं पियेंगे.” पहले तो केवल बेटे को खो देने का गम था. अब पति भी हाथ से निकला जा रहा था. 
इतने में शर्मा जी अपने घर से पूरी तरह तैयार हो कर सुबह की सैर करने के लिए निकले. और जब लोग मुँह पर दो दो मास्क लगा रहे हैं, उन्होंने ने एक भी लगाने की गुंजाईश नहीं की थी. 
“अरे शर्मा जी मास्क तो लगा लीजिये,” वर्मा जी ने पुकारा. 
“भाई हम दो दिन पहले ही गंगा जी में डुबकी लगाए हैं,” शर्मा जी ने जवाब दिया. 
“अच्छा तब तो ठीक है.”
“हाँ.”
“वैसे भी मिश्रा जी अभी दो दिन पहले…”
“कौन वाला मिश्रा, पान वाला या गुटका वाला?” शर्मा जी ने पुछा. 
“पान वाला.”
“हाँ फिर ठीक है.” 
“क्यों?” वर्मा जी ने पुछा. 
“अरेु ऊ गुटका वाला बहुत थूकता है हर जगह.” 
“अब का करेगा, गुटका का पीक मुंह में थोड़े रखा रहेगा.” 
“छोड़िये. आप क्या कह रहे थे?” शर्मा जी ने पुछा.  
“हाँ तो मिश्रा जी एक ठो फॉरवर्ड भेजे थे व्हाट्सप्प पर.”
“अच्छा.”
“उसमें ऐसा लिखा था कि, ऑक्सफ़ोर्ड यूनिवर्सिटी में रिसर्च हुआ है…”  
“अब ऑक्सफ़ोर्ड यूनिवर्सिटी में रिसर्च नहीं होगा तो का रांची यूनिवर्सिटी में होगा?” शर्मा जी ने टोका और फिर अपने ही चुटकुले पर ज़ोर ज़ोर से हसने लगा. “आप भी न वर्मा जी.” 
“अरे आप बोलने तो दीजिये.” 
“अच्छा, बोलिये बोलिये.” 
“तो ऑक्सफ़ोर्ड यूनिवर्सिटी में एक ठो रिसर्च हुआ है. उसमें ये पाया गया कि गंगा जी में डुबकी लगाने से बॉडी में ऐसा ऐसा मिनरल आ जाता है, जिससे कोरोना पास भी नहीं आता है, दुरे से निकल लेता है.”
“हम तो बोल ही रहे थे,” शर्मा जी ने कहा. 
“हाँ, पर फिर भी लगा लीजिये, नहीं तो ठोलवा सब पकड़ लेगा.”
“इतना सुबह सुबह?” 
“हे हे.” 
“ऐसे मिशरवा हमको भी एक फॉरवर्ड भेजा था,” शर्मा जी ने कहा. 
“पान वाला या गुटका वाला?” 
“गुटका वाला।” 
“गुटका वाला?”
“हाँ थूकता बहुत हैं, पर फॉरवर्ड अच्छा भेजता हैं.”
“हमको तो नहीं भेजता है.” 
“अरे, आप टेलीग्राम पर हैये नहीं है की.”
“टेलीग्राम? ऊ तो कितने साल से बंद हो गया नहीं?” वर्मा जी ने एकदम आश्चर्यचकित हो कर कहा. 
“अरे, वो वाला नहीं.”
“तो फिर कौन वाला.”
“अभी अभी व्हाट्सप्प जैसा आया है.” 
“व्हाट्सप्प जैसा टेलीग्राम?” वर्मा जी के पल्ले नहीं पड़ रहा था कि शर्मा जी क्या बोल रहे थे. 
“आपके यहाँ कपडा कौन वाशिंग पाउडर में धुलता है?”
“मिसेज़ को तो सर्फ एक्सेल पसंद है. पर बहुत महंगा पड़ता है, इसलिए थोड़ा रिन के साथ मिला देते हैं.”
“हमारी मिसेज़ को अरियल पसंद है.”
“अच्छा.”
“अब जैसे अलग अलग वाशिंग पाउडर आता है…”
“अच्छा अब समझ में आया. टेलीग्राम नया टाइप का व्हाट्सअप है,” वर्मा जी ने मुस्कुराते हुए कहा. 
“हाँ.”
“तो आप क्या कह रहे थे?” वर्मा जी ने पुछा. 
“तो गुटका वाला मिशरवा एक ठो फॉवर्ड भेजा,”  शर्मा जी बोले. 
“अच्छा.”
“उसमें ये बताया था कि कोरोना जैसा कुछ नहीं है. पूरा का पूरा एक साज़िश है,” शर्मा जी ने कहा. 
“साज़िश? किसका?” 
“सीआईए और बिल गेट्स का.”
“एह. हम तो सुने कि चाइनीज़ लोग चमगादड़-वमगादड़ खाकर इसको फैलाया है.”
“अरे ऊ तो पुराना न्यूज़ है. अभी सुनिए.”
“अच्छा.”
“सीआईए और बिल गेट्स, मिलकर अफवाह फैलाया है कोरोना के बारे में.”
“पर वो लोग ऐसा क्यों करेगा?”
“देखिये सीआईए का तो मालूम नहीं, पर बिल गेट्स का हम समझ सकते हैं.”
“समझ सकते हैं?” वर्मा जी ने पुछा. “कैसे?” 
“अरे, अब इतना पैसा कमा लिया. माइक्रोसॉफ्ट को इतना बड़ा कंपनी बना दिया. तीन ठो बच्चा लोग भी बड़ा हो गया है उसका. घर छोड़ कर जाने के लिए तैयार है.”
“हाँ तो?” वर्मा जी के समझ में कुछ नहीं आ रहा था. 
“हम लोग के यहाँ तो बच्चा लोग जब घर भी छोड़ता है, तो माँ बाप के बारे में सोचता है. दादा दादी, नाना नानी बनाता है. इसलिए हम लोग का मन लगा रहता है और समय बीतता जाता है.”
“एकदम सही बोले आप शर्मा जी,” वर्मा जी ने कहा. कल रात को ही खबर आयी थी कि उनके सबसे छोटे बेटे चिंटू और उसकी बीवी रिंटू को, इशू होने वाला है. 
“पर अमरीका में इंडिया जैसा वैल्यूज नहीं न है. तो बिल गेट्सवा अब बोर हो गया है. इसलिए सीआईए के साथ मिलकर अफवाह फैला दिया कोरोना के बारे में.” 
“अरे बाप रे.”
“एकदम. मिश्रा जी का फॉरवर्ड कभी गलत नहीं होता है. कोरोना जैसे कुछ नहीं है. और जो है ही नहीं वो किसी को कैसे हो सकता है.”
तभी शर्मा जी के घर के अंदर से आवाज़ आयी. 
“अच्छा सुनते हैं,” मिसेज़ शर्मा बोली. “आधा दर्जन अंडा और एक डबल रोटी भी ले आइयेगा.”
“हाँ ठीक है,” शर्मा जी ने जवाब दिया. 
“अंडा?” वर्मा जी ने पुछा. “आप लोग अभी भी अंडा खाते हैं?” 
“काहे?”
“अरे आप को कोई मेनका गाँधी का अंडे वाला फॉरवर्ड नहीं भेजा क्या आज तक व्हाट्सप्प पर.” 

Why WhatsApp is the new BBC

whatsa

Cable TV came to India in late 1991 and early 1992. Before that large parts of the country could view only one television channel and that was the government owned Doordarshan.

Doordarshan continued to remain a force to reckon with as long as it had monopoly on news broadcasting. The irony was that most people who took their news seriously, would believe something only when they had heard it on BBC radio.

In fact, even those who did not take their news seriously but wanted to push their point of view, would claim to have heard some piece of news originally on the BBC. The point being that just saying that you had heard it originally on the BBC, even if you had not, gave the whole point of view that you were trying to push, a lot more credibility.

The rise of cable TV essentially ensured that people largely stopped watching Doordarshan, at least in urban areas. The other thing that happened was that people stopped tuning into short wave radio as well to listen to the BBC radio service.

Dear Reader, you must be wondering why am I writing about this, nearly two decades later? Is it a burst of nostalgia? Perhaps. But more importantly I am just trying to make a comparison. In the 1990s, people used to believe the BBC, which had inherently more credibility than anything else, now they believe whatever has been sent to them on WhatsApp.

I have had people arguing with me on the merits and demerits of demonetisation on the basis of long WhatsApp forwards that they have received. It’s like the 1990s when people wanting to push their point of view, they simply said that they had heard it on the BBC. Now, they say they have seen and read it on WhatsApp.

When I tell them that WhatsApp forwards can be motivated and essentially made up by those wanting to push a particular point of view, I get brushed aside. That’s the credibility that WhatsApp has these days, among many people.

As Roland Barthes writes in an essay titled The World of Wrestling which is a part of a collection of essays titled Mythologies: “The public is completely uninterested in knowing whether the contest is rigged or not, and rightly so: it abandons itself to the primary virtue of the spectacle, which is to abolish all motives and consequences: what matters is not what it thinks but what it sees.”

Hence, people see the WhatsApp messages, read them and believe them. They don’t question them in most cases. In fact, psychologists Amos Tversky and Daniel Kahneman conducted a very interesting experiment to show that people tend to go with what they see and end up being majorly wrong in the process.

As Michael Lewis writes in The Undoing Project—A Friendship that Changed the World: “A bunch of high school students [were given] five seconds to guess the answer to a math question.” There were two groups. The first group was asked to estimate the product of 8×7×6×5×4 ×3 ×2 ×1. The second group was asked to estimate the product of 1×2×3×4×5×6×7×8.

Both the groups were essentially asked the same question, with only the order of digits being reversed. As Lewis writes: “Five seconds wasn’t long enough to actually do the math: The kids had to guess. The two groups answers should have been at least roughly the same, but they weren’t even roughly.”

The actual answer to the question is 40,320. The median answer for the first group was 2,250 and for the second group was 512. The first group’s answer was more than four times, the second group’s. As Lewis writes: “The reason the kids in the first group guessed a higher number for the first sequence was that they had used 8 as a starting point, while the kids in the second group had used 1.”

Hence, depending on what they saw, the kids came up with what they thought the right answer was. Kahneman calls this what you see is all there is and that explains why people believe what they see and read on WhatsApp so much.

The column originally appeared in Bangalore Mirror on January 18, 2017.

Technology doesn’t tell us how to make best of use of technology

SmartphoneThere is a personal reason behind writing this column. Over the last few weeks I have opted out of all the large WhatsApp groups that I was a part of.
This was a conscious decision in order to concentrate on the work that I do. The phone constantly kept buzzing with forwards, pictures and videos being sent all the time on weekedays. Over the weekends, the men got into arguments primarily centred around Narendra Modi.
This was a constant distraction. Briefly I tried turning the notifications off. But there was always the tendency to keep checking WhatsApp. Given this, I finally opted out of these groups.
We live in a day and age where there is an information overload. Hence, more than the ability to gather information per se, the ability to sift through it has become more important. As Pico Iyer writes in The Art of Stillness: “The amount of data humanity will collect while you’re reading this book is five times greater than the amount that exists in the entire Library of Congress. Anyone reading this book will take in as much information today as Shakespeare took in over a lifetime.”
Also, a lot of information that we are exposed to (like constantly receiving messages on WhatsApp or emails or calls for that matter) essentially ends up disturbing us, sometimes in ways that we perhaps don’t even understand.
As Iyer writes: “Researchers in the new field of interruption science have found that it takes an average of twenty-five minutes to recover from a phone call. Yet such interruptions come every eleven minutes—which means we’re never caught up with our lives.”
In fact, researchers have been trying to figure out the impact that technology has on our working lives. And the results merely state the obvious—that we can’t multi-task.
As Bob Sullivan and Hugh Thompson write in a column in The New York Times: “There’s a lot of debate among brain researchers about the impact of gadgets on our brains. Most discussion has focused on the deleterious effect of multitasking. Early results show what most of us know implicitly: if you do two things at once, both efforts suffer.”
Hence, trying to do two things at the same time is not the best way to operate. “In most situations, the person juggling e-mail, text messaging, Facebook and a meeting is really doing something called “rapid toggling between tasks,” and is engaged in constant context switching,” write Sullivan and Thompson. And this is exactly how most of us who spend their working days in front of a computer tend to operate. But any kind of switching comes with its share of costs.
In fact, researchers Christopher Charbis and Daniel Simons carried out a very interesting piece of research to show how difficult it is to even spot something else when one is engaged in doing a certain task.
As they write in their book The Invisible Gorilla – And Other Ways Our Intuition Deceives Us:“When people are focussing attention (visual and auditory) on (a) task…they are unlikely to notice something unexpected.”
Chabris and Simons made a small film which basically had students of Harvard University playing basketball. One team was wearing white and another team was wearing black.
After they had made the film, they ran a small experiment, where they asked participants to watch the film and count the number of passes made by the team wearing white, ignoring the passes made by the team wearing black.
The participants were asked after around a minute, if they had seen something else as well. And nearly 50% of them they hadn’t. As Daniel Kahneman writes in Thinking, Fast and Slow: “The viewers of the film are instructed to count the number of passes made by the white team, ignoring the black players. This task is difficult and completely absorbing. Halfway through the video, a woman wearing a gorilla suit appears, crosses the court, thumps her chest, and moves on. The gorilla is in view for 9 seconds. Many thousands of people have seen the video, and about half of them do not notice anything unusual.”
As Margaret Heffernan writes in Wilful Blindness – Why We Ignore the Obvious At Our Peril: “The experiment has been shown repeatedly, around the world, in front of diverse audiences. I first saw it in Dublin, in an audience full of executives. Like them, I was so focussed on counting the passes I never saw the gorilla.”
Chabiris and Simons did not believe the results initially. “Simons was so stunned by the results that he says that for several years afterwards, he still kept expecting people to spot the gorilla,” writes Heffernan.
The point being that it is difficult to do two things at the same time. And that is precisely what technology makes us do. We walk on the road while messaging others. And at times we are so focussed that we aren’t aware of the traffic around us. People drive while talking on their mobile phones.
There is another interesting example that I have recently come across. When a car stops at a red light, chances are the driver will take out his smart phone and start fiddling with it. More often than not he misses noticing that the light has changed from red to green and its time to move on. And it is only when other cars behind him start honking he wakes up.
Iyer sums it best when he says: “The one thing that technology doesn’t provide us with is a sense of how to make the best use of technology.” It is time we realized that.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on www.firstpost.com on Mar 18, 2015 

Why Facebook liked WhatsApp

 facebook-logoVivek Kaul 

The messaging company WhatsApp was recently bought by Facebook for a whopping $19 billion. The owners of the start-up will receive $4 billion in cash, $12 billion in Facebook stock and the remaining $ 3 billion in the form of restricted stock units, which will vest over the next four years.
In rupee terms, Facebook paid close to Rs 1,18,000 crore (assuming one dollar is worth Rs 62.2) for Whats-App, a company with just 45 employees. This amount is greater than the individual budgets of most ministries of the Indian government for the next financial year, except the defence and the finance ministries.
So what is it that made Facebook pay so much money for WhatsApp?
Lets compare this with Instagram, a company that Facebook acquired in 2012 for a billion dollars. Interestingly, Instagram had just 13 employees, when it was acquired. Why did Facebook a billion dollars for a company with just 13 employees and 19 times more for another company with just 45 employees?
Computer scientist and philosopher has an explanation for it in his book Who Owns the Future? As he writes “When it was sold to Facebook for a billion dollars in 2012, Instagram employed only thirteen people…Instagram isn’t worth a billion dollars just because those thirteen employees are extraordinary. Instead, its value comes from the millions of users who contribute to their network without being paid for it. Networks need a great number of people to participate in them to generate significant value. But when they do, only a small number of people get paid.”
In the above paragraph replace Instagram with WhatsApp and the logic stays the same. As of the end of 2013, WhatsApp had around 400 million users worldwide. So Facebook was essentially paying to acquire the number of people who used the messaging service rather than the knowledge and the technological prowess of the people who ran it.
But wouldn’t it be cheaper for Facebook to just build a similar application? In fact, it wouldn’t take much effort on the part of Facebook to develop a similar and even a better application than WhatsApp. So why pay so much money for it?
In fact, WhatsApp like Facebook and Twitter before it is a classical example of what economists like to call a network externality. This is a situation where demand for a product creates more demand for the product.
As economist Paul Oyer writes in his new book “A product has a network externality if one added user makes the product valuable to other users…The rise of the internet has made network externalities more apparent and more important in many ways…Perhaps the best example of the idea is Facebook. Essentially, the only reason anyone uses Facebook is because other people use Facebook. Each person who signs up for Facebook makes Facebook a little more valuable for everybody else. That is the entire secret of Facebook’s success—it has a lot of subscribers.”
Again, replace Facebook with WhatsApp in the above paragraph and the logic stays the same. What made WhatsApp very valuable is the fact that it has close to 400 million users. Hence, even though Facebook can create a similar application at a much lower price, it can’t get 400 million people to use it.
Take the case of Google, which launched Google+ a few years back to take on Facebook. The experts felt that Google+ was a better product and some of them even went ahead and predicted that people would now move on from Facebook to Google+. But that did not happen.
As Niraj Dawar writes in Tilt – Shifting Your Strategy from Products to Customers “For those who want to be a part of a social network, it makes sense to congregate where everybody else is hanging out. There is only one village square on the Internet, and it is run by Facebook. Being on a different square from everyone else doesn’t get you anywhere—you just miss the party.”
This was the main reason why people did not move from Facebook to Google+, even though it may have been the better product. “Google + may offer features such as greater privacy or group video chat,” writes Dawar, but it fails to “create the positive feedback loop, because it makes sense for everybody to be where everybody else already is.”
So even though Google+ was believed to be superior to Facebook, the users continued to stay put with Facebook. As Oyer puts it “Google+ has signed up many users, but it has not put any real dent in Facebook’s dominance. Nobody is going to switch to Google+ from Facebook unless most of her friends do, too, and it seems very unlikely that whole groups of friends will act in a coordinated fashion to move from one social network to another.”
Given this, even though Facebook could have launched a better version of an application on its own, there was no guarantee that people would start using it. Chances were that they would have continued to use WhatsApp. And that explains why Facebook paid a bomb for it.
Also, in a way Facebook was just buying out prospective competition. Many youngsters have their parents and family, as friends on Facebook. This obviously limits the frankness of the conversation that they can have with their “real” friends.
This has led to teenagers preferring to use messaging services like WhatsApp rather than Facebook. In fact, in a recent earnings call Facebook admitted that teens were spending lesser time on its service and were fleeing to messaging applications like WhatsApp WeChat etc. Mark Zuckerberg, the chairman of Facebook, believes that kids are fleeing the format because parents spam their walls with inspirational quotes and tagging them in photographs which they really do not want their friends to see.
Another explanation on why teenagers are fleeing Facebook was offered to me by a friend who has worked extensively in the technology industry in the United States. When it comes to technology, Facebook is not a light app, like the chat sights. There is a newsfeed comprising of various kinds of data and there is always a chance that things get lost to your intended audience under large piles of such data. Also, it might need more memory, something that the lowest priced smartphones, which the kids are likely to use ave may not have.
Due to all these reasons Facebook paid $19 billion for WhatsApp.

The article originally appeared in the Mutual Fund Insight magazine dated April 2014

 (Vivek Kaul is the author of Easy Money. He can be reached at [email protected]. He would like to thank Somnath Daripa for providing some excellent thoughts on the topic)