A few hours ago Facebook announced its purchase of WhatsApp, which has been -more or less- valued at over 13 billion euros, one of the most expensive tech aquisitions ever.
As any well-informed competition lawyer may have learnt from recent case-law, this may seem like a risky investment: WhatsApp operates in a dynamic market, in which barriers to entry are said to be almost inexistent, in which there are no technical or economic obstacles to switching to a competing provider (particularly for small groups of people), in which services are mostly provided for free, and in which, despite the lack interconnection, having the largest network with hundreds of millions of users does not give rise to network effects providing a competitive advantage….
If such reasoning were right, it’d be hard to see why anyone would invest over $40 per user of a 55 employees company.
Bitter ironies aside, this deal raises another interesting question: given WhatsApp’s limited turnover I guess it’s likely that the deal will fall outside EU merger notification thresholds. Now, should it? I don’t have a stance on this, but now that there are so many ongoing discussions about the reform of the scope of the Merger Control Regulation, it could perhaps be useful to reflect on whether turnover thresholds are well-suited to reach mergers in the era of free services, in which turnover may not always be good proxy to competitive significance. Think of the possibility that depending on market definition, these transactions could only have to be notified in jurisdictions contemplating market share thresholds (which I’ve always criticized but that remain in place in Spain and Portugal); does that make sense? To be sure, I’m not saying this merger raises any substantive competition concerns; my point is a more general one unrelated to the specificities of any particular case.