$19 billion?

The stunned reactions at Facebook’s valuation of mobile messaging service WhatsApp that are reverberating through tech hubs all over the world remind me of so much coverage of off-season baseball free agency.

“How can Player X really get $15 million per year? He’s won just a few more games than he’s lost!”

“Why did Team Y so overpay to get a marginally-above-average second baseman?”

Ball clubs risk over paying for talent for a variety of reasons. They feel they need to make headlines to keep their fans engaged. They think they can improve a player’s value by exposing that player to the team’s coaching. They are genuinely concerned that prices will only go up the following year, making a big splash one year seem like a little squirt the next.

In Facebook’s case, where some see over-paying, I see a bargain that plays perfectly into Facebook’s strategy. Here’s how I break it down.

• Facebook just acquired access to 450 million mobile users and the data they create. In other words, the social media titan just acquired the equivalent of 150% of the US population, nearly 75 percent of which use WhatsApp every day to send and receive mobile messages on their phones.
• WhatsApp is growing by 1 million new mobile users per day.
• WhatsApp may not advertise yet, but the company monetizes. After the letting users have the ap for free for the first year, WhatsApp charges an annual subscription fee of $0.99, so it’s not as if there’s no foreseeable way to generate a return.
• WhatsApp’s current growth rate, in addition to some help from Facebook, put potential revenues within striking distance of some big brands. If Facebook lets WhatsApp just run its business without changing a thing, and if its growth rate holds, by the end of the year it will have about 750 million users. By comparison, Netflix had about 33 million subscribers in Q4’13 paying about $8 per month. That puts Netflix, with its high cost of content acquisition, at just over $3 billion in annual revenue. WhatsApp should continue to grow, and with some as of yet unknown enhancements could reach that level of revenue performance, all while operating with lower costs and just 55 employees.
• The acquisition fits Facebook’s mobile marketing strategy. Facebook’s mission involves perfecting consumer engagement, scaling to as many users as possible, collecting, analyzing and using the data all those engaged users create, and only then attempting to monetize. WhatsApp plays right into this strategy. It, too, is relentless about user engagement. It is sitting on a treasure trove of information about how customers use its mobile app. It’s already monetizing, so Facebook can take its time to figure out how WhatsApp can become a more powerful mobile marketing machine and generate more revenue per user.
• Facebook has just acquired what otherwise was a threat. For all its progress in becoming a mobile company, Facebook still generates only slightly above 50 percent of its revenues from mobile. By comparison, WhatsApp is a mobile-only company, and in parts of the world that are skipping laptops and going straight to mobile internet connectivity, WhatsApp and its competitors, e.g. LINE, Viber, and WeChat, are often among the first social services customers use. Now, those users belong to Facebook, too.

Facebook is redefining what it means to advertise. They are driving more scale than any television network or print publication could ever imagine, sourcing and providing better, more faceted information about its consumers, and offering that information and access to advertisers at prices that are within reach for far more than they are in the world of 30 second TV spots.

On top of Instagram, WhatsApp gives Facebook another valuable mobile marketing tool for getting closer to customers, understanding what makes them tick, and, when the time is right, profiting from it.