How Facebook Will Change WhatsApp

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Feb. 21 (Bloomberg) -- Culture of Profit Founder Rafi Mohammed discusses Facebook's acquisition of messaging app WhatsApp on Bloomberg Television's "Bloomberg Surveillance." (Source: Bloomberg)

Absolutely.

First of all, mark zummerberg has said we're going to keep the price at a dollar and not going to advertise, so he's handcuffed on that.

The one thing they can do is go to the linkedin premium model.

Premium?

Got to help me out with that one.

Nerd alert.

Another nerd alert.

So you get the network by a lot of people joining because it's free, and then you monetize it by offering them the best version.

So that's probably the way they'll go on the consumer side, and then on the retail side they'll try to monetize that network.

It's a great network.

It's a closed network.

Right.

But what about the backlash of security?

I've been reading a lot about whatsapp users are worried about facebook knowing so much about them and using that to monetize.

How can facebook find the right balance?

It's an interesting question, and certainly something they're doing on the facebook site now.

I think it's up in the air.

I want to ask you as a finance guy, if i've got my fancy calculator, i can do a discount model of a transaction.

Are the people out in california with these huge valuations, twitter, facebook, are they playing at a different discount rate than everybody else?

Are they growing so fast, so dominant, and are they so profitable with any given dollar that they play by a different financial rule book?

What i think they're really looking for is the next big thing.

And so given that they're going to control the key last mile, what was attractive.

Now they sort of have a canvas they can now paint on and try to have new ways to monetize t. but can they justify $19 billion because they're growing as an industry so rapidly?

It's a different $19 billion than for microsoft or exxon.

I don't think so.

I think it's really that they see hope in this.

It's about hope?

And by the way, we're all capitalists here.

A big part of hope is all moanization, which what's app has actually figured out how to do, unlike twitter, arguably facebook sort of has figured it out.

That's the difference.

That's what sets it out.

This thing actually makes money, right?

Dollar per person, yeah.

But the problem will be, what will consumers tolerate?

Part of the appeal is it's simple.

Keep it simple, stupid.

If you start adding all the stuffy been saying, what did you call it?

Premium.

Won't that turn people snoff we just to want keep it simple.

The beauty of premium sths a choice.

The consumer can choice whether they want to upgrade or not.

Right.

Always keep it simple, stupid.

Another price issue right now is the amazon prime.

What's going to go up?

Amazon prime, they charge $79, and it's free two-day shipping.

You get to stream the movies.

You also have access to the kindle library.

They're thinking about raising the price.

You say that's a bad idea.

I can understand why.

What's the solution then?

First of all, amazon has to be worried about their growth.

Their p/e ratio is 600. their operating margins have gone from 4.1% in 2010 to 1% last year, and the growth has gone from 40% to 22%. prime is such a key part of their revenue model.

They represent 36%. so what amazon really needs to do is unbundle its service.

There's no reason why -- so split all those services up and charge different rate for each of them?

Exactly.

On the shipping, i think that unlimited is a very hard pricing strategy.

I think they should give options much like a cell phone carrier to get people to self-select which shipping option works.

It's back to price discrimination.

It's 101. can we handle options?

I like cheer choice.

Good, better, or best is one of the easiest and most profitable strategies for a company to go to.

In fact -- say that again.

Good, better, best?

Yes.

Are you buying it, tom?

Do you like that?

This text has been automatically generated. It may not be 100% accurate.

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