Negotiate a Deal that Lasts

A failure to reconcile their business models led to irreconcilable differences for the founders of WhatsApp and Facebook. Negotiate a deal that stands the test of time.

By — on / Negotiation Skills

negotiate a deal

When trying to negotiate a deal with a potential business partner, you need to come up with a plan for ensuring the two sides will mesh rather than clash. Facebook’s leaders and WhatsApp’s founders appeared to skip that vital step when negotiating the social media giant’s purchase of the text-messaging app in 2014—an oversight that ultimately led to a split, as reported by Kirsten Grind and Deepa Seetharaman in the Wall Street Journal. We review the failed negotiation case study and suggest how you can do better.

Mixed Signals

In 2009, Jan Koum and Brian Acton, engineers who had become friends while working at Yahoo, launched WhatsApp, a service that connects users across the globe for an annual fee of 99 cents. Koum and Acton vowed to keep ads off the app and also made a commitment to user privacy: WhatsApp messages would be deleted after they were read.

Filling a global need, the app attracted hundreds of millions of users within just a few years. In 2012, Facebook founder and CEO Mark Zuckerberg tried to negotiate a deal with Koum to purchase WhatsApp, but Koum was turned off by Facebook’s ad-based revenue model and cavalier approach to privacy.

Negotiation Skills

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Zuckerberg nurtured a friendship with Koum, however, and gained his trust. In February 2014, Koum and Acton agreed to sell WhatsApp to Facebook for a staggering $19 billion—though WhatsApp was earning only about $20 million in revenue at the time. Zuckerberg promised that WhatsApp would operate separately from Facebook and remain ad-free. Koum and Acton negotiated for the right to exit their contracts and receive unvested stock guarantees prematurely if Facebook undertook “additional monetization initiatives,” such as ads, for WhatsApp, the Journal reports.

The high sale price set up a tension: For Facebook to benefit from the deal financially, WhatsApp’s profits would have to grow—but that would be difficult without ads.

Missed Connections

In January 2016, WhatsApp, which had reached one billion monthly users, did away with its annual user fee, which it said was hindering growth. Koum revealed that WhatsApp was looking into other revenue sources but remained committed to keeping the app ad-free.

After Facebook pressured WhatsApp to relocate its 200 employees to Facebook headquarters in 2016, w culture clash ensued, with WhatsApp staff complaining about a noisy environment and Facebook employees griping that their new neighbors had nicer facilities. Koum and Acton came up with several proposals to boost revenues, but Facebook’s leaders continued to push for advertising on the app.

Message Received?

Acton’s and Koum’s contracts with Facebook were due to expire in November 2018, at which point they were eligible to receive all their remaining shares in the company. But, fed up with the pressure they were facing, both chose to walk away prematurely.

Acton, whose net worth was reportedly $6.9 billion, resigned in September 2017, forfeiting about $900 million in potential stock awards, according to the Journal. He reportedly tried to exercise the contractual clause allowing early vesting in his shares, but dropped it after Facebook threatened to fight back. Koum, who is worth about $9.3 billion, left Facebook in April 2018, giving up about $400 million worth of unvested shares.

Neither Acton nor Koum confronted Zuckerberg over their dissatisfaction with the partnership, according to the Journal. But, months after Acton’s departure, when Facebook was under fire for privacy violations, he tweeted that he was deleting his Facebook account.

How to Negotiate a Deal that Lasts

The following negotiating techniques and skills can help you reach a lasting deal and reap the benefits of negotiation in business:

1.  Confront philosophical differences head-on. If you and a would-be partner have fundamentally different ideas about how to run your business, contractual guarantees may not be sufficient. Discuss your differences openly to determine whether you can reconcile them.

2. Don’t over-weight good rapport. Sometimes negotiators spend time getting to know you because they genuinely want to understand and respond to your interests. But sometimes rapport-building efforts are simply aimed at trying to negotiate a deal. Be wary of promises that could be hard for the other party to keep.

3. Consider the downside of “winning.” Be aware that scoring an advantageous sale price could have hidden drawbacks. If the other party overpays, his or her efforts to recoup the investment could lead to business decisions that you disagree with.

 What types of negotiation skills would you recommend to those seeking to negotiate a deal that thrives over time?

Related Posts


Leave a Reply

Your email address will not be published. Required fields are marked *