One major way in which the Austrian School of Economics differs from mainstream economics is in the Austrian approach to the proper methodology for use in the study of economics. Rather than approach all of economics from the perspective of general equilibrium, where the whole of economics is nothing more than the working out of equations based on known inputs, Austrians recognize that uncertainty plays an important role in human action.
The great Austrian economist Ludwig von Mises wrote:
The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing one thing[...]What does this have to do with the acquisition of of WhatsApp by Facebook for $19 billion?
Natural science does not render the future predictable. It makes it possible to foretell the results to be obtained by definite actions. But it leaves unpredictable two spheres: that of insufficiently known natural phenomena and that of human acts of choice[...] the degree of certainty with regard to the technological outcome of the machine's construction, whatever it may be, does not remove the uncertainty inherent in the whole action. Future needs and valuations, the reaction of men to changes in conditions, future scientific and technological knowledge, future ideologies and policies can never be foretold with more than a greater or smaller degree of probability. Every action refers to an unknown future. It is in this sense always a risky speculation.
At its launch WhatsApp was far different from what WhatsApp is today. WhatsApp management did not immediately see where the most potential was for its product. In other words, there was uncertainty at the launch of WhatsApp that an Austrian economist could appreciate. An uncertainty that had put WhatsApp on a slow growth track that was only changed as a result of strong demand indications from another direction. It was the alertness of management to where the opportunity really was that finally put it on its spectacular growth curve.
Politico explains (my emphasis)
[WhatsApp] boasts 450 million monthly users, and 70 percent of them use it daily, according to The Associated Press. One million new users join each day. WhatsApp users send 19 billion messages and receive 34 billion messages each day, along with 600 million photos and 100 million video messages[...]The messaging feature was secondary at first: The app was originally envisioned as a service that would allow people who can’t get a hold of you to see your status. WhatsApp took off when it added the messaging feature in late 2009, according to Gigaom.Got that? The feature that would turn WhatsApp into a company valued at $19 billion was not even part of the foundational blueprint of WhatsApp. Talk about uncertainty. That's why it is absurd for economists to make broad statements that there will be no major technological advances to come out in the future. This type proclamation ignores the uncertainty factor involved in the future.
There is also a lesson here for all businessmen who are dealing with a business or product that is stagnating. Improvise, try new things, offer other products within the framework of your current business. You never know when such an improvisation will become a $19 billion idea.
The other thing to think about is that Facebook paid roughly $60/user. A Japanese company made a similar purchase and paid only $3/user. Hmmmm, signs of a top?
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