What plans does Facebook have in store for the chat app? Will it still be “No ads. No games. No gimmicks,” for WhatsApp?
The big news this week has been Facebook’s acquisition of instant messaging app WhatsApp to the tune of $16 billion, plus an additional $3 billion, if you count the Facebook preferred stock that will vest to founders and early employees at the Mountain View-based startup. But while WhatsApp’s mantra had been “No ads. No games. No gimmicks,” for the longest time, it’s a known fact that Facebook monetizes its social networking business through ads.
With Facebook’s acquisition of the messaging app, this might come with some worry for the 450 million or so WhatsApp users globally — will Facebook soon run ads on the platform? Will Facebook do some sort of IM-plus-social media mashup that has seen success for contemporaries like LINE, WeChat and Kakao Talk?
Perhaps an even more pressing question among users and observers is this: what does Facebook want with a chat app when it has its own Messenger application in the first place?
It’s all about mobile strategy
Mark Zuckerberg, in a blog post on Facebook, said that WhatsApp will run complementary to Messenger, and being a simpler, more straightforward chat app, will play nicely with Facebook’s Internet.org effort, which aims to make the Internet more accessible to the emerging markets. “WhatsApp will continue to work independently within Facebook,” he writes. “The product roadmap will remain unchanged,” Zuckerberg adds.
What cannot be discounted from the deal is that WhatsApp will bring to the table 450 million active users (some of whom are undoubtedly also Facebook users), and the social networking company gains access to a primarily mobile population. Mobile is increasingly becoming important to Facebook. In the last fiscal quarter, 53 percent of the company’s advertising revenue was from mobile — efforts that have generated $1.29 billion in those three months alone.
Mobile is a key driver of growth, and the WhatsApp acquisition is reportedly more of a competitive move for Facebook. “It’s going to be a big battle between Facebook and Twitter,” said Laurence Balter, an analyst at Oracle Investment Research, adding that “it’s Facebook’s game to lose.”
While reaching about a billion users worldwide, Facebook used to be seen as weak when it comes to its mobile strategy. This had been a worrying trend, when other companies were fast catching on the rise of mobile devices as the primary and preferred means of getting online. Even Twitter was a stronger mobile player, with its 140-character limit being seen as an advantage instead of a limitation. “The entire world has shifted towards mobile, making desktop computers almost obsolete,” quips Jonathan Saragossi, co-founder at mobile productivity tool Any.do and mobile web authoring tool IM Creator to VR Zone. “People are on the go and demand that all the information and tools they need will be on the go as well.”
That Google was also in the running to acquire WhatsApp made it all the more important for Facebook to pursue the chat company. Zuckerberg’s statement “WhatsApp had every option in the world,” meant that WhatsApp could have opted to be acquired by any other big tech company, and so Facebook needed to be aggressive. And it did make the move ahead of the others — fortunately, perhaps for Zuckerberg and company, WhatsApp chose to work with them.
This is an especially important point, knowing that Google was reportedly also in talks with WhatsApp for an acquisition, but with a lower figure: $10 billion. The bigger offer by Facebook meant eliminating, or at least reducing, the possibility of an acquisition by another big competitor. This is essentially “playing defense by playing offense,” writes BuzzFeed‘s Peter Lauria, describing how Zuckerberg has come of age as a mogul.
Apart from being an offensive move against competitors potentially swooping down with a deal for WhatsApp, Facebook has also pre-empted the possibility that WhatsApp would grow to become big competition in the future. SunTrust Robinson Humphrey analyst Robert Peck wrote that in the future, the two companies are “likely to more closely resemble each other over time, potentially creating noteworthy competition, which can now be avoided.”
One might recall how Facebook was fazed with Snapchat’s growth as a go-to app for the younger demographic. Facebook tried to compete directly, and failed. Facebook attempted a $3 billion acquisition and was rebuffed. While WhatsApp is hardly as exciting as Snapchat (which was, at one point, marketed as a sexting app), it does have the numbers and growth rate. In fact, WhatsApp’s growth rate in its first four years has four outpaced that of Facebook in its infancy.
Returning to the question on whether Facebook might eventually pepper WhatsApp users with ads, perhaps not anytime soon. But let’s not forget that Facebook has an edge when it comes to determining demographics, context and geo-awareness. WhatsApp might not display ads at all, but the details it can collect from all 450 million of its users worldwide is a treasure trove of information, which Facebook will still be able to monetize through other means, such as targeting ads elsewhere (on the Facebook app or site itself, or on other sites).
Interestingly enough, Facebook has recently announced an improved Core Audiences targeting option for its advertising system. Will data from WhatsApp provide an even better targeting mechanism for advertisers?
In conclusion, with the recent $900 million Viber acquisition by Japan’s Rakuten and this multi-billion dollar WhatsApp deal by Facebook, chat apps are suddenly the in thing to buy. Which other companies are likely to follow suit?