Monday, February 24, 2014

Zuck Says Ads Aren’t The Way To Monetize Messaging, WhatsApp Will Prioritize Growth Not Subscriptions

Facebook won’t be throwing its advertising weight behind its new acquisition WhatsApp like it did with Instagram. But WhatsApp also won’t be focusing on rolling out the $1 a year subscription fee it currently charges in some countries. Instead, with the financial security Facebook brings, it will dedicate itself to growth.

Monetization was the big topic on today’s analyst call after Facebook announced it acquired WhatsApp for a jaw-dropping total of $19 billion. That’s $4 billion in cash and $12 billion in stock, and it reserved $3 billion in restricted stock units to retain the startup’s employees. But Facebook CEO Mark Zuckerberg, CFO David Ebersman, and WhatsApp CEO Jan Koum all said that won’t be a priority for the next few years. And when the time does come to monetize aggressively, it won’t be through ads.

“Our explicit strategy for the next several years is to focus on growing and connecting everyone in the world,” Zuckerberg said. Currently, WhatsApp has a strong presence internationally with 450 million monthly users, but it’s a fragmented market with many competitors. Outpacing them right now is critical, Facebook’s CEO explained. ”Once we get to being a service with 1 billion, 2 billion, 3 billion people, there are many clear ways that we can monetize.”

Zuckerberg bluntly stated “I don’t personally think ads are the right way to monetize messaging.” Beyond WhatsApp, that could mean Facebook doesn’t plan to use ads to monetize its own Messenger app, either. That makes sense, as the highly personal and intimate nature of messaging would cause ads to stick out like sore thumbs.

The comments on the call reiterate a point that Koum has made in the past. In a 2012 blog post, he argued, “Advertising isn’t just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought” — it also means that companies have to mine user data. (When asked about the age of WhatsApp’s users on the call, Ebersman couldn’t say, because the app doesn’t ask for that data.)

Koum made a similar commitment today in his post about the acquisition, writing, “You can still count on absolutely no ads interrupting your communication.”
Screen Shot 2014-02-19 at 4.03.02 PM
Eventually, Zuckerberg wants the WhatsApp team to turn the app into “a really great business,” not just a great product, and he described the current subscription model as “a promising start.”

Still, during the call, analysts repeatedly asked for more details about WhatsApp’s existing subscription business. Facebook’s share price was down 5% in after-hours trading at one point, though are now down just 2.64%, likely because investors couldn’t see why Facebook would spend so much on something not earning much money. But Koum suggested that the app could have “5 billion users potentially giving us money,” so, “We’re not really concerned about monetization today.’

Ebersman added that “some users in some countries” have paid subscriptions, but he said expanding those subscriptions is “not a priority.” Trying another angle, an analyst asked about the breakdown between paid and free users, and Ebersman repeated that it was “not a top priority” and said, “As they roll this out country by country as they choose, I’m sure we’ll learn more.”
“We’re confident that over the long run WhatsApp will deliver returns for shareholders,” Ebersman said.

Right now, the two companies are willing to delay making money off WhatsApp to ensure it becomes the dominant mobile messenger around the world. Putting a dollar price tag on it could drive users to competitors that are free to download, like WeChat, Kik, KakaoTalk, and Line.
And therein lies perhaps the biggest advantage to being acquired for WhatsApp. Facebook makes plenty of money from advertising in its main app and website. That money unshackles WhatsApp from polluting its product with ads or slowing down growth with a subscription fee. Instead, it can drive full-speed towards getting to 1 billion users.

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