Last week, the Wall Street Journal reported Facebook decided not to bring advertisements to its WhatsApp platform. Instead, the corporation has decided to focus on developing its subsidiary’s business and shopping capability. While the firm’s strategy will likely provide less immediate financial return, it’s wise to play the long game.
Why Facebook Isn’t Putting Ads on WhatsApp
Facebook announced plans to integrate advertisements into WhatsApp by 2019 in August 2018. However, the company confirmed it’s no longer pursuing that strategy for its call and messaging service. The firm’s change of mind is likely due to the platform’s growth rate in regions where its traditional monetization strategy would be ineffective.
According to Apptopia, WhatsApp added 759.4 million users in 2019, making it the fastest-growing service under Facebook’s umbrella. Notably, the app had high adoption rates in regions like India, South Africa, and the Caribbean. Forbes notes its popularity is because it’s free, has no ads, and isn’t bandwidth-intensive.
As such, WhatsApp has become the default method of digital communication in some parts of the world. And not just among consumers looking for an affordable way to keep in touch. The service’s small company focused offspring, WhatsApp Business, has been downloaded 100 million times via the Google App Store.
Consequently, if Facebook introduced advertisements into the platform, its growth rate might slow down or even reverse. In addition, the corporation would be sacrificing WhatsApp’s ubiquity in the Global South for less than robust ad revenues. Therefore, the company has smartly chosen to build out the functionality of WhatsApp Business, including developing its payment system.
As such, Facebook might be able to transform WhatsApp into a WeChat-style $50 billion a year e-commerce platform.
WhatsApp’s Place in Facebook’s Portfolio
Generally, Facebook’s leadership has been very successful at turning its various segments into major profit generators. The firm’s primary social media service made $17.652 billion in Q3 2019 alone. Moreover, its photo-sharing app Instagram brought in an estimated $14 billion in sales last year, a 51 percent increase year-over-year.
However, the company’s WhatsApp messaging service isn’t as prodigious an earner as its counterparts. The Menlo Park, California-based firm, purchased WhatsApp for $22 billion in 2014. But Forbes estimates the segment has generated around $5 billion of revenue in total as part of Facebook’s network. The reason being the service, which has more than 1.5 billion users, had limited monetization capability until relatively recently.
Conversely, Facebook and Instagram rake in billions by offering companies and advertisers access to their highly sophisticated marketing tools.
Initially, WhatsApp generated revenue via subscriptions. The firm charged users a $1 download in some markets and an annual $1 fee in others. But Facebook made the messaging and calling service free to use in 2016. Two years later, the corporation introduced its WhatsApp Business app, which is also free but features paid customer relationship management tools.
Currently, WhatsApp is the odd app out in the Facebook ecosystem. Moreover, the service hasn’t even come close to posting a return on the investment the corporation made in buying it. However, with proper positioning, the program has the potential to become a major e-commerce facilitator.