Facebook – The beaten track

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Facebook’s plans for Messenger follow its Asian rivals.

• Facebook is preparing to do much more with Messenger as the Asian examples are showing that much more can be done with these platforms beyond instant messaging.
• Digging by The Information reveals commands embedded in Messenger’s code that will enable a whole host of added functionality.
  • First. There is clearly the potential for Messenger to be used as a payment mechanism.
  • This would include the ability to pay for goods and services in store as well as directly in the app.
  • This is all well and good but the real secret to payments is not the app but the backend and fulfilment and how this will work is unclear.
  • Second. There are signs of functions that will beef up the capability of companies to talk to their clients via messenger and to use messenger as a customer service channel.
  • Chat has already been shown in a number of studies to be a very effective and efficient way of offering customer service.
  • Third. Facebook appears to be planning on adding suggested businesses and services to Messenger that I presume will be based on the user’s activity within Facebook.
  • Fourth. Functionality is appearing that would allow Messenger to add events to the calendar which is clearly related to Facebook M, Facebook’s digital assistant.
• Although this is virgin territory for Facebook, its Asian rivals Wechat / QQ, LINE, KakaoTalk and Alibaba have been on this path for quite some time.
• Furthermore, they have has significant success with mobile being used much more than fixed in many use cases such as shopping online.
• In particular LINE and KakaoTalk have been very successful in monetising their instant messaging platforms through the sale of games and stickers.
• Both are now moving more broadly to offer content, live broadcast and advertising in a bid to continue growing their revenues.
• These strategies are working well in Asia, and especially in China, but how well they will work in the West remains to be seen.
• This is because there are significant cultural, regulatory, historical and practical differences between Asian and Western markets that mean that the outcome could be very different.
• The example of NTTDoCoMo’s first ecosystem, i-mode, which was very successful in Japan but was a complete failure elsewhere shows just how difficult this can be.
• This leads me to believe that while Facebook is on the right lines when it comes to expanding Messenger’s functionality, it will have to do it differently to account for the market differences.
• I see Facebook expanding into media consumption, shopping, gaming and search which will give it over 80% coverage of the Digital Life pie and market leadership.
• However, it is one thing to cover the pie and quite another to monetise it as the example of Google + shows (see here).
• Assuming that Facebook gets it right, it is on the way to create a thriving ecosystem that RFM estimates could allow it to double its revenues over the next 5 years or so.
• Consequently, Facebook shares look very attractive in the long-term but I would not be building a position just yet (see here).
• In the meantime, I am looking at Samsung, Microsoft, Google or Apple as safer places until the dust settles.