Facebook & WhatsApp – JK come home

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WhatsApp will have to be integrated to earn a good return.

• Facebook has finally admitted that subscription is not the way forward for WhatsApp but I suspect that enterprise is merely a stop gap.
• WhatsApp founder, Jan Koum has officially dropped the subscription fee of $0.99 and stated that the company is leaning towards the enterprise as a method of monetisation.
• Many companies connect with their customers via SMS messaging and WhatsApp is proposing that these companies may be prepared to pay to do that using WhatsApp.
• Facebook has always said that it would not really worry about monetisation of its assets until they hit 1bn users and I suspect that WhatsApp is getting very close to this number.
• Jan Koum may be able to get enterprises to pay something to use WhatsApp as a channel to reach their customers but I very much doubt he will ever be able to make enough to justify the US$22bn that Facebook paid for the company.
• This is because WhatsApp is still adamant that it will continue to operate independently from Facebook.
• I think that this was part of the deal when Facebook acquired WhatsApp but I remain convinced that the real value from WhatsApp will only be released by putting the two together.
• RFM research indicates that when considering a series of Digital Life services (like Facebook) there is far more value to be gained if these services are integrated.
• This is because the ecosystem can then learn what its users do across a range of activities rather than just one.
• If the services are not integrated then the ecosystem only learns about individual users within a single service and cannot connect the dots when a user spends time with multiple services from that ecosystem.
• The value of understanding what the does across services A, B and C is completely missed and it is here where I think the real upside is.
• Consequently, I think that for as long as WhatsApp remains independent and not integrated into the Facebook family, it will never create enough value to justify its acquisition price.
• I see signs of Facebook taking Messenger into gaming like LINE and KakaoTalk and I suspect that the same will eventually be true for WhatsApp.
• The transition from single services to a fully-fledged ecosystem is likely to take a long time because when Facebook is assessed on the quality of its ecosystem, it becomes clear that there is a vast amount of work to do.
• For Facebook to really grow revenues in the long-term, its ecosystem needs to be firing on all cylinders and I don’t think this is going to happen before its current set up runs out of steam.
• Consequently, I think that Facebook could see a pause in growth in H2 2016 which is likely to result in a heavy correction in the shares.
• It is at that time that I would be looking to enter Facebook for the long-term upside.