WhatsApp – Money money money.

Advertising is not the way to monetise Instant Messaging.

• Facebook has abandoned its plans to monetise WhatsApp through advertising which if its peers are anything to go by was always going to fail.
• Facebook and Google are the kings of digital advertising in developed markets and as their portfolios have expanded, so has the requirement to monetise them.
• So far, Google has been by far the best in this area as it has been able to monetise assets outside of search in two ways.
  • First, user data: Google’s user databases are integrated meaning that it understands user activity as a single profile rather than a series of unconnected services.
  • This means that it can take what it learns about a user in Maps and apply it to advertising on YouTube or Search.
  • There are very few digital ecosystems that have achieved this level of integration but Baidu has demonstrated this capability with Tencent and Alibaba also showing signs of moving in this direction.
  • Facebook has been very slow but its move to gradually stitch together its digital assets may bear fruit at some point in the future.
  • Second, direct advertising: One of Google’s biggest growth areas for the last few years has been digital video advertising on YouTube.
  • Historically, most of its learnings have been monetised via search but increasingly, this is being done in the service where the data is generated such as e-mail or Media Consumption.
  • For Instant Messaging this is a real problem as many services are encrypted making contextual advertising very difficult.
  • Furthermore, Instant Messaging does not lend itself very well to an advertising-based monetisation mechanism which is why the successful companies have looked elsewhere.
• Tencent, LINE and KakaoTalk have all been able to monetise their Instant Messaging platforms but have done so in ways other than advertising.
• The trick here is to bring other services into the platform and either charge money for access to them or advertise within them.
• LINE and KakaoTalk have done this with stickers, games and e-commerce while Tencent has brought advertising into its social networking service within WeChat.
• It has also been able to use WeChat to sell financial services which have also been very successful.
• Hence, I think that if Facebook wants to monetise WhatsApp, this is the route that it must take.
• Developments here have been disappointing and slow.
• Facebook’s attempt at financial services starting with Libra has hit what I think is certain to be an insurmountable obstacle (see here) while experiments with games in Messenger have not really gone anywhere.
• This means that the outlook for monetisation of WhatsApp anytime soon remains a very unlikely outcome.
• However, Facebook’s growth continues to be good despite its poor reputation for privacy as it is clear that advertisers and users care far less about privacy than regulators and the media would have us believe.
• Hence, the outlook remains pretty good but I am waiting for signs of developments in AI that can help Facebook regain the 1000bp in operating margin it has lost due to expensive humans (see here) before I would be looking to get back in.