Mark Zuckerberg, the 36-year old entrepreneur behind hit male-gaze platform FaceMash, the predecessor to another company you might have heard of, has a battle on his hands.
Big bad government is knocking on the door, and not by the hair on his (hairless) chinny chin chin is he going to let them in.
OK, enough of the jokes. If you have no idea what we’re talking about, here’s the FT proper to help you out (from last Wednesday):
The US Federal Trade Commission and 46 states have brought antitrust cases against Facebook, accusing the company of using its social media dominance to crush competition and calling for penalties that could include a forced break-up.
The FTC accused Facebook of conducting a “years-long course of anti-competitive conduct”, which included strategically buying up rivals that threatened its monopoly power and cutting off services to squeeze rival developers.
In particular, the FTC highlighted the social media company’s acquisitions of Instagram and WhatsApp in 2012 and 2014, respectively, as designed to neutralise competition.
The FTC said it was seeking a permanent injunction in federal court that could potentially require Facebook to unwind its Instagram and WhatsApp acquisitions, or to seek approval before making any future acquisitions.
Many pixels have been filled on what this might mean for Facebook, but what we’re more curious about is: if the tech giant is forced to spin off WhatsApp, what might the messaging company’s business look like?
You see, we all know how Instagram makes money. Between photos of someone you met at a party five years ago and your cousin lording it up in Dubai in an all-white suit, there are a load of equally exasperating targeted adverts. Adverts bring in revenue at a decent margin. So it’s not hard to imagine how the business would take shape if it was forced to depart the Zuckership.
WhatsApp, on the other hand, doesn’t have adverts. In fact, for those of us who live in the UK or the US, it has not been commercialised at all. It’s a popular platform because it won the lucky dip in becoming the default free messaging service (and because it had a decent and easy-to-use interface). In turn, that attracted Facebook’s attention, and later its cash and balance sheet, which allowed it to develop features that other texting platforms couldn’t match (seamless group chatting, YouTube integration etc) without any pressure to make revenue.
It wasn’t always that way. Those of you who have been using it for a long time might have forgotten this, but back in the day, WhatsApp charged users to download the app. And for those who downloaded it later, there was subscription fee — a meagre $1 per year — but all that was dropped in 2016. At the same time, the company also promised not to introduce third-party ads to make up for the revenue shortfall.
Money, that’s ‘Whats’ they want
So the question is, will that change? And if not, what other options does it have to generate revenues?
The most obvious idea might perhaps be a return to the subscription model. A dollar a month paid by its 2bn users worldwide would translate into $24bn of revenue — not too shabby. Yet this simple calculation belies the real issue, as it’s likely there would then be the problem of substitution. If WhatsApp were to become a paid-for service, what would stop its users churning back to vanilla texting instead, particularly now that others have added new features to their offerings? Apple, for instance, has added “reactions” to iMessage and the ability to reply to specific messages (à la WhatsApp).
Sure, that bantz group chat with the galz might have some absolutely classic memes in it, but is that worth yet another sub fee draining your bank account every month? Particularly when there’s a viable alternative — whether that be texting, or another messaging service like Signal or Telegram — available free of charge elsewhere. It’s not a stretch to believe that as we all migrated from texting to WhatsApp, we can just as nimbly migrate back.
As neither Signal nor Telegram is publicly owned, there is not the same pressure for them. Neither operates for profit — Signal is run by the Signal Foundation, a non-profit organisation that relies on donations, while Telegram is funded by Pavel Durov, its Russian founder, who also founded VK (Russia’s answer to Facebook), and states in its FAQs that “making money will never be an end-goal for Telegram”.
While a subscription fee may chafe with users, adverts would likely repel them still further. WhatsApp’s excellence lies in its simplicity — a home screen and then individual threads for messages and group chats. Breaking this up with intrusive adverts would be likely to cause an uproar. So, in short, it ain’t going to happen, in our opinion.
Another strategy would be for WhatsApp to remain free, but charge for other mobile products and services that would integrate with its platform. For instance, imagine if you could start a group chat around a live Spotify playlist, make payments via your banking app using a WhatsApp command, or even escalate a conversation from a dating app straight on to WhatsApp? In these circumstances, the integrating company could either pay WhatsApp a fee for integration, or they could share in the revenues if there were any services paid for while on WhatsApp (ie a Spotify subscription sold, or an album purchased on Bandcamp after a listen on a WhatsApp group).
In fact, WhatsApp already offers a version of its app for business which allows a small company to use the product as a store front and customer service channel. Although the business line is quite young, the Zuck revealed on Facebook’s recent second quarter conference call that it “has 50 million people using it and is growing quickly”. FT Alphaville has yet to encounter this product in the wild, but we imagine for a small shop owner without an online presence, it would have a proved a lifesaver during Covid. Competition in this space, however, is stiff.
Moving into payments?
Apart from its fledgling business product WhatsApp’s main strategy to-date seems to have been to focus on emerging economies. And it’s not hard to see why — India is by far its biggest market, with more than 400m users. That dwarfs even the next-largest, Brazil, which has more than 120m users.
In both countries, WhatsApp is going heavily into digital payments, hoping to replicate the success that Tencent’s WeChat has had in China by integrating social media and messaging with payments services. These new mobile-based blended messaging and payments platforms can flourish in countries where much of the population is still unbanked or where banks’ offerings are clunky, in a way that is not possible in places that already offer easy-to-use digital banking apps — both from challenger banks like Monzo and traditional ones — and real-time payments.
Last month, WhatsApp formally launched its long-awaited payments service in India for an initial 20m users, following a pilot scheme launched in 2018. But India’s highly successful secure UPI (Unified Payments Interface) system, which provides the infrastructure for WhatsApp to facilitate instant payments between more than 140 banks, means that there is stiff competition.
WhatsApp must compete with the likes of market leader Google Pay, Walmart-owned Phone Pe, and India’s own Alipay- and SoftBank-backed Paytm. In the first 30 days of operating, WhatsApp only processed 310,000 transactions. And WhatsApp will also face some regulatory hurdles: the National Payments Corporation of India (NPCI) is bringing in a cap of 30 per cent of total UPI transactions for any company, to avoid one service becoming too dominant.
If WhatsApp is to succeed as a standalone business then it has to hope that its payments and small-business offering take hold to the extent that this covers the costs of running of its core messaging service. And even then, that might not be such an appetising proposition to investors used to the fat social media margins that Facebook has enjoyed over the past decade.