WhatsApp: Facebook's Trojan horse for subscription services
WhatsApp's subscription business model may give Facebook hints about how to collect fees from users in its growing stable of social network services, instead of just relying on ad revenue.
Opinions about whether the acquisition of WhatsApp by Facebook for up to $19 billion in cash and stock are all over the map. Mark Zuckerberg is either brilliant for taking out a competitor with the potential to create an adjacent social network with more than a billion users, or he just bought the next MySpace or Geocities.
The Facebook CEO is clearly focused on colonizing and mining the entire planet with his growing collection of social network services.
"Our explicit strategy is for the next several years to focus on growing and connecting everyone in the world," he said during a conference call about the WhatsApp acquisition. "And then we believe that once we get to being a service that has billion, two billion, maybe even three billion people one day, that there are many clear ways that we can monetize. But the right strategy we believe, is to continue focusing on growth and the product and succeeding in building the best communication tools in the world."
Regardless of the price and giving up close to 10 percent of the company to WhatsApp shareholders, Zuckerberg can now more easily experiment at scale with a monetization scheme that rivals Google's. Rather than monetizing search terms as Google does so well, or relying just on trillions of often annoying advertisements in Newsfeeds, Facebook could now collect a modest monthly or yearly fee.
Not many WhatsApp users are paying today (neither WhatsApp or Facebook would disclose the number), but with an already lucrative and growing mobile advertising business, Facebook doesn't have to be in a hurry monetizing or messing with WhatsApp. If fact, WhatsApp doesn't believe in serving ads to its 450 million users, and so far hasn't gone for in-app purchases or e-commerce as a way to generate revenue.
For Facebook, and the rest of the industry, WhatsApp could be a Trojan horse unlocking subscription revenue on a massive scale. People pay upfront for apps, such as Minecraft and Angry Birds Star Wars, but so far only a small minority are willing to pay the price of a one tall Starbucks coffee per month, or year, for consumer services they spend inordinate amounts of time using. If WhatsApp is successful with its $1 for all you can share, Facebook may be able to charge small fees for other services, like Instagram, and also serve its targeted ads. At this point, Facebook doesn't know how a mix of paid subscriptions and ads will work out, but it will have the means to experiment with WhatsApp's 450 million and growing base of users.
Zuckerberg and his executive team are showing that they are playing high stakes poker, and are not going to wait to be disrupted by others. Like Instagram, WhatsApp is a hedge against future irrelevance.
"It shows the continued determination of Facebook to be the 'next' Facebook," wrote Benedict Evans of Andreessen Horowitz on his blog. "It's striking to compare the aggressive reaction to disruption shown by Google, Facebook and other leading Web companies today with how some of their predecessors a decade ago stumbled and lost their way."
As Box co-founder and CEO Aaron Levie and Yammer CEO (now part of Microsoft) and founder David Sacks said in recent tweets, it's almost about disrupting yourself.
You either buy your existential threat for the lowest amount they'll sell for, or you don't and find out later if you were wrong.— Aaron Levie (@levie) February 20, 2014
@levie The good news is that Facebook keeps buying its disrupters. The bad news is that it keeps getting disrupted.— David Sacks (@DavidSacks) February 20, 2014