In some cases, it can be a very good thing for a promising business owned by a big tech company to feel little near-term pressure to generate revenue, as it lets the business put the foundations in place for long-term success without getting distracted by attempts to make a quick buck.
And in some cases, this lack of pressure can be a double-edged sword, allowing the business to coast for a very long time on the generosity of its deep-pocketed parent, while peers developing similar goods or services see tremendous revenue growth.
I couldn’t help but think about this when I read The Wall Street Journal’s Thursday report about how Facebook is for now shelving its plans to run ads against WhatsApp’s Status stories service. Though Facebook still reportedly plans “at some point” to show ads on Status, which claims over 500 million daily active users (DAUs), it’s currently focusing on “building out money-making features allowing businesses to communicate with customers and better manage those interactions,” according to a WSJ source.
To be fair to Facebook, WhatsApp -- and for that matter, Facebook Messenger -- has a lot of existing and untapped value as a platform for connecting businesses with consumers. WhatsApp began charging larger businesses for certain types of messages in 2018, and Facebook’s core app supports news feed ads that let users contact businesses via WhatsApp or Messenger.
And more generally, as Facebook continues rolling out new e-commerce and payments services for its core app and Instagram, Mark Zuckerberg has talked about how Messenger and WhatsApp can serve as customer support and engagement channels for Facebook/Instagram transactions. Facebook is two months removed from unveiling the Facebook Pay service, which is promised to run across Facebook, Instagram, Messenger and WhatsApp.
Still, considering how popular Status is, and how much success Facebook has had running ads against Instagram Stories, the decision to further delay the running of ads on Status is a little surprising.
On recent earnings calls, CFO Dave Wehner has cited Instagram Stories (along with Facebook and Instagram feed ads) as one of the main drivers behind Facebook’s ad impression growth, which came in at 37% in Q3. And COO Sheryl Sandberg disclosed on the Q3 call that more than 3 million of Facebook’s 7 million-plus advertisers are now running ads on Instagram Stories and/or the less popular Facebook Stories service, which runs on the core Facebook app and Messenger.
If Facebook was to run ads on Status, its ability to give Status advertisers access to the same ad-creation, targeting and measurement tools it provides Instagram and Facebook Stories advertisers could help it drive a strong revenue ramp. As could its ability to support cross-platform ad campaigns that run across various Facebook feed and stories services.
Moreover, given WhatsApp’s immense popularity in many big international markets, a Status ads service could allow stories advertisers to reach consumers who currently can’t be reached via Instagram or Facebook Stories. And it would give Facebook additional scale while pitching itself to advertisers in general.
If WhatsApp, which was founded back in 2009 and acquired by Facebook in 2014, was an independent company, it’s quite hard to imagine its management holding off on monetizing a service such as Status at this juncture. Certainly, many investors would be vocally calling for such a move, while drawing attention not only to Instagram Stories’ ad growth but also the success that the likes of Tencent, Snap (SNAP) - Get Report and Line have seen at monetizing various services within their messaging apps.
With that said, it’s not hard to understand why Facebook has felt little pressure to monetize WhatsApp. Even with WhatsApp and its 1.6 billion-plus monthly active users (MAUs) producing little revenue for now, Facebook has posted 25%-plus annual sales growth over its last three reported quarters, thanks to massive Instagram ad growth and continued growth for Facebook’s core news feed ad business. And along the way, Facebook’s stock has soared to new highs, delivering a rally that has made the words “Cambridge Analytica” feel like nothing but a bad memory.
But just because Facebook can get away with not significantly monetizing WhatsApp over the near-to-intermediate term doesn’t necessarily make it a good business move. At least not at a point in time when WhatsApp is more than a decade old and claims more than a fifth of the world’s population as monthly users.