Facebook’s $28 billion bargain
Afunny thing happened last week. After months of saying very little, and refusing to attend a United Kingdom parliamentary hearing, something changed – all of a sudden, Mark Zuckerberg was very keen to share his thoughts.
And he did so via a lengthy blog post, where he told the world that Facebook was changing. The social network was pivoting, giving more power and privacy back to the users.
While Facebook proper will continue to make money from selling your data to advertisers, end-to-end encryption is central to its plan for its messenger services, which include Facebook Messenger, Instagram Messenger and WhatsApp.
Zuckerberg said: ``As I think about the future of the internet, I believe a privacy-focused communications platform will become even more important than today’s open platforms.’’
He’s not wrong. And it left me, and plenty of others, questioning what was going on. Facebook paid US$19 billion (NZ$28 billion) for WhatsApp back in February 2014. Selling the personal data mined from your messages, a` la Gmail, seemed the obvious next step.
Fast-forward to April 2016 and WhatsApp added end-to-end encryption to all its messages by default. Which, as you know, means messages sent via the platform were protected from prying eyes of hackers, governments and even Facebook itself.
Which makes very little business sense for a company that makes its money from selling user data to advertisers.
To understand how Facebook can make money from a messaging platform that it’s deliberately locked itself out of, you need to look towards China.
The equivalent service there, WeChat, has a monthly user base of more than 1 billion. And while WeChat started off as a messenger app, it’s now evolved into something much bigger.
And I mean much bigger. WeChat now supports the following features: traditional messaging, group messaging, a Snapchat-style feature called Moments, WeChat Pay, a service called City Services (paying for toll roads, booking doctor’s appointments, managing utilities, etc), newsfeeds, and a bizarre Heat Map mode that lets you see crowd density in any given area.
If Facebook is looking to make a return on investment from Whatsapp – and it clearly does – then WeChat provides a pretty clear blueprint.
The issue Facebook has is that in the West there is no similar one-size-fits-all app.
Let’s take mobile payments as an example, as that’s clearly the biggest prize here.
Outside China, users can choose from Apple Pay or Google Pay. But these services are not really suitable for much else, such as quickly transferring money to contacts. WhatsApp Pay offers an obvious solution to that problem.
But there is a bigger prize here. Facebook has been toying with monetising Messenger-led commerce for a while now via chatbots.
Domino’s Pizza already lets customers order a pizza via a Facebook Messenger chatbot. And you can bet Facebook will be taking a slice of your checkout total.
Facebook will want to grow this side of the business until it becomes second nature for its users to open WhatsApp and Messenger (the two services are set to merge soon) and place orders either verbally or by typing.
When you look at how much Airbnb (3 per cent) and Uber (25 per cent) charge, you start to understand how big the prize is for Facebook.
All of a sudden, the US$19b Facebook paid for WhatsApp doesn’t seem like such a big price.