What is happening with messaging apps is a big deal. In fact it is probably the biggest thing that is happening that is underestimated and has implications on many. Facebook just announced that they have acquired WhatsApp for what is looking like $19 billion dollars. To put that into perspective that is more than Google paid for Motorola and Nest combined.
On the shareholder call Mark Zuckerberg pointed out that he believes WhatsApp is on a path to a billion users. All mobile users mind you. Facebook has over a billion users with the vast majority of them being mobile only or primarily. So why this deal? Well Facebook realizes that WhatsApp is their path to the next billion users.
There was a time when Facebook was the driving reason for people to get their first smartphone. WhatsApp as well was a part of that conversation but now in many emerging markets everyone talks more about WhatsApp, WeChat or Line than they do about Facebook. That is why this is a big deal and central to Facebook’s growth story. What many fail to realize is that while we are adding approximately 300-500m new smartphone users annually, Facebook itself has seen slowing growth. While WhatsApp continues to see tens of new customers adding to their platform every month. Facebook buying WhatsApp is their way of getting a piece of the next billion smartphone users in ways the Facebook platform may not have. The number may seem steep but Facebook had to act and could not risk being left out of the next billion users.
Only what gets glossed over is that these platforms are much more than messaging. Right now WhatsApp is a messaging platform plain and simple. However to get a sense of where this is going we need only to look at WeChat and LINE. Both have messaging as a component but that is just the entry point. In the case of WhatsApp, users can shop, bank, message, flirt, hail a cab and a whole lot more. WeChat is more than a messaging app, it is a platform. Similarly, LINE has messaging as a component. But it also has games, sponsored media, sponsored sticker packs, commerce and is growing the capabilities of its platform quickly. These two companies highlight the power of the mobile platform and the para-platforms which can be created on top of them.
The messaging apps are at the center of the real time communications and more importantly at the center of the primary engagement on mobile devices. Platforms like LINE and WeChat, as well as WhatsApp to a degree, are adding features and services to their platform that increases the engagement of their users within their app. What Facebook has come to grips with is that the future engagement models are not the current Facebook model but rather something different.
What is still missing for Facebook + WhatsApp to become what I believe these apps ultimately are, fully enclosed walled garden platforms, is a mobile payment system. I’m keeping my eye on this space and will write more detailed analysis on it when I am comfortable with the research.
All of this, however, should be very concerning to Google. If you read what I wrote last week about AOSP and you couple it with these messaging app para-platforms you have the foundations for a bear case for Google. Time spent using other people’s services, and other people’s apps, is time not spent doing the things that make Google money. Specifically searching the web and viewing their advertisements. Google can not afford to sit still and idly watch watch is happening and be left out of what is now the primary engagement model. Search was the primary engagement model for the desktop web. Mobile messaging is the primary engagement model for mobile devices. Google must adapt.
For further reading on messaging apps, I strongly suggest these posts. One from me and two from my colleagues. Coincidentally all are named Ben.
Messaging Mobile’s Killer App: Ben Thompson of Stratechery
Interaction, canvases, and ecosystems: by Benedict Evans
Trojan Horse Messaging: by Ben Bajarin
I’ve heard that WhatsApp values privacy and Facebook respects that. I wonder if the other messaging services are the same in that they have a monetization scheme other than ads. If so, what would be the implications for ad driven services? Will there be a conflict of business models that might cause Google to hesitate?
Where does that leave Apple? Sounds like this would’ve been a great acquisition for them as well. Imagine integrating WhatsApp with iMessage while simultaneously leaving it cross platform.
That’s a great point about the potential capabilities of messaging platforms. It provides a new and mostly unnoticed pespective on the acquisition.
I have understood that From Mark Zuckerberg’s perspective it was a smart move to move into this area in order to prevent the core business from being disrupted. However, what I am not clear about is, can Facebook provide added value to WhatsApp and can it help them accelerate their growth?
In other words, does Facebook pursue strategic acquisitions based on synergies or do they act like a growth capital fund or like an industry holding company that just compensates one eroding business with a new business? I guess the answer is the former, as they have done so with Instagram and as their bigger size is more attractive for developers, advertisers etc. However it will be interesting to see and it raises some questions for the valuation of Facebook.
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