WhatsApp is betting that businesses will pay to connect with consumers.
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| A 3D printed Whatsapp logo is seen in front of a displayed Facebook logo in this illustration taken April 28, 2016. Photo: REUTERS/Dado Ruvic/Illustration |
By Evan Niu, Motley Fool
It's now been over a year since Facebook (NASDAQ:FB) subsidiary WhatsApp started hiring for a "product manager for monetization," which came a few months before the popular messaging service officially launched WhatsApp Business. The social networking titan has been working on a new monetization model for WhatsApp for several years, after eliminating the paltry $1-per-year subscription fee in 2016 shortly after acquiring the start-up.
Instead, Facebook wants to monetize WhatsApp (and Messenger) by helping businesses connect directly with consumers, and it just made a big move in that direction.
Charging businesses to connect with you
[post_ads]Facebook and WhatsApp today announced the launch of the WhatsApp Business API, which companies can use to manage their conversations with customers at scale. The WhatsApp Business app on Android now has over 3 million users, according to a Facebook blog post.Using the new suite of tools, businesses can exchange or provide information to customers, make it easier for customers to initiate conversations by integrating a click-to-chat button, and offer real-time support. Users will be able to easily block any business that might be sending too many unsolicited messages.
Business customers will foot the bill, paying anywhere from 0.5 cents to 9 cents per message sent, depending on the geographical market. The great irony there is that WhatsApp's popularity was largely propelled by being incredibly affordable, making the service a very compelling alternative to traditional SMS text messaging in emerging markets, yet now the company's messaging rates will be significantly more expensive than SMS rates, which are usually less than 1 cent per SMS message. Of course, the big difference is that only business customers will have to pay, while the service remains free for users.
WhatsApp argues that charging businesses per message may help ensure that the messages "are selective and your chats don't get cluttered."
Pressure to monetize
[post_ads_2]The news comes at a tumultuous point in time for WhatsApp, which has seen co-founders Brian Acton and Jan Koum leave Facebook within the past year amid disagreements over data practices.
Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg also reportedly pressured Acton and Koum to "move faster" because Zuck and Sandberg "grew impatient for a greater return" on the blockbuster $22 billion acquisition. It's possible that Facebook is worried about recognizing a goodwill impairment charge, should WhatsApp fail to live up to the lofty financial expectations that inevitably get priced in when you pay roughly 1,000 times sales for a start-up.
As revenue growth slows and costs rise on Facebook's core platform, pinching profitability in the process, the company is increasingly turning to its other properties in an effort to satisfy investors' growth appetites.
Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.
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