The messaging service makes practically no money now, but Mark Zuckerberg has plans to change that.
On the final day of November, Facebook Inc. announced it had bought a customer service software startup most people had never heard of, in a deal valuing the company at more than $1 billion. Although it was the third-largest acquisition in Facebook’s history, slightly more than it paid for Instagram in 2012, the deal drew very little notice. In Washington, where regulators are actively pursuing antitrust lawsuits against Facebook and politicians condemn almost every move the company makes, the purchase of Kustomer Inc. was met with crickets.
But if the deal’s significance isn’t clear now, it could be soon. Acquiring Kustomer is the latest in a series of expensive bets related to Facebook’s $19 billion purchase of WhatsApp in 2014. Earlier this year it invested in Jio Platforms, an Indian internet giant that WhatsApp plans to partner with on commerce. While not an acquisition, the $5.7 billion Jio investment was Facebook’s second-largest financial deal ever. Taken together, the moves add up to an investment in private messaging of about $26 billion.
Facebook has been under the microscope for its impact on U.S. politics and its outsize role in the economy. On Dec. 9, state and federal officials filed sweeping antitrust lawsuits against Facebook, saying it has acquired smaller companies to head off competitive threats, and seeking to unwind some of those purchases. One of the deals mentioned was Facebook's purchase of WhatsApp—the world’s largest messaging service, with more than 2 billion monthly users. While the app makes relatively little money now, Facebook sees private messaging as the foundation for its next big business, presenting it with one of its biggest challenges, even if the antitrust scrutiny doesn’t complicate matters.
WhatsApp doesn’t loom especially large in Facebook’s home market, but it’s huge almost everywhere else—especially in India, where it says it has more than 400 million unique users a month. Chief Executive Officer Mark Zuckerberg sees potential to transform that user base into a profit center by enticing retailers to sell goods and services inside WhatsApp, or use the app to handle customer service issues that might otherwise require an email or phone call.
For Facebook, a company that makes 99% of its revenue from advertising, WhatsApp presents a chance to diversify its business and protect itself from erosion in enthusiasm for its core social networking apps. Eventually, Facebook believes, it can control the entire exchange between a brand and its customer, starting with an ad on Facebook or Instagram and leading to an interaction or product sale on WhatsApp or Messenger. “Instagram and Facebook are the storefront,” says WhatsApp Chief Operating Officer Matt Idema. “WhatsApp is the cash register.”
Early in 2019, Zuckerberg wrote a 3,200-word blog postoutlining a strategy to make all of Facebook’s other products look more like WhatsApp. “I believe the future of communication will increasingly shift to private, encrypted services,” he wrote at the time. “This is the future I hope we will help bring about.”
Zuckerberg also plans to bring WhatsApp’s level of encryption to Instagram and Messenger, a part of his strategy to address concerns about Facebook’s previous privacy violations. A shift from social media to private messaging would allow Facebook to trade some of its thorniest problems for new ones. If the company eventually makes a significant amount of revenue from service fees related to e-commerce, it won’t rely so much on gathering personal data. If users are communicating privately via encrypted channels, it also reduces the burden on Facebook to moderate content, since it won’t even see what people are talking about. But encrypted messaging comes with its own set of controversies, since it makes it more complicated to police its service for criminal or other problematic activities.
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