WhatsApp is hard to monetize, and its advertising business faces obstacles again

The monetization of WhatsApp depends on its cooperation with Jio.

monetization of WhatsApp Editor’s note: This article comes from the WeChat public account “Zhixiang.com” (ID: passagegroup), author: Du Zhanyu, and 36 Krypton is published with authorization.

After more than a year of hard work, there is still no substantial progress in WhatsApp’s advertising business.

Originally, the company had high hopes for the advertising plan.

With Facebook as your backer, you don’t have to worry about not making money. It is expected to generate billions of dollars in annual revenue from advertising alone. Unfortunately, the advertising plan originally planned to be launched in 2020 encountered changes midway.

The company had planned to announce details at an internal sales event in Singapore last fall. However, after meeting with Zuckerberg, Will Cathcart, the new head of WhatsApp, poured cold water on employees and announced that the advertising plan was suspended.

WhatsApp Number

People familiar with the matter said that Zuckerberg pressed the pause button partly because he did not want to anger regulators. On the other hand, they also don’t want to anger WhatsApp users. WhatsApp users attach great importance to privacy, and they have always been worried about the binding of WhatsApp and Facebook accounts.

There has been a delay, but the plan to introduce ads for WhatsApp remains unchanged. Zuckerberg plans to integrate the company’s three major platforms – Facebook, WhatsApp and Instagram before moving forward with this plan. Although this major project of operational interoperability may take several years, through the integration of resources, WhatsApp will be more comfortable in advertising in the future.

Of course, Facebook’s suspension of WhatsApp’s advertising plan has somewhat disappointed investors. However, this also shows from another level that the unprecedented intensity of regulatory scrutiny has had a considerable impact on the business of the social media giant.

A series of privacy scandals in recent years have tarnished Facebook’s reputation among lawmakers and consumers. The U.S. Federal Trade Commission fined Facebook $5 billion last summer, and regulators have been paying attention to Facebook and constantly assessing its size. Some media reported that they are trying to block Zuckerberg’s operational interoperability plan. Prominent critics, including Facebook co-founder Chris Hughes and Senator Elizabeth Warren, have said the company should separate its two big projects, Instagram and WhatsApp.

Regulatory scrutiny is gradually increasing, and Facebook’s senior policy officer Nick Clegg warned executives that regulators are already highly vigilant about Facebook’s collection of WhatsApp user data and that they may target ads that involve both businesses. Plans are doubtful.

Once the integration is complete, WhatsApp’s advertising plans will regain interest from executives. They want Facebook to solve all regulatory troubles once and for all, rather than reacting passively again and again. Of course, Facebook leaders also hope that people will be merciful.

Today, the coronavirus pandemic has forced people around the world to shelter in their homes. Usage of Facebook services, especially WhatsApp, has surged. At the same time, corporate marketing budgets have been greatly reduced, advertising fees have dropped sharply, Facebook has lost the core advantage of social networks, and Instagram’s revenue has also been greatly reduced.

If Facebook’s cash flow continues to shrink, WhatsApp may face more revenue pressure in the coming months. Although WhatsApp has made some monetization attempts, such as allowing businesses to provide services to customers through text messages, their appeal has always been limited.

The farthest distance in the world

About six years ago, Facebook’s own messaging service was just getting started, and Zuckerberg wanted to see growth. Later, the company acquired WhatsApp, which had only 60 employees at the time. This wildly growing small company was firmly rooted outside the sphere of influence of the Facebook empire and won the trust of a large number of users. Although, initially people only regarded it as a replacement for the mobile operator’s SMS service.

“This is the only app we’ve ever seen that’s more used than Facebook,” Zuckerberg said when he announced the acquisition of WhatsApp in early 2014.

In the first three years after being acquired, WhatsApp unexpectedly sat on the bench. Fortunately, this has not affected the popularity of WhatsApp at all – its user base has expanded from 450 million in 2014 to 2 billion earlier this year. It is widely popular in Western Europe, India, and even the world. In contrast, Facebook itself The product Messenger has a very low presence no matter where it is.

Fundamentally, WhatsApp and Facebook have completely different temperaments.

Even their cooperation is full of contradictions.

The two co-founders of monetization of WhatsApp, Jan Koum and Brian Acton, are the kind of “upright people” who neither disdain advertising nor intend to collect user data. Facebook, on the other hand, is much smarter. Most of the company’s funds come from targeted advertising. Koum said that they grew up in a poor Ukrainian family during the Soviet era, so they naturally had lingering fears about government supervision.

In 2011, Koum tweeted his distaste for advertising. “Yes! Advertising gives us money to buy cars and clothes, so we have to work at jobs we hate and buy shit we don’t even need!”

Even after the acquisition, Koum and Acton worked hard to distance the company from the rest of Facebook. For example, keep WhatsApp in a separate office in Mountain View, California, a few miles from Facebook’s headquarters in Sherpa Park. Unlike Instagram, another important application acquired by Facebook, WhatsApp is considered a subsidiary of Facebook and retains a certain degree of independence. This means that when employees are hired or transferred from other parts of Facebook, specific documents must be signed by WhatsApp.

In early 2017, monetization of WhatsApp launched the Status function, which laid a good foundation for the introduction of advertising in the future. The feature allows users to post photos and videos, but these photos and videos are only available for 24 hours. In the integration plan, Facebook plans to add ads to user-generated photos and videos through Status. This delivery method is expected to appeal to marketers who plan to infer users’ preferences based on their Facebook content and tailor their ads to them. As of 2018, WhatsApp’s Status feature had 450 million users, while Instagram’s Stories had 400 million users.

When it comes to advertising in WhatsApp, privacy policy is a key hurdle.

Initially, the WhatsApp privacy policy details how the data collected will be used. Although users tend to skip this content, regulators cannot miss it. When Facebook acquired WhatsApp, it had agreed that if it wanted to change the way WhatsApp uses user data, it must first obtain user consent.

However, it didn’t take long for Facebook to break WhatsApp. In 2016, WhatsApp began sharing user report emails and other data with Facebook. The move angered European regulators, who fined Facebook 110 million euros because the company promised not to unblock the app when it acquired WhatsApp. In order to deal with regulators, the phone numbers of European WhatsApp users have not been used in subsequent advertising on Facebook’s other services.

This penalty has a smaller impact on Facebook, but it is significant. This foreshadows regulators’ concerns about the growing market power of big tech companies.

Tensions rise

At the urging of Zuckerberg and Facebook’s No. 2 Sandberg, WhatsApp began preparing for an advertising business in the summer of 2018.

The two co-founders of WhatsApp had a fierce conflict with Zuckerberg and Sandberg over the advertising plan, and subsequently resigned. Koum left shortly after the plan was announced, and Acton left early the year before, during the planning stage of the plan, without even asking for stock awards.

By early 2019, WhatsApp employees had developed a complete business plan. The plan predicts the advertising business will bring in billions of dollars in revenue within a few years, according to sources. In May 2019, at a meeting of Facebook marketers in Europe, WhatsApp showed its own ad simulation to attendees.

WhatsApp messages are encrypted and basically no user data is collected. But due to policy changes in 2016, Facebook obtained the phone number data of WhatsApp users. Not only that, the company also plans to match WhatsApp users’ numbers with their personal Facebook profiles, insiders said, if a WhatsApp user’s number is successfully matched with its corresponding Facebook profile. Facebook will use what it knows about user behavior and interests to personalize the ads users see on WhatsApp.

Of course, if the WhatsApp user does not complete the Facebook profile of the same number, or opts out of Facebook’s targeting, then the user will only see ordinary ads.

Throughout 2019, Facebook and WhatsApp teams have been debating whether to update the apps’ privacy policies. Facebook executives worry that WhatsApp users will delete their Facebook accounts once they realize there is a connection between the two.

Clegg, Facebook’s head of global communications and public policy, said at one point that he was unable to sell an ad integration plan to regulators, as the company faced growing pressure. Last year, the Federal Trade Commission, the Justice Department, congressional lawmakers and a coalition of state attorneys general all announced antitrust investigations into Facebook.

When asked about WhatsApp’s decision to stop advertising plans, WhatsApp co-founder Acton said in an email that he left because of this incident at the time. Who knew that Facebook would abandon it now.

Acton is now executive chairman of the nonprofit Signal and runs an encrypted messaging app of the same name.

limited income

Developing a revenue strategy for WhatsApp has become more urgent in recent years as growth in ad revenue from Facebook’s cash cow News Feed has slowed. Executives have considered several ideas for making money from the messaging service, including putting games into apps and charging businesses, which may seem like a lot of ideas, but most are too small to take off.

Another potential source of revenue is WhatsApp payments. Although the feature has not yet been officially launched, it has faced opposition from regulators in India, WhatsApp’s largest market. WhatsApp does not collect commissions from transactions between users, but only subsidizes the costs of participating banks.

WhatsApp’s main source of revenue remains short messages, allowing businesses to provide services to customers through short messages. This feature is free for small businesses. For larger businesses, you’ll be charged a few cents per message sent to a customer. WhatsApp does not disclose revenue, but a person familiar with the matter said it made less than $1 million a month last year.

Since the onset of the coronavirus pandemic, WhatsApp has been providing some free services to governments and non-profit organizations such as the World Health Organization, which send text messages to people to help them understand information about the virus.

In an interview with The Information last month, WhatsApp’s Cathcart said free messaging given to governments and health organizations accounted for a “double-digit percentage” of business messaging usage.

Earlier this week, Facebook revealed another WhatsApp monetization plan. It has invested $5.7 billion in Jio Platforms, an Indian company with a market value of $66 billion. Zuckerberg is eyeing the potential of its telecom unit Reliance Jio. Facebook It will work with Jio to let Indians use WhatsApp to find and buy goods from local sellers.

Talking about WhatsApp’s advertising plans, a Facebook spokesperson said in a statement, “Advertising in Status remains a long-term opportunity for WhatsApp and we believe it will be a good way to build advertising business in the future.”

Regulators are watching

In early 2019, Zuckerberg put the Messenger team in charge of implementing an integration plan that, if successfully completed, would allow users to interact across platforms. Engineers assessed at the time that the project would take at least two years to complete. The project is still in its early stages, with engineers simplifying the platform’s code before interconnecting the platforms. Insiders say integrating WhatsApp may be more difficult than Facebook and Instagram because WhatsApp’s encryption technology is so complex.

While monetization of WhatsApp executives say connecting its apps will improve the user experience, opponents say it could give regulators a stronger foothold in building antitrust cases.

Former advertising executive Dina Srinivasan has turned into an antitrust scholar and wrote a paper titled “The Antitrust Case Against Facebook.” He believes that such integration is Facebook’s proof that it cannot be divided. They have been trying to combine their various platforms together in some way.

Last year, monetization of WhatsAppZuckerberg decided to put the words “from Facebook” under the logos of Instagram and WhatsApp. People thought this was Facebook’s way of improving its brand reputation.

According to people familiar with the matter, Facebook is currently developing a unified privacy policy. By then, the company will connect all applications and users will be able to send messages between these applications.

As monetization of WhatsApp strives to open up its applications, authorities are also beginning to scrutinize the company’s dominant market position. The Justice Department has been interviewing Facebook’s competitors to get their views on Facebook. Although government officials have struggled to adapt to remote work, even if the progress is slow, they will not give up on regulating the technology giant.

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