This week Facebook was denounced by the American Federal Trade Commission (FTC), the federal agency that deals with antitrust among other things, and by the New York prosecutor’s office for anti-competitive practices. The two lawsuits, which have bipartisan support (the FTC is dependent on the Republican-controlled federal government, the New York attorney is Democratic, and her case is supported by the prosecutors of 45 other states) aim among other things unbundling its two most important subsidiaries, namely Instagram and WhatsApp, from the main company. According to the surveys, in fact, when Facebook bought the two companies, respectively in 2012 and 2014, it would have done so with the intent of crushing the competition, effectively creating a monopoly on some important sectors of the digital economy.
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The reason Instagram is important to Facebook is pretty easy to understand: it’s one of the most popular social networks in the world, with a very successful business model that allows the company to sell tens of billions of dollars of advertising annually. With WhatsApp it is a bit more difficult, because the business model, that is the way Facebook can make money with WhatsApp, is much less clear, indeed: for now it does not exist.
Despite being a huge success in terms of diffusion, with over two billion active users worldwide, WhatsApp is not and has never been a great success in economic terms: in the last six years, Facebook’s revenue attributable to WhatsApp has been extremely small, and the company is still struggling to find a way to increase them. As is known, with all the other products – Facebook, Instagram, Messenger – Facebook earns thanks to the sale of targeted advertising, that is, tailor-made for each user thanks to the use of his personal data.
But it is difficult to make money with WhatsApp using advertising, for two reasons. First of all because it is difficult to insert: doing it inside the chats would ruin the user experience, and the other spaces are not very adequate. Secondly, because even if a way were found to insert advertising, it would be impossible to target it: between 2014 and 2016, WhatsApp protected all user chats with end-to-end encryption, that is, with a security system that makes it impossible for anyone, even Facebook, to read the content of conversations. This means that Facebook manages to obtain very little data on WhatsApp users, and that therefore targeted advertising would be much less effective.
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These problems have been known from the very beginning of the company. WhatsApp was founded in 2009 by Brian Acton and Jan Koum and for years the only possible business model was simply asking users for money: in the beginning, in some countries WhatsApp was paid (it cost one euro or one dollar); in others, such as Italy, you had to pay a subscription of one euro per year. WhatsApp, however, has become completely free in January 2016, among other things to allow users in less developed countries, who often do not have a credit card, to use it.
After Facebook bought WhatsApp for about $ 16 billion in 2014, the company’s management tried in many ways to put advertising in WhatsApp, also creating significant internal clashes: both Acton and Koum, in fact, after the acquisition. they joined Facebook and continued to manage WhatsApp, but soon came into conflict with the company’s management and with Mark Zuckerberg, the co-founder and CEO of Facebook. Second the American media, one of the main reasons was Zuckerberg’s willingness to put advertising in WhatsApp: Acton and Koum were against it, also because this would have meant reducing the security of the encryption. In 2018, both Acton and Koum left Facebook, and Acton especially took very critical positions towards the company: he made a $ 50 million investment in Signal, a rival chat app, and after the scandal Cambridge Analytica wrote on Twitter that it was time to delete Facebook.
It is time. #deletefacebook
— Brian Acton (@brianacton) March 20, 2018
In the end, like he wrote Bloomberg, after many unsuccessful attempts, the management of Facebook also gave up last year the idea of putting advertising on WhatsApp.
Facebook’s second plan for WhatsApp, which has been in motion for a few years, is to transform the app into a communication and sales tool for companies and consumers. This plan is a bit iffy, yet. Facebook has made several attempts in various parts of the world, some successful and others less so. In 2018 in some countries (not in Italy) it introduced WhatsApp Business, an app created to allow small businesses, for example shops and restaurants, to chat with their customers. The app gives retailers the ability to create a catalog of their products, so customers can browse and place orders. As of July this year, 50 million small businesses were using WhatsApp Business, according to the company.
According to Facebook’s projects, for small shops WhatsApp could completely replace websites and sales services, while at the same time serving as a catalog, e-commerce (back to us) and customer service. A few days ago, Facebook also bought Kustomer, a startup that sells digital customer service services to companies, for a billion dollars (the price is estimated). should help WhatsApp to start doing business even with larger companies: the idea is that any customer who needs assistance, instead of looking for phone numbers on the company’s website, will already find everything on WhatsApp. Companies would obviously pay to be present on WhatsApp (some already do, in countries where it is possible) but would have the advantage of being much more accessible.
Furthermore, Facebook hopes to be able to activate payments and exchanges of money on WhatsApp, to allow consumers to buy products and services directly through the app. This part is more complicated, because the financial services sector is tightly regulated and difficult to penetrate. For example, in June this year, WhatsApp has activated a payment function for users in Brazil, having also tested it in other countries such as Mexico and India, but within a few weeks the authorities of the country they suspended it considering it a threat to competition and to the stability of the financial system. The difficulties of WhatsApp, and Facebook in general, in the payments sector can also be seen with Libra, the digital currency announced by Facebook two years ago as a great novelty in world finance, which however is having one problem after another.
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To European users the idea of shopping on WhatsApp may seem unusual, but in many countries such as India the app is exceptionally used, and some companies are already testing customer sales services. The example followed by Facebook is that of WeChat, a Chinese app that was born for messaging but over the years has integrated an enormous amount of services, becoming a central element of daily life in China.
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