Facebook (NASDAQ: FB ) users on iOS and Android devices who wish to message their friends must now download the company's Messenger application. Naturally, this has created a lot of controversy and unhappy users: The app has a rating of just one star on the Apple App Store since Facebook required the download. While the company claims the move is intended to improve the user experience with more features, five specific big-picture reasons appear more important to the social media giant.
Users are too slow to respond
Up to this point, many users have had no reason to download the Messenger application. After all, why download Messenger when the Facebook application already enabled users to send messages to their friends?
However, with over 200 million of its 1.3 billion total users on Messenger, Facebook has noticed that consumers tend to respond to text messaging 20% faster than Facebook messages alone. That 20% faster response can mean a big difference to the number of total messages sent and received, which is key to keeping users engaged and to supporting the advertising dollars that Facebook relies on.
Moreover, on Facebook's latest conference call, CEO Mark Zuckerberg said users spend approximately 40 minutes per day on Facebook. The company believes it can boost that number above by driving users toward the messaging app. Essentially, Messenger keeps users engaged with Facebook as a platform longer.
To own the consumer's smartphone
Facebook's experience with its own smartphone may have been a disaster, but its applications are blockbusters. According to App Annie, Facebook owns the top four most downloaded applications on Android and iOS devices.
The company owns Messenger, Instagram, WhatsApp, and, of course, Facebook itself. That means Facebook has a tight lock on consumers' activity on the smartphone, a luxury it most certainly wants to keep.
More monetization options
There is another reason that having more popular applications is important: more monetization options.
For example, Facebook's core application accounted for 62% of the company's $2.68 billion in advertising revenue during its last quarter. This shows the company has figured out how to successfully monetize mobile.
WhatsApp and Instagram remain lightly monetized, with the former having no advertisements, while Messenger is not monetized at all. Yet given Facebook's prior success, combined with having four very popular applications, consumers and investors have to believe that much of the company's decision regarding Messenger involves the opportunity to create more revenue and income through the different apps.
The most important reason
The No. 1 reason that Facebook has implemented the messaging change is mobile payment processing.
Facebook's actions have pretty much confirmed that Messenger will be instrumental in its new payment processing business. Also note that the company recently hired former PayPal chief David Marcus to head its Messenger initiative. Its words are telling as well: Zuckerberg said on the recent conference call that payments will become a large piece of the platform's future, which complements news that the company is testing a "Buy" button.
Rumors of Facebook's mobile payments initiative began to stir after BlackBerry's (NASDAQ: BBRY ) CEO called it "the next big thing," and said that BlackBerry had already begun to strike deals with certain businesses for a per-transaction business model on its own messaging app, much like PayPal.
Given that eBay's (NASDAQ: EBAY ) PayPal generated nearly $1.75 billion in second-quarter revenue with only 152 million users, think about how lucrative Messenger could be for Facebook now that all mobile users are required to download and use the application.
While the details of how payments will work are sketchy, the pieces of the puzzle fit together nicely. Facebook already has an enormous platform for small and large businesses that advertise on the website. It seems natural that Facebook would allow advertisers to sell specific items, and that users will be able to buy via Messenger or on its platform. As a result, advertising on Facebook becomes more valuable, as businesses are not only gaining new likes, but also selling products.
Control U.S. and rest of world
When you look at the big picture, it's no surprise Facebook wants users on Messenger. Also, it partially explains the $16 billion it spent to buy WhatsApp.
Messenger users are primarily located in the U.S. Meanwhile, WhatsApp's 500 million-plus users are largely outside the U.S. with a strong presence in India, Mexico, and Europe, among other regions. This level of diversification between the two applications bodes well for Facebook's mobile payments initiative.
Facebook can create a platform in which currency can be exchanged seamlessly, connecting different countries. This rumor arose earlier this year when Facebook applied for a license to launch an electronic money service in Ireland. Hence, Facebook's plan with Messenger may not only support the purchase of goods in the U.S., but also the transmission of currency and the purchase of goods between countries.
The cool thing about Facebook, and why it has been so transcendent, is because its management seems to always be one step ahead of the consumer, knowing what the user wants in advance. The required Messenger download might be a hassle today, but chances are that Facebook has big plans for how users will experience it later down the road.
As of now, all signs point toward payments being the long-term catalyst behind the decision, but rest assured that Facebook has plans in the book that we're not even considering. It wouldn't be Facebook if it didn't.
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